How To Do Your Own Accounting. Your simple to use Accounting Checklist for Self-Employed and Small B
Being your own boss is great, but with freedom also comes responsibility. Business finances, ledgers, tallies, invoices… the more successful you are the more things you need to keep track of. What if you didn’t have to struggle with and spend so much time on your bookkeeping?
What if there was a simple system you could use to always be on top of your finances?
Well, in the next few minutes I will show you how keeping track of your small business finances does not have to be a struggle. You can do all of this quickly and easily from the comfort of your home, on your phone or at your desk, and make your life and that of your accountant way easier.
The key is getting comfortable with three little things in your initial financial reports: the balance sheet, income statement, and cash flow statement.
To help you with that, I’ve compiled a checklist that you can start using today to better understand your business and its financial state, and to help you with your tax prep and general accounting. Here you go:
Monthly Accounting Tasks
☐ Balance Your Business Checkbook - Reconciling your bank accounts makes it easier to discover and correct any errors, either by you or by the bank, in time to address and fix them.
☐ Past-Due Receivables - Displaying an “aging” column to show your “outstanding invoices” is a great way of pinpointing overdue bills. You will get a quick view of outstanding customer payments with the number of days a bill is past due.
The beginning of the month is an excellent time to send out overdue statements to clients who owe you money. And, for an added benefit, at the end of the year you can review this account again to determine what receivables you will need to write off for a tax deduction.
☐ Review Profit and Loss vs. Prior Years - Compare your year-to-date P&L with the same prior-period year-to-date P&L. The comparison will help you identify any differences and make adjustments if needed.
☐ Review the Month-End Balance Sheet - By comparing your balance sheet to one from an earlier date (e.g. May 31st to March 31st), you get a picture of changes in your assets or liabilities. The key is to look for what is up or down and understand why. Ask yourself for example, if your accounts receivable are up, is it due to having more sales or because of slower payments from customers?
☐ Review Payroll and Approve Tax Payments - As an employer, you have a schedule to pay your employees (even if your only employee is yourself), and you need to meet payroll tax requirements. Based on federal, state, and local laws, you have to withhold, report, and deposit the applicable tax (FICA, FUTA, SUTA) to the IRS and the State on the required dates.
To save time and ensure accuracy at a reasonable cost, you should get a payroll service provider. If you prefer not to use a payroll service, you can use the advice of a certified accountant. A CPA can help you figure out what you need to withhold from each paycheck, what needs to be filed when, and many little things you might otherwise overlook.
Quarterly Accounting Tasks
☐ Quarterly Profit & Loss - It’s time to review how much money you are making. Are your net assets going up or down? What caused those changes? End of the Quarter is also the perfect time for identifying trouble spots and making adjustments to improve sales and margins.
☐ Quarterly Payroll Reports and Payments - The IRS and most states require quarterly payroll reports and any remaining quarterly payments. This is a great time to go over your previous monthly reviews and observe changes. And good news! Most of the work you’ve done already with the monthly tasks.
☐ Compute Estimated Income Tax and Make Payment - The IRS and your state require quarterly estimated income taxes. Review your year-to-date P&L to see if any estimated taxes are due for that quarter.
☐ Sales Tax Review and Quarterly Payments - If you operate in a state that requires sales tax, you’ll have to do some extra work to make sure you comply with the local law. Errors with sales tax can bring severe penalties, but there is also room for exemptions and improvements.
Try to be thorough with this step. If you’re unsure about what your obligations are or what you could be doing wrong, we can help you figure everything out and put your mind at ease.
Annual Accounting Tasks
☐ Review Past-Due Receivables - Now it’s time to check past due receivables. You need to decide whether you think customers will eventually pay or whether to write them off for a tax deduction.
☐ Review Your Inventory and Deductible Expenses - Every year you should go over your expenses and see what you can write-off or write-down. Any write-down of inventory or equipment translates to a deduction on your year-end taxes. If you do not write down unsellable inventory or obsolete equipment, and account for your deductible expenses… You’re paying taxes you do not owe.
☐ Fill Out Forms W-2 and 1099-MISC - January 31st is the deadline when you have to report the annual earnings of your W-2 employees and most independent contractors (who earned at least than $600) with Forms 1099. This deadline includes mailing copies of these tax forms to the people who worked for you.
☐ Prepare to file your Tax Returns - At tax time, carefully review your company’s year-end financials. You should figure out your Retained Earnings, Net Income, and distributions. Go over every statement and invoice head to toe to make sure everything is in order, then draw the line.
And that’s it! By navigating these simple steps you’ll successfully complete your business accounting. It doesn’t seem so daunting when you can break things up into small recurring tasks, does it? And you get the benefit of always being one step ahead of your responsibilities.
Sadly, there isn’t much you can do to avoid the steps in this checklist. But if you find any of them boring, too complex, or simply an unsuitable use of your time, there is no better solution than working with an accountancy firm. You can get payroll services, consulting, or specialized solutions for just the things you need.
We specialize in accounting and tax services for entrepreneurs and digital nomads so if you have any questions, you’re more than welcome to reach out.
If you found this checklist helpful, you should definitely tell other people about it. How many people do you know whose lives would be made easier by such a neat list?