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Helpful Accounting and Bookkeeping Tips for Small Business

Here are a few Accounting & Bookkeeping tips to improve the accuracy or your records and data and the appearance and structure of your financial statements.

Method to Address Vendor Purchase Returns

  1. If the return was made for cash:  create an asset (Bank) clearing account, I use Cash on Hand. If the return was made for credit, assuming the credit card account is already “connected” to the business, no additional account is needed.
  2. Debit Cash on Hand or the account you created and credit the original expense account for the vendor purchase using a Journal Entry. Alternatively, Debit the credit card that was used and the original expense for a return against a credit card purchase.

Issues with Undeposited Funds (Determining which Transactions were not Matched to a Bank Deposit)

  1. Pull up the Balance Sheet for the desired period and locate the Undeposited Funds Account.
  2. Click on the balance of the Undeposited Funds balance. This will create a list of transactions involving Undeposited Funds for the period. QuickBooks actions “Receive Payment” and “Bank Deposit” both impact Undeposited Funds. Make sure the field called Reconciliation Status is selected under the gear icon just above the list.
  3. Export the QBO list of transaction to an excel spreadsheet.
  4. Apply a filter to the spreadsheet and locate the column labeled Reconciliation Status and deselect or unselect the box labeled Deposited.
  5. The transactions listed represent money that was received but unmatched to a bank deposit amount.

More (Helpful) Tips – Clean Up the Equity Section of Your Balance Sheet

  1. For all Pass-Through Entities (Schedule C, Partnerships and S-Corporations), Retained Earnings should NOT be part of the Equity section of the Balance Sheet. Reason:  Pass-Through Entities do not retain earnings, C-Corporations do.
  2. Create an equity account and label it something like “Accumulated Prior Period Balance,” for each member, partner, or shareholder. 
  3. Create (two) separate equity accounts and label them “Current Period Contributions/Investments and Current Period Distributions/Pay,” again for each member, partner, or shareholder.
  4. Journalize each member or partner’s respective contribution/investment and distribution/pay to these newly created Prior Period accounts for each member, partner, or SH for prior period equity balances. 
  5. Capture each member, partner’s, or SH’s share of Retained Earnings to the Prior Period account as of the day following the calendar/fiscal period end. QuickBooks automatically moves the Net Income figure to Retained Earnings one day following the calendar/fiscal period end date.
  6. You capture current period Contributions/Investments and Distributions/Pay in the respective Current Period accounts for each member, partner or SH.
  7. Now the company or partnership can track current period contributions/investments and distributions/pay separate and distinct from the prior period. The accumulated Prior Period balance account equity figures for each member or partner, SH contains the prior period balance and (ultimately) the current (earnings) activity at period end. I think that’s slick.

A short mention concerning Undeposited Funds. A balance in Undeposited Funds more than likely represents a distribution to the owner(s) or partner(s). I had a client that had in excess of $60,000 in their Undeposited Funds Account that had grown (accumulated) substantially over several years. If your client is depositing less than the amounts they’re receiving, it’s more than likely a distribution. Having strong internal controls, to ensure that the amounts received match the (physical) deposits made (at the bank or credit union) can reduce the temptation, finger pointing or grief, particularly in partnerships or multi-member organizations.

Further to my point regarding financial statements, concise and well structured statements can be just as important as accuracy and reliability! Presentation means a lot. When you’re marketing your company or partnership to a lender, creditor, or potential equity investor, unorganized, or poorly structured statements can spell the difference between getting credit or getting denied or receiving/not receiving a cash infusion from a would-be partner or shareholder. Your organization’s data and presentation of that data is a reflection on you, as owners, partners or shareholders. Make it count, by making it clean and neat.

Comments? Disagreements? Please leave in the Comment Section below this article or write to me at mike@easllc.co. You can also Contact Us Here.

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