For the vast majority of small business owners, the end of the calendar year marked the end of the fiscal year. But your fiscal year doesn’t feel like it’s completely over until—you guessed it—your taxes are filed and paid. So since we’re in the thick of tax time, we thought we’d share the three most important things you can do (primarily with your online accounting software) to officially end the year right.
Important Thing #1: Account Reconciliation
Account reconciliation might sound a bit scary but it’s really not. All it is is the process of confirming that what happened in a bank account is accurately reflected in your accounting software. Here’s how you do it:
- Confirm that your starting balance is the same in both your accounting system and your bank. (If it isn’t and you have already submitted last year’s tax, you may need to do an adjusting entry to have the correct start point.)
- Next, perform a reconciliation starting with the oldest month first. Make sure that when you generate the report that the balance is the same in the Bank as it is in the Account. You will want to do this for all your bank accounts as well as your credit cards. Learn more about how to perform a bank reconciliation.
- Reconcile your Accounts Receivable and your Accounts Payable. The balance in these accounts should match the balance on the AR/AP reports. The most common mistake here is that business owners will do a transfer/adjustment into or out of the Accounts Receivable and the Accounts Payable accounts, resulting in improper account reconciliation. If you have a discrepancy, the first thing to do is check for any transfers/adjustments and change those so that the outstanding invoices are being paid off rather than just changing the amount in the account. (Jump on live chat right now if you need help with this.)
Now that all of your major accounts are reconciled, you’re on the right path towards making sure that all of your income and expenses are properly entered. (If you are missing any of your expenses you are potentially going to pay too much in income tax so it is worth the time to get these logged!) Which brings us to…
Important Thing #2: Remitting Sales Tax
If you have taxes set up in your online accounting software, the correct taxes are being applied to your income and expense transactions. And depending on when you file (i.e., quarterly, annually, etc.), you will need to pull your reports to support your filings and make sure that you have paid the remittance agency the correct amount. Here are the reports that make remitting sales tax super easy…
- Reports to support your remittance, pull the reports before you create the transaction in Kashoo, I recommend to start a new folder for all the digital copies you save and make sure to name them so they make sense in the future:
- Profit and Loss – These are the supporting documents. When you remit taxes they ask you for your total sales. Choose the same period as your remitting period and export it as a PDF so that you have a copy to support your remittance.
- Balance Sheet – The balance sheet shows you the amounts that were in the tax accounts before you filed the remittance. This is a handy supporting documentation to have if you ever get audited. As you did with the P&L, choose the last day of the remitting period and export a PDF copy.
- Transactions – It may sound like overkill, but generating a report of all of your business’ income, expense and even tax account transactions for a given time period is the ultimate history—which is good to have should an audit ever come your way.
Pro Tip: With all the PDFs of reports you’ve pulled to back up your remittances, it’s best to save them to a cloud-based document management system like Box or Dropbox or Google Drive. That way you can always access them from anywhere.
Important Thing #3: Access and Reports
There are two great things worth noting when it comes to online accounting, access and reports. First, online accounting gives you the ability to share with the people you need to share with, like your accountant. Second, as we’ve discussed, online accounting allows you to pull the reports you need to make an accurate tax filing, specifically, your profit and loss statement (which shows your your income and expenses for a given period of time) and your balance sheet (which is more like a snapshot of your business financial position at a specific moment in time).
No matter when your year-end is, these three steps will put you on the path towards an organized, accurate tax filing. And think about it: when your books are up to date, your tax liability could be lower and your accountant won’t need to spend as much billable time on your tax prep. Money in the bank…
Have questions? We’re here to help. Click on the little chat window below or shoot us an email.