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Online Bookkeeping Solutions Blog

The Online Bookkeeping Solutions Blog is an timely collection of interesting and helpful information for those companies who want to outsource their bookkeeping solution and utilize bookkeeping services by subscription. Outsource your bookkeeping to a cloud based solution backed by experienced CPA's.

Bookkeeping for Barter Transactions

Ray Kirschner - Thursday, January 5, 2012

We live and work in a time where money is tight for everyone. Therefore it may come as no surprise that bartering, the trading of goods & services for other goods & services, has become increasingly popular. Bartering allows a business to retain cash while still getting needed goods & services. Plus, bartering is one way to offset cash shortfalls.

In an individual setting, this might be cutting my neighbor’s lawn if he fixes my leaky pipe.  In a business setting, a roofing company might be willing to swap a roof resurfacing for new computers from a computer manufacturer. Or, an attorney might prepare a partnership agreement for an auto dealership in exchange for an automobile.  The values of the items exchanged (bartered) would be resolved between the parties.

While these arrangements might be beneficial to a business looking to grow, there are some bookkeeping, taxation, and accounting issues that need to be addressed.  A barter exchange is actually two or even three individual transactions put together.  Each of these transactions needs to be recorded at fair value on the books of the business. The value of your services would be an increase to your revenues, and the cost of goods received would be posted to an expense or asset account.

Income from bartering is taxable the year it occurred. The rules for reporting barter transactions may vary per transaction, so it is wise to consult with a professional should you have any uncertainties.

Barter clubs are popping up all over the country. Some charge membership fees, some do not.  Some might have transaction, service, or annual fees. The more sophisticated ones even have actual accounts on behalf of the membership. These would keep the tally of the difference between the value of the services given up during the year versus the value of the goods or services used.

With the increase in sophistication of these clubs and the values of the transactions that can occur, you can be sure the IRS is looking at them as well.  Don’t ignore them and I’ll trade you my tape dispenser for your stapler.
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How Undeposited Funds in QuickBooks Work

Ray Kirschner - Wednesday, September 21, 2011

An Undeposited Funds account is a holding account for customer payments that are entered as received in QuickBooks, but have not yet been deposited into your bank account. This account is frequently established during a company’s initial set-up on QuickBooks and is part of the Accounts Receivable process.

How Undeposited Funds Work

When you receive a payment, go into your QuickBooks “Receive Payments” icon and apply the payment to your customer’s invoice.  At this point, the money is automatically put into your Undeposited Funds account. When you actually deposit your money into the bank, YOU MUST update QuickBooks by going into your “Record Deposits” icon so your money is recorded as being in the bank.

When you click the “Record Deposits” icon, you will see a list of everything currently residing in your Undeposited Funds account. Simply check off everything you’re putting in the bank for that particular deposit. Then, all that’s left is to select the account you’re putting the money into using the “Deposit To” dropdown menu, and select the date of the deposit.

Common Problems and Solutions with Undeposited Funds

Problem:  Customer payments are not showing up on your bank account balance
Cause: Deposits are not being recorded in the QuickBooks bank account after they are made
Solution: Make sure to use the “Record Deposits” feature to relieve Undeposited Funds in QuickBooks after making a deposit

Problem: Undeposited Funds account shows a large balance built up over time
Cause: Not all deposits are being recorded in QuickBooks after they are made
Solution: Identify the payments not deposited in QuickBooks by looking at your bank statements, then go through and record these deposits in QuickBooks to remove them from the Undeposited Funds account

The Undeposited Funds account is there for your protection to make sure nothing disappears before it hits the bank and to make sure your financial records are always up to date. By using the Undeposited Funds account as a holding account, your accounting for customer receipts can match actual practice and simplify bank reconciliations.
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Common Accounting Errors You Can Avoid

Ray Kirschner - Wednesday, August 17, 2011

Small businesses are prone to making some common accounting mistakes.  But, by being aware of these pitfalls, and taking the recommended measures to prevent them – you can avoid them.

Failing To Follow Procedure

Even the smallest business needs a system for managing the bookkeeping and accounting tasks. I recommend a simple solution: put your procedures in writing and make sure you follow each step, every time.

Not Setting A Budget

A budget is a plan of what money you expect to receive and how you expect to spend it. Again, my suggestion is simplistic: look over the past few months of expenses, develop your budget, and then put it in writing. This will help you avoid over-spending and invest more wisely.

Data Entry Errors

It’s easy to make a data entry error. One extra zero tacked on to an entry can  throw off your books entirely. But again, I have an easy solution. Double-check every entry, every time you make one. Make sure you investigate even the smallest discrepancy, or you may acquire bigger problems down the road.

Avoiding paperwork

Disorganization when handling important documentation such as invoices, receipts, and bank statements can cost you time and money. Establish a filing system for all accounting paperwork. Consider investing in a paperless, cloud-based system so your data is always accessible and secure, and so your paperwork doesn’t stack up.

