MS BOOKKEEPING SERVICES
Bookkeeping Help Blog
Bookkeeping Help Blog
|Posted on November 30, 2022 at 4:25 PM||comments (2)|
Every business should have an accounting method to track its finances. Accounting methods are used when reporting both revenues and expenses, and it is a set of rules that are followed when completing the bookkeeping process.
The two types of financial accounting methods are the cash method which is used by most small businesses and individuals and the accrual method which is used by most large businesses.
What is the Cash Method?
The cash method is used to report financial transactions as they are received and paid. It is a relatively simple process that a large number of businesses use. The cash method is also used by individuals who track their own personal expenses and income.
An example of the cash method:
A customer is billed $500 on January 15th for a service, but the payment isn’t received until February 20th. For the cash method, the $500 transaction won’t be recorded until the payment is received from the customer, so we would record this transaction on February 20th.
What is the Accrual Method?
The accrual method is used to report financial transactions as they are earned or incurred. This is a less common method used by small businesses, but it is still relatively simple and gives a more accurate representation of a business's financial standing.
An example of the accrual method:
A customer is billed $500 on January 15th for a service, but the payment isn’t received until February 20th. For the accrual method, the $500 transaction will be recorded on January 15th instead of waiting until the payment is received to put the $500 in the books.
|Posted on October 20, 2022 at 3:10 PM||comments (14)|
1. Separate Business from Personal:
Keeping your business expenses separate from personal will help you better organize your company's finances. After each quarter or at the end of the year, it will also be easier to consolidate your records by comparing them to the transactions shown on your business account.
2. Think About Paying Yourself a Salary:
Paying yourself a salary benefits you by compensating for the work you are putting into your business. Depending on your financial goals, you can also use the salary to build your personal savings or investments.
3. Understand Basic Financial Vocabulary:
Understanding the lingo of the financial side of your business will help you have better insight into the financial standing of your company and improve your bookkeeping records. If you hire someone to do bookkeeping for you, it’s still important to understand the basics of what is going on on the financial side.
4. Keep All Records Up To Date:
It can be easy to get behind on your record keeping, but try to set up a plan to prevent you from having incorrect records. Pick a date on your calendar either once a week or once a month to record your transactions so at the end of the year it is not so overwhelming.
5. Prepare A Budget:
When preparing a budget you are taking a look at future expenses and income to help improve your financial standing. Budgeting is a great way to build business savings, adjust monthly spending to prepare for bigger expenses, and decrease the stress of not knowing whether or not you have enough money for your business operations.
6. Set Up Reminders:
Setting up reminders for various transactions is a great way to stay on top of your finances. Whether it’s a reminder to make a payment, send an invoice, or follow up with unpaid bills, constant reminders will help organize what needs to be completed.
7. Save All Items Used For Your Records:
Save receipts, invoices, and any other items used for your bookkeeping records. Having your items saved digitally in a folder for each quarter or year can be a useful way to organize all of your transactions. It’s also a useful tool for when you are reviewing your records, so you can look back at any information you might have missed.
8. Know The Federal & State Laws:
Understanding federal and state laws when it comes to your finances is essential. For instance, taxes are going to be a huge financial component you will need to understand as far as what can be written off, how to handle payroll, what documents you need, and other items.
9. Consider Using Accounting Software:
When a small business first gets started, Excel Spreadsheets and paperback or digital accounting books can get you by, but it can get messy very fast. Using bookkeeping software such as QuickBooks can help keep you organized while also providing automations that make your financial responsibilities easier to do.
10. Hire a Bookkeeper:
Hiring a bookkeeper can be essential no matter what stage your business is in. Outsourcing the financial side of your business is an amazing way to lessen the number of responsibilities you have and can improve the financial standing of your company.
|Posted on September 22, 2022 at 10:00 AM||comments (2)|
Keeping your books clean is extremely beneficial for your business. Not only does it help during tax season, but it can also help you see where financial issues are happening throughout your company.
Continuing to have accurate records of money going in and out of your business can get messy though, especially if you have numerous transactions happening every month.
Use the checklist below to review your books:
- Check all entries:
- Are there any duplicates?
- Do all transactions have the correct date, dollar amount, and necessary information such as the business or client name the transaction occurred with?
- Are all entries recorded correctly when it comes to what was paid to you and what you paid for?
- Reconcile by checking your bank transactions with the transactions recorded in your books:
- Are any transactions missing?
- Is there a transaction that was recorded incorrectly?
- Account for all of your payments and income:
- Have you received all the money your business should have received for your products and services?
