Accounting Consist of Bookkeeping, Financial Reporting, Payroll and Taxes. I will explain how each component works.
Taxes are a part of life and a way that we support our society and community. Taxes are created by items we purchase or income that we earn. Most people think taxes only occur during tax season from January to April. However, taxes occur year round and it does not just apply to those with money. Everyone that has some level of incoming money, need to plan events to see how taxes will affect you.
Example: You win the lottery…$500,000.00. You will not receive the full amount. While you are planning to spend the money you really only need to account for $315,000.00, after taxes. Now, if that is a bonus or a pay increase. Think of how much is an actual take home pay. When I account for living expenses, wants, taxes, insurance, paying off debt to get to the actual amount I will have in bank. Planning helps when budgeting.
What do you plan to accomplish for the year? Use 2014’s events to help you plan for 2015. Did you earn $100,000, did you make a big purchase or do you want to make a big purchase. Think of all the changes throughout the year. You will notice one fact…each action involves taxes. Taxes are something we vary rarely can avoid. However, you can lower the amount of taxes that you will have to pay. LOWER is defiantly good, since we have to pay taxes on most choices. How do you lower your taxes? You can lower your taxes with proper accounting.
The process of how we perform each accounting step is called compliance. We have federal and state regulated laws to help most business apply consistent steps or tracking for what we do. Think of it as checks and balances. I use all functions to help save you money or boost your profits.
Bookkeeping is the process of tracking business transactions. Bookkeeping is usually handled by tracking cash flow in and out of a business in a ledger, spreadsheet, or in accounting software. Either way works to show the history of income and expenses (cash flow in and out).
Record keeping supports the bookkeeping. Record keeping will consist of paid invoices and/or receipts to show payment received from customers, bills or receipts you receive for proof of your payment for purchases and or expenses. Record keeping also consist of inventory tracking. You track the amount of inventory on hand, sold, and bought to support tax deductions.
Payroll is the process of calculating, recording taxes, submitting taxes withheld and deductions involving employees pay. A form of payroll deductions for contractors is estimated tax payments. Estimated tax payments are the contractors responsibility to calculate and pay payroll taxes. Employers are responsible for calculating and submitting employee taxes. Payroll has to be budgeted when planning business growth or to maintain your business. Payroll is usually one of, if not, the largest expense businesses have.
Financial statements are reports that are created from the bookkeeping. Financial reports show a picture of what has happened over certain periods of time. The main financial statements are the Income Statement, Balance Sheet, Statement of Cash flows, and the Owners Equity Statement. Each statement reflects a certain part of your business. Income Statements show the amount brought into a business by category. Example: If you earned income for 2 different products or services and you would like to know which services is more profitable. The Income Statement will show your Net Profit. Net profit is the profit that is earned after calculating what you earned minus all expenses. That is your true profit.
Example: If you earned $100.00 and you spent $20 for merchant fees, supplies and other costs….the real profit is $80 not $100.00. Taxes are then calculated from the net profit. Example: $80.00 x your tax rate equal taxes due. Proper tax planning will lower the amount of taxes.
|Bookkeeping– The practice of maintaining and checking the business records of an individual or organization||Financial Report Preparation of financial documents generated from the process of bookkeeping.|
|Payroll Process and Pay Employees and independent Contractors Record and pay payroll taxes Employee vs Independent Contractor Determination||Tax Reporting and Preparation:Preparation, process payments, record keeping of all tax documents Preparation of Tax online payment or Coupons and Monthly, Quarterly and Annual Reports|
Each step is the natural step of running a business or tracking income. Accounting can be simplified by your accountant. Don’t let it get you down!