As an accountant, I’ve seen the havoc that can be wreaked on an organization because of these common accounting errors. You can easily avoid them though. Take your time, double check your work, and establish monetary procedures in writing and follow them consistently.

 
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Form 941 Deadlines

Ray Kirschner - Wednesday, March 30, 2011

Form 941 is used for the portion of taxes that employers pay of taxes withheld from employees and the employer’s share of Social Security and Medicare.  More than four different payment deadlines exist for federal employer taxes.

The majority of employers must deposit Form 941 payroll taxes on either a monthly or semiweekly deposit schedule. Exceptions exist if you owe $100,000 or more for a single day, or if you owe $2,500 or less for the quarter. When federal employer taxes for a single day exceed $100,000, the taxes must be paid by the next banking day. If payroll taxes are under $2,500, payment is due quarterly when Form 941 is filed.

Sound confusing? It is, and it is wise to consider outsourcing this aspect of payroll to experts, and avoid the complexity and liability associated with meeting your payroll tax deadlines. If you fail to make your required deposits on time, or if the deposits are for less than the required amount, the penalties can add up quickly.

For amounts not properly or timely deposited, the penalty rates are as follows:

  • 2% – Deposits made 1 to 5 days late
  • 5% – Deposits made 6 to 15 days late
  • 10% – Deposits made 16 or more days late

As you can see, it’s not only complicated to figure out how much you owe, but also to figure out when you owe payment. Since fines add up quickly, it might end up saving you money to outsource payroll to professionals rather than risk incurring these fines.

 
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How Lockboxes Help Business

Ray Kirschner - Wednesday, March 16, 2011

Using a lockbox service shortens the amount of time necessary to process your customers’ payments. Offered by banks, this service gets your money into your account quickly and efficiently. It frees you from the tasks of mail collection, processing, and depositing customers’ payments. It’s ideally suited to small businesses that typically receive payments by mail and want their money in the bank as soon as possible.

It works like this.

Mailed payments from customers are received at a single, specially designated post office box and then delivered to the bank directly for processing. Your bank’s personnel opens the payment and extracts all of the remittance advice data and amount details and collates all of this information into a file that is sent to you the same day. In some cases the information can be imported directly into your accounts receivable system.

Since the check goes directly from lockbox to bank, payments are received and deposited all within the same day. Doing this work yourself can delay the deposit of the payments depending on how long it takes you to process your customers’ payments for deposit, and then to actually make the deposit at the bank.

Today’s increased automation in payment processing has allowed banks to reduce the cost of their lockbox banking services enough to make it economical for businesses of a smaller size. Since most banks will customize their lockbox banking services and costs to fit your specific needs, you should contact your bank for more information.

 
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Bookkeeping 101

Ray Kirschner - Thursday, February 17, 2011

Bookkeeping is one core business function you literally can’t afford to ignore. Good bookkeeping directly affects your accounting – the cost, the quality of the information, even your accounts receivable and operating cash flow.

What exactly is bookkeeping? Simply put, it’s the recording of a business’s financial transactions. It’s also an integral component of the accounting process. Good bookkeeping practices lend themselves to good accounting practices.

Bookkeeping includes the tasks of tracking receipts, canceled checks, and other records generated by financial transactions such as cash disbursements, sales, and purchases. Good bookkeeping records are organized chronologically in a journal. These journal entries are then posted to a general ledger, which accountants rely on to prepare monthly financial statements.

Sure it’s good to be organized in matters of financial transactions, but there are several bigger-picture reasons why good bookkeeping is critical to your business. Does your business rely on outside financing? If so, let’s say you are trying to win over potential lenders and investors. They will absolutely want to see accurate and complete books for a business before granting a loan or contributing capital.

Bookkeeping also helps you foresee and avoid cash-flow related issues. It provides you with a better grasp of the information you need to run your company. Having an up-to-date general ledger shows which customers have past-due accounts or outstanding balances, so you can act on these problems sooner and more effectively. Well-kept books also help you compare profits to expenses, and aid in the assessment of whether your business is on budget.

And let’s not forget about tax time. As stated earlier, good bookkeeping processes lend themselves to good accounting practices. So when it’s time to figure out how much you owe or are allowed in deductions from the government, good records of the year’s financial transactions, as well as the ability to easily pinpoint any receipt or cancelled check in the event of an audit, will save you from possible fines and penalties.

So while it may not be the most fun aspect of running a business, it’s worth it to take the time to make sure you have a solid bookkeeping system in place for your business. Are your books providing you with information that helps you make good decisions?

 
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Systemize Your Outstanding Account Collection Process

Ray Kirschner - Wednesday, January 5, 2011

 

It’s never fun to collect on an outstanding account; however, the costs of collecting an overdue debt can be high over a period of time and put a big hole in your profit margin. It is therefore recommended that you systemize your collections process.