- Have you made all of your necessary payments?
- Determine if you need an upgrade in the way you manage your books:
- Is it too difficult to record transactions using your current method?
- Do you need to search for a new or better bookkeeping software?
- Is it time to outsource bookkeeping to another company like MS Bookkeeping Services?
- Make sure all of the contract labor people you have paid are in your books correctly:
- Are their name and address correct?
- Do you have an EIN number or a Social Security number for them in your books?
The checklist above can be edited to fit your company better, but all items mentioned above are standard items for almost every business.
Additional tips that can help you in the future when it comes to recording in your books are to keep your personal and business accounts separate, track every transaction as they occur, and compare previous books.
It’s always best to ask for help whenever you need assistance with your books. Businesses like MS Bookkeeping Services can keep your books clean, consistent, and accurate.
|Posted on August 22, 2022 at 9:45 AM||comments (29)|
Sales tax is calculated based on a percentage of your products and services sold, and it’s a consumption tax that is a part of almost all transactions. Depending on your state, county, and city, sales tax might not be applied to specific products and services.
If you want to learn more about the sales tax guidelines in your area, there are numerous resources you can use that are similar to the following guide linked below:
Every state will also have its own policies on what the rate will be on various items. Some items like clothing might have little to no sales tax in a few states while the rate could be higher in others.
Whether or not your business owes sales tax will depend on the policies set by your state, city, and county.
Be sure to research what is required of your business when it comes to sales taxes and all accounting items. Different kinds of businesses and locations can change how you file a sales tax.
MS Bookkeeping Services provides numerous financial services and would be happy to meet with you to discuss whether your company is subject to sales tax.
|Posted on July 20, 2022 at 7:30 PM||comments (22)|
Every business will have its own preferred method of billing customers and clients.
For instance, if you have an online shop with Etsy, you will use an electronic form of payment to bill the customer whereas if you offer services you might send an invoice or accept cash only.
One other method that is useful for businesses that offer service contracts to clients are setting up a recurring charge.
These kinds of charges can be completed manually or they can be done using:
An invoicing software (i.e. https://www.waveapps.com/" target="_blank">Wave)
Bookkeeping software (i.e. https://quickbooks.intuit.com/" target="_blank">QuickBooks)
CRM software (i.e. https://www.honeybook.com/" target="_blank">HoneyBook)
Other forms of billing can also use the applications mentioned above.
How To Know What Method Is For You?
When setting up or making changes to your business it’s important to stay consistent with your billing methods. This will not only make it easy for clients and customers, but it will also help you when it comes time to record all of the transactions.
If you are online, then you will more than likely use the payment method that is provided by the software you are using.
If you are in-store, then you will typically use the standard payment methods of cash, check, or card.
If you are a business that offers services that include online, in-person, or both interactions, then choosing the best payment practice for you might be a little more complex. One way to make the decision easier for you is by taking a look at similar businesses to see their payment setup.
- Are they using invoices?
- Do they use specific software?
- Is it up to the preferred method of the client?
When Should You Bill Clients?
For businesses that provide products, the answer to ‘when should I bill my clients?’ is right away.
However, for businesses that offer services, it’s important to keep in mind what you would like your payment policy to be.
Some businesses prefer all payments to be done upfront before any work is done while others wait until the end for payment.
Depending on the structure of your business and the services you provide, you might even want to require a down payment initially and then the rest of the payment once the service is completed.
Keep in mind, that whatever method you choose, you’ll want to stay consistent for both bookkeeping purposes and to make everything easy for the client to understand.
Once your billing method and the way you would like clients to make payments are chosen, write everything up into a company policy and/or a contract. These policies can even include a section on a refund policy (learn more about refunds in our other blog).
|Posted on June 16, 2022 at 7:30 AM||comments (8)|
As annoying as it can be to track bills, it’s absolutely necessary for your business.
Tracking all of your account payable items in your bookkeeping system is going to help you see where a majority of your operating expenses are going. It’s also beneficial when it comes time for tax season.
What do you need to track?
So… what exactly counts towards the bills you should track when it comes to your business?
The answer to that question will depend on the type of business you have as well as where your business is located. But, the majority of recurring bills you will need to record include the following:
Subscriptions are another item on most people’s list of bills. This could include the virus protection you have for your devices, software you use to send emails or even applications for scheduling social media.
How do you track your bills?
First things first, you need to remember when your bills need to be paid.
Some helpful tips to make sure you never miss paying or tracking your bills is to set reminders by either placing the reminder dates on your calendar or by setting a recurring notification.
