Whatever your outsourced and managed services needs may be — Eide Bailly can help.
Accounting is critical to your organization’s success. It’s important to not only understand the basics of business accounting, but also have a solid game plan to ensure your accounting is up to date, accurate and gives you the information you need to make strategic decisions.
While most understand the importance of accounting, some may not know where to start. We’ve developed a list of business accounting tips to help optimize your accounting processes.
Tip #1: Enhance your accounting team by outsourcing talent.
Your accounting team is the front line when it comes to providing critical financial information for your organization. Controllers, CFOs, and other accounting professionals each have unique skill sets and ways of thinking that contribute to the overall success of your organization.
CFOs are higher-level strategic thinkers who oversee not just your financial information, but also how it broadly applies across your business. A controller, on the other hand, manages the day-to-day financial tasks that make up your accounting strategy. They will also oversee any accounting staff, such as bookkeepers, and ensure your records are accurate and timely.
Each of these accounting roles has a specific purpose within your organization. Each also comes with a specific skill set that can enhance your accounting team. Depending on your organization size, however, the price tag associated with these roles (and possibly more) can seem overwhelming.
The good news is that not all of these individuals have to be actual employees of your organization. There are outsourced CFO, controller, bookkeeping, payroll and special projects services (all related to the accounting and finance function) available for your business. In fact, outsourcing accounting and bookkeeping can give your staff more time to focus on efficiencies and what they do best.
At Eide Bailly, we provide outsourced accounting, including bookkeeping, high-level financial analysis, payroll, CFO expertise and more.
Tip #2: Don’t mix business and personal expenses.
If you are mixing business and personal expenses, you could land in a heap of trouble with the IRS if you aren’t accounting for the expenses properly. You also need to ensure proper supporting documentation for your business expenses.
The IRS defines business expenses as ordinary and necessary costs of carrying on your trade or business. If you pay personal expenses with your business account and categorize them as business expenses, you are reducing your taxable income by the amount of those personal expenses. Therefore, you are improperly reducing your tax liability, resulting in remitting the incorrect tax payment.
On the flipside, you can also be missing legitimate business expenses by paying with your personal account.
Tip #3: Don’t forget to set up a bartering clearing account.
Bartering (also known as trading), is the act of exchanging goods or services for other goods or services without money. Accounting rules require you to capture all business transactions (including noncash transactions, like bartering) in your financial data. We suggest setting up a bartering clearing account in your chart of accounts. Additionally, make sure you have systems in place to record any gift certificates you have on hand that were received in a bartering transaction. Once the gift certificates are used, record the usage of the gift card to the appropriate GL account and reduce the barter clearing account by that same amount.
Here’s an example:
- First, you would invoice the customer (to record the revenue) and issue a credit memo.
Accounts Receivable $250
Service Revenue $250
Bartering Clearing Account $250
Accounts Receivable $250 - Then, as you use the gift card, you would record the respective expense(s).
Meals & Entertainment $75
Bartering Clearing Account $75
If your system does not allow you to bypass entering a bill for an expense, enter the bill and issue a vendor credit.
Meals & Entertainment $75
Accounts Payable $75
Accounts Payable $75
Bartering Clearing Account $75 - Once the gift card is used, the bartering clearing account should net to zero. The key to accounting for bartering is making sure you still record the income earned and expenses incurred. And remember to keep your receipts.
Tip #4: Know what accounting documents you need to keep and for how long.
Documents the IRS may expect to see include:
- Bank statements and reconciliations
- Accounts receivable records and invoices
- Accounts payable records and payments
- Support for tax payments (federal, state, local)
- Support for deductions taken on return
- Mileage records
- Chart of accounts and general ledger files, as applicable
Different laws and regulations require certain documents be retained by a business or individual for varying lengths of time. For example, you may be audited by the IRS with respect to your federal tax return several years after you file it. Or you may be under an employment audit with the Fair Labor Standards Act (FSLA) or the Occupational Safety and Health Administration (OSHA).
Not only are records required for federal agencies, but they’re also required for state agencies like state unemployment or workers compensation. Other things to consider include bank documentation or vendor and customer correspondence to verify receipt/payment or contracts with respect to contract breeches or suits brought against you or an employee acting on your behalf.
The period of limitations for income tax returns is generally three years, according to the IRS. This means you keep the records for three years after the date of filing the tax return or two years from the date you paid your tax amount, whichever is later.
Special situations apply, though:
- If you file a claim for a loss from worthless securities or a bad debt deduction, the IRS recommends you keep the return and documentation for seven years.
- If you somehow did not report income that you should report and it is more than 25% of the gross income on your return, you should keep records for six years.
- If you never file a return, you should keep the records forever—there is no limitation if nothing is filed.
- Keep your records indefinitely if you have ever filed a fraudulent return.
If you purchase things like real estate or stocks, be sure to keep those records around until you sell the item to prove your basis. Then, retain the documents for the three years mentioned above once you file your tax return with the sale included.
For employment documents, the IRS recommends you keep tax records for at least four years after the date the tax is due or paid, whichever is later.
Some documents should be kept forever. A few of those include deeds, minutes of meetings, tax returns, financial statements, legal records and corporate documents.
Other regulatory agencies will require certain specific documents that are not required on your tax return. For example, if you get audited by a state employment agency, they might require timecards. Timecards are not a requirement from the IRS for tax return filings—just the payroll records and reports.
A good practice is to keep records for seven years and have a good system in place so you can easily see what records can be destroyed after that timeframe. This would not include the items you should keep forever, so keep those items in mind as you review your documents.
Click here for more on record retention from the IRS.
Tip #5: Utilize technology to streamline processes and protect your records.
If your accounting process includes hours of mind-numbing data entry, constantly emailing files back and forth, paper all over your office and bulging file cabinets, it’s time to go digital.
Even starting with small changes like making sure documents are digitized monthly or setting up a standardized computer folder system can have a big impact. Robotic Process Automation (RPA) can be set up eliminate manual data entry and automate tedious, repetitive processes. Other software, like www.bill.com, allows for bills to be scanned in and paid digitally.
Implementing a more digital process can seem daunting, especially if you plan to digitize past accounting records. Remember that you don’t have to go back and digitize years of records. Instead, keep paper records until you have a solid plan in place and you’re comfortable that everything will be well organized during the transition.