Firstly, implement a system that insures you are alerted at least weekly of accounts that become overdue, and then begin a series of communications with the debtor that continues until the outstanding amount is collected. The most effective collection systems use a combination of telephone calls and letters to get results.

Collection efforts should be made in a series of communications that gradually increase the pressure on the debtor, ranging from a gentle reminder to warning of court action. A standard four-step system can be used in most instances, bearing in mind that communications back from the debtor may require some variation.

Step 1: A written reminder that the debt is overdue

Step 2: A written reminder of the previous communication, plus a specific date for payment

Step 3: A final demand for payment by a specific date

Step 4: Warning that legal action is about to commence unless payment is received immediately

The first notice just serves as a “reminder” and gives the customer time to make payment within a reasonable period of time. It also gives him/her a chance to query the amount or any other details of the account.

The notice should be sent to the person in your customer’s company who has the authority to deal with the outstanding account and process the payment. It should be a formal piece of correspondence and be limited to reminding about the overdue account, not any other matters that may be occurring between you and the debtor.

If there’s no response to the first notice you can use either a reminder letter or a phone call to follow up. Using a letter is common when the amount is not significant. It should mention that the first notice has not been acted on and that now you would like payment by a certain date. Seven days or so is recommended.

If it’s a large amount in question, you might prefer to use the telephone and speak to the person responsible for paying the account. Talking personally indicates a stronger degree of concern than a letter.

In a telephone call, always try to get a commitment to payment. If you get any excuses that don’t sound convincing – the usual ones are claiming the payment was made some time previously – promise to investigate the situation immediately and respond with details within 24 hours. If your debtor gives you a verbal commitment to pay, send him/her a letter or email that restates this commitment and informs him/her that you’ll be looking for this payment by the agreed upon date.

If you need to go to the next stage, making a final demand, you should definitely use a letter for legal reasons, but accompany it with a telephone call that tells them the letter has been sent and offer the debtor a final opportunity to make payment before legal action is necessary.

Legal action itself should only be taken when you’re certain that this is going to be the only way to recover the outstanding amount. Remember that legal action incurs additional costs and takes up your time. Even if you win, the court may order payments to be spread over a period of time. Legal action should only be taken as a last resort.
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Make Your Business Paperless

Ray Kirschner - Wednesday, December 15, 2010

The paperless office is on the rise. Most offices either already have the tools to go paperless or can acquire them at a low cost. The barrier is mostly the will to do so. Some people don’t see the need, or have a hard time giving up paper, or simply find it hard to change their habits. But there are significant benefits to be gained from operating a paperless office.

Benefits of a Paperless Office

One of the biggest benefits of getting rid of your paper files is the cost savings. Consider the following example. If it takes five minutes to retrieve and replace a paper file and an employee works with ten paper files per day, that’s 216 hours a year – over five weeks’ time – spent walking files around. At $20/hour, that’s $4300 per year. A paperless method would eliminate these costs while still ensuring employees can find and work with all of their necessary documents.

Other benefits include increased security, better disaster recovery protection, environmental benefits, and remote access for your important documents.

Getting Started – Making the Move to Paperless

Having a proper plan in place to take your office paperless will help keep you from ending up in a messy situation. Here are some tips and tools to help you along the way.

  • Instead of printing and storing important documents in filing cabinets, save them online.
  • Look into a document management system to help keep the office’s files organized efficiently.
  • Convert previously “paper-orientated” tasks to digital ones. For example, make electronic to-do lists? and use a projector screen in meetings instead of paper handouts.
  • Instead of exchanging business cards, connect via LinkedIn, Facebook, or Twitter. Social networks keep your contacts’ information current and provide a better storage methodology for keeping your contacts’ information on hand.
  • Use a scanner to convert paper documents like faxes, invoices, etc. into digital formats. You can then shred your old documents and eliminate even more paper clutter.

Keep in mind, a paperless office doesn’t happen overnight. Schedule time realistically for your office’s migration to the paperless world. Dedicate a certain amount of hours per week towards tasks such as scanning documents online. Make a calendar of when you plan to implement the various components of going paperless, and be prepared to educate your employees on the new ways they should be conducting their work.

Realize that less paper is just the beginning of the payoff

The most immediate impact of a move to a paperless office is the reduction in the cost of printing, mailing, shipping and storing paper. Over time, lots of other benefits should become apparent, such as:

  • Less time spent looking for paper lost in the shuffle
  • Fewer hours spent looking for bills, documents, and copies of client documents
  • The ability to access all sorts of information from computer files in a matter of seconds, instead of searching through your office

Do not be daunted by the process of switching to a paperless office. In the end, the cost-savings, better organization, and other benefits are well worth investing in this endeavor.

For those of you who’ve already taken some paperless initiatives in your office, what results have you noticed?

 

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