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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

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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Understanding Sales Tax

Just because you are a business owner does not mean you are a tax expert. But it behooves your overall business if you understand some sales tax basics to ensure your business remains tax compliant — especially since it is the business’s responsibility to collect all sales taxes owed to the government.

Sales tax is defined and applied differently in every state in the country.  Its various forms include:

  • Gross Receipts Tax — levied on all sales of a business
  • Excise Tax — levied on certain goods as alcohol or tobacco products
  • Use Tax — levied on items used within a certain county but bought elsewhere
  • Value Added Tax — levied at each stage of production based on the value added to the product at  that stage

The most common sales tax however is the Retail Sales Tax.  It is generally applied as a separate charge, to a sale, based on a percentage imposed by the city, county, state or sometimes a combination of all three that is tied to the geographic location of the business where the sale is made.

One of the problems this presents is to be sure the rate charged is correct for the locale.  Cities in Cook County, IL are an example of the complications that may arise as there are many layers of Retail Sales Tax rates within the different sections of the county.  Some border cities that cross county lines might have two different tax rates in one city.

Unless they have a physical presence in a state, online retailers are exempt from paying sales taxes. And, not surprisingly, record-breaking Cyber Monday sales this year were 22 percent higher than last year, according to Internet research firm comScore. The rise of online shopping may impact future tax legislation because of the negative impact this has for city revenues everywhere.

Tax rates change from time to time and a business owner should always be aware of the current rate for their location.  January 1st is a day when many rate changes occur.

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Accounts Receivable—The Business Lifeline

Every business needs to accumulate and then collect their accounts receivable, or A/R.  The sales these A/R represent are the culmination of the business’s profitability; it’s entity.

With the advent of electronic bookkeeping, A/R tracking is relatively easy compared to the “old days” of writing everything down in a list and crossing off items when collected. Every business needs to accumulate and then collect their accounts receivable, or A/R. The sales these A/R represent are the culmination of the business process, the sale.

As businesses progress forward into electronic A/R solutions, it is important to maintain this key benefit from the more old-school ways of tracking A/R, which is the efficiency of writing down notes in one place and having access to all necessary information when the A/R is delinquent.

I suggest establishing an electronic folder using Excel or a similar program that you can reference at your fingertips when talking to a customer. It needs to have all pertinent data, including the invoice number, the amount, and the date. If you make any phone calls to discuss your A/R situation, be sure to note the contact name, date, and any resolution agreed upon.

Another way to expedite collection time is to use a lockbox at the bank.  Collections enter your account faster and time is saved in the office opening mail and then making deposits.

Lastly, be sure your business is set up to accept credit card payment. Some customers won’t deal with businesses that don’t take credit cards. In recent years, credit card companies have developed cards tailored towards small businesses, so be sure to find the credit card company that offers the most benefits to your business. Also, be sure the fee is calculated when determining your sales price.

Happy collecting!

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Accounting Solutions – Is It Time For The Cloud?

I recently attended a conference that dealt exclusively with electronic accounting solutions and the future vision of bookkeeping processes. Intuit, Sage, and the AICPA sent representatives to the conference. Each had a unique approach regarding the implementation of cloud-based accounting solutions.

By far taking the most aggressive approach, Intuit is already promoting the cloud computing side of their business in deference to desktop solutions. This is based on their belief that most businesses will be in the cloud within the next five years.

Sage and the AICPA are not being quite as aggressive in their approach towards migrating to the cloud. While the cloud is certainly in their future, Sage is still maintaining their desktop software and working towards a softer transition, believing that businesses cannot just “flip a switch” and be in the cloud. The monthly costs of cloud computing are certainly better than investing in more servers and data storage. However, Sage is taking the stance that asset costs already expended cannot be overlooked. As time goes by, rather than replacing hardware and software, Sage plans on transitioning users to the cloud.

The AICPA’s small business division, CPA2Biz, summed up their vision of the future by showing the many ways social media and the advent of lighter and faster netbooks can be used, along with dashboards prepared by accounting and bookkeeping professionals. CPA2Biz believes this will keep business owners highly in touch with their business, even when they’re not in the office.

As this issue is in a state of flux, I advise consulting your professional to review cost benefits and detriments as they pertain to your business.  As to the speed and accuracy of getting relevant data, I say: BRING ON THE CLOUD!

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Loan Denied? 5 Alternate Financing Options

As a business owner, one of your worst fears may be not getting the finances to keep your business running. However, being denied a loan from the bank does not mean you are out of options. In fact, following are multiple alternative financing options worth exploring to keep your business alive and thriving, as well as the benefits and drawbacks of each options.

1. Factoring

By this process, a business essentially sells its bills for cash. Accounts receivable are sold to the factor at a discount in exchange for immediate cash. Factoring combines working capital financing, credit risk protection, accounts receivable bookkeeping and collection services.

This is a good, fast solution for a small business owner who is in need of cash. This is especially useful when the business needs money to maintain operations, but incoming cash is stuck with a client.

