Tax season is among us—but before you start thinking about handing over your QuickBooks® file or reports to your ProAdvisor, there are a few steps you can take to reduce the amount of work related to making changes and adjustments.
When it comes time to file, it’s extremely important to have clean books and easy-to-understand financial statements; this will ultimately lower your tax preparation costs and give you a much clearer understanding of what you’re paying out while avoiding potential errors and costs down the line.
Before tax season approaches, make sure:
1. Reports are in the correct accounting method.
It’s important to keep in mind, when it comes to reporting for tax purposes, most small businesses start at a cash basis. Once they convert—or choose to change—to accrual basis, changing back to cash basis is prohibited for 5 years.
2. Check transactions for correct dates.
Revise your transactions done near year-end (Dec. 15–Jan. 15), checking that the correct dates are assigned to transactions. This will ensure your report income and expenses are in the appropriate year.
3. All open bills are actually for money owed.
Take a look at your A/P Aging Summary. It’s not uncommon to have bills and checks repeat in a QuickBooks file. This will count as a double expense!
4. Open invoices are real invoices.
Check your accounts receivables to confirm that all open invoices in your report (A/P Aging Summary) are real, legitimate invoices for work performed or products delivered. Once you confirm this, it’s important to ensure that all invoices are collectable. In the case of an overstatement, you’ll have additional income reported.
5. You don’t have accounts with negative values.
Generally, there shouldn’t be any negative accounts in your Profit and Loss (P&L) Summary Report; the only exception is a return of some sort. It’s not uncommon to see accounts such as “Allowance for Bad Debt,” “Accumulated Depreciation,” “Shareholder Distributions” and “Draw” as negative accounts—but this doesn’t necessarily mean they should exist.
6. Uncleared checks & deposits are authorized outstanding items.
Take a few minutes to pull a report of uncleared checks and deposits from bank statements. Are they really outstanding? If not, delete them. Keep in mind: in order for this to work, all bank statements must be reconciled before you run the report.
7. You review abnormalities & changes from year to year.
If available, pull a report and compare last year with the current year. Check for abnormalities and changes. This will eliminate potential errors.
8. You’re using a consistent chart of accounts.
A created list of the accounts can define each class of item for which money or the equivalent is spent or received. Compare your chart of accounts to the previous year for consistency.
9. You assign a sub-account for each major fixed asset.
This will make it easy for your ProAdvisor to identify and build depreciation tables.
10. You have detail in your memos.
This will clarify actions and make your accounts easier to review.
So, are you ready to delve deeper into QuickBooks—the #1 rated, best-selling small business accounting software? Good news: we have two upcoming QuickBooks Training Seminars where you can receive hands-on training by expert instructors!
To register to attend or for more details on the seminar and information on QuickBooks Training, including how it can help you and your business, call us today! (631) 921-6894.
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