When it comes time to record your business expenses, there are a few different ways you can track your bills in your financial records.
- Using a digital tool
- Hiring a bookkeeper
Manually tracking your finances isn’t always the easy way to go. However, if you do own a smaller business or your business is a side gig, then it might not be too difficult to maintain.
In the long run, though, tracking your bills and other finances are going to be easier with a tool. There’s no shortage of tools you can use to track your finances. Even free apps on your phone can be used to simply record your month-to-month spending.
And, if you don’t have the time to do your finances on your own, it might be time to consider hiring a bookkeeper to help you with the financial side of your business.
|Posted on May 18, 2022 at 3:15 PM||comments (3)|
Issuing refunds is a part of almost any kind of business whether you offer services or products.
Maybe someone overpaid an invoice, a customer didn’t like the product, or the service/product sold resulted in damage.
So, how do you go about issuing a refund and setting that up in your financial records?
Refund Best Practices:
One of the policies you should have for your business is a refund policy. Although you might be in a business where refunds are rare, it is still beneficial to have guidelines in place.
The policy should have information regarding what would be considered for a refund such as:
- Damage to the product
- Product was never shipped
- Service wasn’t completed
- Amount of bill was overpaid
The number of days after purchase until a refund is no longer considered is also important to note. For instance, if you only process refunds for items/services purchased before 30 days, then you will want to have that written within your policy.
Another thing to keep in mind is how the refund will be processed. A few options for a refund are:
- Returning the amount to the card that was used
- Crediting the amount to the customer’s account for future purchases
- Applying the amount to the next open invoice
Setting Up Your Process
After you have your policy in place, it’s time to consider your process.
Typically, a credit memo will be sent to the client or customer notifying them of the amount that will be refunded.
You can include a link to a PDF view of the credit memo or have the information in a document that is attached to the email. When setting up the memo it should include, all participants’ information, the invoice number, a description of the product or service included in the refund, and the amount being refunded.
A refund will then be sent either manually from your business account or through the software your business uses. One software that is capable of refunds is https://quickbooks.intuit.com/oa/get-quickbooks/" target="_blank">QuickBooks.
It’s also best to ask the client or customer why they want a refund, so you can fix various areas of your business and incur fewer refund occurrences.
Now, that you have taken care of everything on your client’s end, it’s time to take care of everything on your end.
Tracking refunds in your financial records is going to be extremely important.
The best way to track refunds is by first tracking the original sale, the payment of that sale, and then noting the return amount for that purchase.
If you would like help tracking your financial records, it’s best to look for bookkeepers online or in your area such as https://mksbookkeepingservices.com/" target="_blank">MS Bookkeeping Services.
|Posted on April 20, 2022 at 5:25 PM||comments (1072)|
Owning a business means that you will have financial responsibilities.
So, it’s important to know these terms when handling your finances or when discussing your finances with your bookkeeper or accountant.
1. Accounts Receivable
When you perform a service or provide a product, the amount your customer owes you will be the account receivable. Although you are waiting for this amount to be paid, it will still be added as a credit to your account since your business will eventually receive that amount.
2. Accounts Payable
Similar to accounts receivable, accounts payable is the amount that is owed from a service or product. However, it is the amount you owe someone such as a supplier or a vendor.
On a balance sheet, you will mainly see credits and debits to your account. A credit will be an entry that either increases your liability or decreases your assets.
On the other hand a debit, will either increase your assets or decrease your liabilities.
Business owners tend to diversify in order to reduce overall risk. This is done by allocating your investments into various assets. In other words, you aren’t putting all of your eggs in one basket.
6. Cash Flow
Money going into your business and the money going out of your business is what determines your amount of cash flow. It will be calculated from your revenue and expenses over time.
7. Fixed Expenses
If you rent a space, that amount you pay is fixed because it will not change. Fixed expenses are expenses that will remain consistent over a set period of time.
8. Variable Expenses
Opposite of fixed expenses, variable expenses is something that isn’t a consistent amount. For instance, your delivery fees or raw material purchases may vary.
Equity can be calculated by taking your assets minus your liabilities. That number will show you how much your business is worth.
In short, liabilities are what your company owes. They are your financial obligations that need to be paid such as loans and credit card balances.
11. Return on Investment or ROI
Return on investment or ROI is used to determine the profitability of an investment. To calculate ROI divide the net profit by the cost of the investment. Your total will be read as a percentage. So, if you have a net profit of $100 and the cost of the investment is $1000, you will get an ROI of 10%. A good annual ROI is going to be around 7% or higher.
