As the year is ending, business owners are preparing their financial statements for 2017 tax season.
I want to share with you a few things that need to be done in order to close your 2016 books for the Tax season.
Review all Accounts
This is the most important part of auditing. All of your financial accounts should be reviewed for accuracy. Many of us reconciled our books monthly but there is still a chance we may have incorrectly coded the transaction to the wrong account.
So we need to check for accuracy by checking the:
Amount: Make sure the dollar amount is accurate to the dollar. You want the accumulated amount of that account to show the right amount on your statements.
Date: You want to make sure the date for every transaction is accurate. As business owners you can run many different reports to make business decisions for your business. For example if you want to compare your 2016 4th quarter to 2015 4th quarter, or if you want to compare 2016 black Friday to 2015 black Friday, you can do so with a simple report. However you want to make sure you are reporting the right days with the right transactions.
Account: The account that the transaction is coded to. For example, rent, advertising, sales such as courses, eBooks, products, etc. are all different accounts you can use to categorize your income and expenses. Make sure you have coded to the right account.
I remember auditing a business financials a couple years ago. The owner salary was mixed with the employee’s salary. This caused the employee’s salary to be overstated and the owner’s salary to be understated.
Customer: When we receive income from our customers, every dollar should be coded to a customer’s account.
Vendor: Also when we pay our expenses, every dollar should be coded to the correct vendor account.
Prepare 1099 for Contractors
Many of us have paid more than 600 plus dollars to independent contractor for work done in our business. You are responsible for preparing a 1099 and sending it to the contractor and to the IRS at the beginning of year. Please note any under the table work, meaning unrecorded expenses, limits you from reduces your tax liability.
Close your net profit to your retained earnings
Once you complete your audit and are ready to file your taxes. Your tax account may have questions about your reports or need to provide you with depreciation expense for your assets. Once you two agree on your finalize financial report then you can close your books. Which is simply transferring your net profit into your retained earning’s, as well as your owners draws. Your retained earnings will reflect the amount of money (net profit /net loss) left in your business, less the amount of money the owners withdrew. Both accounts will start at a zero balance for the new year.
This is a high overview on how I perform year end audits.
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