Factor companies that buy accounts receivables are concerned only with their money. They do not care about the business’s reputation or relationship with the client.

Choose a factor company that is also considerate when dealing with clients. If you have a longstanding relationship with the factoring company, they will be far more likely to pay attention to maintaining good client relationships on your behalf

2. Lease Back Programs

If a business owns pricey equipment, it can find a lender who will buy the equipment for a lump sum and then lease it back.

The business can still use its equipment, while increasing its cash flow.

By purchasing new equipment and then leasing it, the business ultimately ends up paying more for the equipment.

If your business can write off lease payments instead of depreciating the equipment, your equipment costs may be offset by tax savings.

3. Purchase Order Financing

This is a good option for businesses that fear losing a sale because they won’t be able to fulfill a customer’s order in time. A financing agent advances money against a signed purchase order for finished goods to help fund fulfillment of the order.

This financing option depends more on the credit standing of the business’s customer rather than its own.

The financial agents who provide the advance will likely take a cut of the profit, usually in the range of 4 percent or less.

This arrangement is particularly helpful if your business is an import-export firm that must pay for raw materials upfront, but wait to get paid for finished goods.

4. Merchant Cash Advance

Some independent finance companies give merchants a lump sum upfront in exchange for a share of their future credit-card sales.

Unlike a loan, there are no due dates or fixed payments, and it’s faster to get approved.

While there’s no traditional interest rate, providers will take a significant cut, generally 15 to 17 percent of credit-card receivables.

This arrangement is best suited to retail, service, or restaurant businesses that do frequent credit card transactions.

5. Microloans

A good solution for small or midsized companies, microloans tend to be less in amount, but can run as much as $150,000. The money loaned is often enough to provide working capital for a month, which may be just enough to help the business survive.

Microloans are granted to businesses with lower credit scores than banks accept, and don’t require as much paperwork.

Interest rates are higher than those of bank loans, generally ranging between 12 and 18 percent.

Click here for 14 sites to help you get a loan for your small business.

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How to Enter Bounced Checks in QuickBooks

If your business processes enough transactions, eventually you are going to have a check that bounces, also called an NSF (Non Sufficient Funds) check. Without properly processing a bounced check, the cost to your business could be substantial. Does your business have a system configured in QuickBooks to track bounced checks? If not, you should definitely establish one. Here’s how.

Choose “Lists” then “Item List.” Click the Item drop-down arrow and select “New.” Click the Type drop-down arrow and select “Other Charge,” naming it NSF Check. Leave 0.00 in the “Amount” field and click the Tax Code drop-down arrow and select “Non.”

Next you’ll want to create an invoice to recover the amount owed to your business, plus any bank fees you want to recover. This amount can be larger than the amount your bank charged you, depending on your state’s laws. Once (if) you receive payment from the customer, use “Receive Payments” to record the transaction.

To record the bank’s charge for the NSF check, open the register and enter the amount in the Payment column and post the transaction to your bank charges expense account.

Should you try to redeposit the check? Probably not, especially if you risk incurring another charge that may be difficult to collect from your customer. Most banks only allow you to redeposit a bounced check once. As a business owner, you should request a new check or a certified check from your customer. If you’re having difficulty collecting amounts owed to you from customers, please refer to my earlier post, Systemize Your Outstanding Account Collection Process.

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How To Run Payroll Schedules In QuickBooks

As a business owner you are in the driver’s seat when it comes to setting up the payroll schedule for your employees. You can issue payroll on a weekly, bi-weekly, semi-monthly (ex. the 15th and the 30th), or even on a monthly basis. You can even have different payroll schedules for different employees (ex. salaried v. hourly employees). But it will be important to your employees to know when to expect their paycheck, and to receive it on time. Fortunately, with QuickBooks payroll schedules, this is easy to execute.

If in fact your employees are paid at different intervals, or if some are paid via direct deposit while others receive physical checks, you can streamline the need to classify each employee’s pay date and/or method by creating different payroll schedules and assigning the appropriate employees to the appropriate schedule type. How do you do this? Just follow these simple steps in QuickBooks.

  1. Go to the Home page, and click the “Pay Employees” icon. The Enter Payroll Information window opens, allowing you can to set up the pay period, check date, and which employees to pay.
  2. Select “Employees | Add Or Edit Payroll Schedules.” When the Payroll Schedule List window opens, create a new payroll schedule, and give it a name. Make sure to use descriptive names, so you know what each payroll schedule stands for. For example, maybe you name one schedule “bi-weekly, direct deposit employees”
  3. Proceed to fill in the rest of requested information for this payroll schedule, including: pay period frequency, the next pay period end date, and the next paycheck date.

Keep in mind that for tax purposes, the paycheck date is all that will be relevant. Your 941/W-2 forms use only the paycheck dates. The rest of the information in your payroll schedules is for your convenience in facilitating payroll operations.

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