12. Single-entry Bookkeeping
For each transaction that occurs, one entry is made when it comes to single-entry bookkeeping. This form of bookkeeping can often lead to errors and isn’t the best way to check your company's overall financial health. However, if you have a small amount of transactions a year (usually if your small business is part time or a side-gig for you), then single-entry might not be a bad option.
13. Double-entry Bookkeeping
For each transaction that occurs, there are two entries made. A record is made in both the debits account and credits account. Often, bookkeeping is done this way, so it is easier to review where and why transactions are taking place. An example could be to take out $100 dollars to purchase $100 of office supplies. The amount going out ($100 being taken out) will be in the credit account and the amount going in ($100 of office supplies) will be in the debit account.
14. General Ledger
All of your entries and business accounts can be found in your general ledger. It holds all of your records and all transactions should be properly accounted for.
15. Balance Sheet
All of your assets, equity, and liabilities will be reported in your balance sheet, and it will be the best resource for understanding your financial health.
If you are ever unsure of what a term means or how your finances work, always ask your bookkeeper for more information.
Although it is extremely useful to have someone complete the financial side of your business, it can be just as or even more useful to understand how the main components work.
|Posted on March 16, 2022 at 3:20 PM||comments (6)|
Have you been tracking your jobs?
Keeping all projects, clients, and purchases together when completing a job is extremely important for invoicing. It can be helpful in other areas as well such as:
- Job History: By continuously tracking your time, you are able to look back at similar jobs to give your clients better estimates on how long something will take.
- Tracking progress: All parties included (you, your clients, third party, bookkeeper, etc.) are able to see what stage a job is at by tracking everything in a downloadable report.
- Staying organized: Especially with bigger jobs, it can be difficult to keep track of what items were purchased and how much time was allocated to various projects. By putting everything in a report, you are able to look back at how much money and time was spent throughout the process.
When it comes to creating job records, it’s important to be consistent with the names used. To keep everything as simple as possible, you can use the following titles in your report:
- Job: This will be the main title for the overall record.
- Client: You’ll want to have the name of your client(s) when it comes time to send invoices for the corresponding jobs.
- Date: It’s important to have the date for each job and even each project started. You can begin a new record at the start of each month for invoicing purposes.
- Project: Some jobs require multiple projects, so having a breakdown of each one might be helpful depending on your business.
- Time or Hours: This field will be used to clock the amount of hours used on each project. If you don’t use projects, then it will be used to clock the amount of hours used on each job.
- Item: Item will be used for any purchases that were made to complete a job/project.
Example of what a record will look like:
Job: Developing the website of MS Bookkeeping Services
Client: Maria Soeder
Project: Home Page
Hours: 1 Hour 30 Minutes----------
Item: Purchase of Website Account
Project: Blog Page
Hours: 2 Hours 5 Minutes
Your record(s) may have more information, but this is the general idea behind tracking everything. You can use tools like Harvest, Toggl, or Quickbooks to track everything for you, or even a spreadsheet will do the trick.
Now you can go back to your records at any time to create an invoice or send the information to your bookkeeper, so they are able to continue the rest of the payment process for you.
|Posted on February 16, 2022 at 3:20 PM||comments (11)|
When assessing finance charges it’s best to review them monthly to keep up with everything owed.
Finance charges can include loan processing fees, interest charges, late fees, and other costs going beyond the amount borrowed/owed.
Luckily, there are ways to improve your cash flow and lessen the amount of finance charges you need to assess:
- Offer discounts when your Clients or Customer pay early
- Reduce the payment cycle. For instance you can have the payment due on the 21st day instead of the 30th.
- Allow customers to pay electronically by setting up a merchant account
- Be more aggressive when it comes to collections
- Notify customers before you begin reviewing charges - giving them an opportunity to catch up on payments.
Another great way to keep up with payments:
Have a bookkeeper help you avoid late penalties and prompt payment of invoices, so you can better track what payments are paid and what payments need to be collected.
When setting up the process for handling late payments or finance charges, it’s important to ask yourself:
- What annual interest rate will you charge?
- Will there be a minimum finance charge?
- Do you want to offer a grace period?
To calculate late payments on finance charges:
- Amount customer owes you multiplied by flat monthly rate
- If your flat monthly rate is 10% and the customer owes you $500, take $500 multiplied by 0.01 which equals $50.
- $50 will be added to what the customer owes you, $500, for a total payment of $550 for the month.