The Secrets to Converting to Accounting Software

Successfully converting your business accounting to computer software such as QuickBooks requires careful completion of some essential steps. You will identify errors and have reliable data by developing familiarity with basic financial statements such as the balance sheet and profit and loss report. An accountant can explain these and provide valuable assistance in the accounting setup.
The first step is to establish a chart of accounts with accurate beginning balances. Entering the correct beginning balances is tricky and extremely important. The benefit of automated reporting from the software is lost if you start with the wrong balances for your bank account, fixed assets, accumulated depreciation, loan balances, accrued payroll liabilities, credit cards or other accounts.
Most programs like QuickBooks provide a chart of accounts for typical companies in various industries. However, no business is typical. You should customize the accounts for your business. Simplify this process by limiting the number of accounts. Only add accounts in the future when existing categories are completely inappropriate.
When accounts are set up, you must select correct types. Most programs identify accounts very specifically. For example, asset-type accounts are classified as bank accounts, other current assets, fixed assets or other assets.
You have to recognize the distinction among account types. For example, a bank account type must be an actual account at a financial institution. Don’t call something a bank account in your software when it’s really something else.

Successfully converting your business accounting to computer software such as QuickBooks requires careful completion of some essential steps. You will identify errors and have reliable data by developing familiarity with basic financial statements such as the balance sheet and profit and loss report. An accountant can explain these and provide valuable assistance in the accounting setup.
The first step is to establish a chart of accounts with accurate beginning balances. Entering the correct beginning balances is tricky and extremely important. The benefit of automated reporting from the software is lost if you start with the wrong balances for your bank account, fixed assets, accumulated depreciation, loan balances, accrued payroll liabilities, credit cards or other accounts.
Most programs like QuickBooks provide a chart of accounts for typical companies in various industries. However, no business is typical. You should customize the accounts for your business. Simplify this process by limiting the number of accounts. Only add accounts in the future when existing categories are completely inappropriate.
When accounts are set up, you must select correct types. Most programs identify accounts very specifically. For example, asset-type accounts are classified as bank accounts, other current assets, fixed assets or other assets.
You have to recognize the distinction among account types. For example, a bank account type must be an actual account at a financial institution. Don’t call something a bank account in your software when it’s really something else.

How Mixing Records Can Cause Tax Headaches

Business owners create multiple problems when they combine business and personal finances. First, the unfortunate mingling needlessly complicates financial reporting, inhibiting accurate tracking of expenditures and assessment of business operations. Second, failure to separate business and personal records causes a mess at tax time, resulting in extra work to avoid lost deductions and misreported income.
For sole proprietors, this is merely inconvenient. However, the situation is more severe for partnerships and corporations. For partnerships, mixing personal finances with business is likely to cause an inequitable financial arrangement among the partners. In the case of corporations, the Internal Revenue Service (IRS) prohibits individuals from using the entities as personal cash machines.
Ask your accountant to demonstrate the problem of using a corporation to disguise income from classification as self-employment. Such action is destined for IRS detection and assessment of extra taxes.
Mixing business and personal finances usually starts when a business is new. The owner shifts personal money in and out of the company. This process then becomes a perpetual bad habit.
Always treat your business as a separate entity – whether it’s large or small. If you’re just starting a business, capitalize it with enough personal funds to reach your projected level of sustainability.
The first step in proper organization of finances is to have a separate bank account for your business. All of your business income and expenses are in one place. This improves your record-keeping system. You will not have to remember different ways that business expenses were paid.
In fact, this is absolutely critical for partnerships and corporations. The tax returns for these business entities include reporting of not only deductible expenses, but also the sources of money for those amounts. Movement of money in and out of a partnership or corporation is reported on the entity’s tax return. Don’t get stuck with a system that fails to account for every movement of funds.
Next, use a business credit card. At the very least, use one card issued in your personal name only for business purposes. One of the advantages is that interest paid on a credit card used only for business is tax-deductible.
In addition, you will experience less trouble reconciling the credit card statement to your business records when all the charges are for company expenditures. This reconciliation ensures that your records capture all business costs.
Most important, if you use accounting software, make sure that you have separate files for personal and business records. You don’t want personal bank accounts and credit cards mixed with the ledger of accounts for your business.
There’s one other detail to remember: If you create a corporation that is the successor to operating a proprietorship business, you have to create an entirely new accounting system. The corporation is a separate entity.
If you follow the system of separating business and personal finances – even as a sole proprietor – you are better prepared to recognize a corporation as a distinctive organization.
Any type of business should never receive treatment as your personal wallet.

Business owners create multiple problems when they combine business and personal finances. First, the unfortunate mingling needlessly complicates financial reporting, inhibiting accurate tracking of expenditures and assessment of business operations. Second, failure to separate business and personal records causes a mess at tax time, resulting in extra work to avoid lost deductions and misreported income.
For sole proprietors, this is merely inconvenient. However, the situation is more severe for partnerships and corporations. For partnerships, mixing personal finances with business is likely to cause an inequitable financial arrangement among the partners. In the case of corporations, the Internal Revenue Service (IRS) prohibits individuals from using the entities as personal cash machines.
Ask your accountant to demonstrate the problem of using a corporation to disguise income from classification as self-employment. Such action is destined for IRS detection and assessment of extra taxes.
Mixing business and personal finances usually starts when a business is new. The owner shifts personal money in and out of the company. This process then becomes a perpetual bad habit.
Always treat your business as a separate entity – whether it’s large or small. If you’re just starting a business, capitalize it with enough personal funds to reach your projected level of sustainability.
The first step in proper organization of finances is to have a separate bank account for your business. All of your business income and expenses are in one place. This improves your record-keeping system. You will not have to remember different ways that business expenses were paid.
In fact, this is absolutely critical for partnerships and corporations. The tax returns for these business entities include reporting of not only deductible expenses, but also the sources of money for those amounts. Movement of money in and out of a partnership or corporation is reported on the entity’s tax return. Don’t get stuck with a system that fails to account for every movement of funds.
Next, use a business credit card. At the very least, use one card issued in your personal name only for business purposes. One of the advantages is that interest paid on a credit card used only for business is tax-deductible.
In addition, you will experience less trouble reconciling the credit card statement to your business records when all the charges are for company expenditures. This reconciliation ensures that your records capture all business costs.
Most important, if you use accounting software, make sure that you have separate files for personal and business records. You don’t want personal bank accounts and credit cards mixed with the ledger of accounts for your business.
There’s one other detail to remember: If you create a corporation that is the successor to operating a proprietorship business, you have to create an entirely new accounting system. The corporation is a separate entity.
If you follow the system of separating business and personal finances – even as a sole proprietor – you are better prepared to recognize a corporation as a distinctive organization.
Any type of business should never receive treatment as your personal wallet.