shamrocks by boliyou

St. Patrick’s Day is a great excuse to get together and celebrate. The bakery down the way is serving corned beef and cabbage in honor of this holiday.  So how can you take advantage of this while you are slaving away at work?

Take a colleague to lunch and talk about your home-based business. What, you don’t have a home-based business? Then you are missing out on being able to write off 50% of your lunches. One of the greatest advantages of having a home-based business is that you can start it with very little risk, while you are still an employee for someone else. You can also write off expenses that you cannot write off if you don’t have a business – such as business lunches.

To properly write off your lunch, however, you must plan your lunch and discuss business with an intent to make a profit. This means you can ask someone their advice on an advertising item, request a referral, or ask them if they would like to purchase your services or items that you sell. If you just start a conversation with the waitress about what you do, that doesn’t count. It must be a premeditated business lunch with a purpose.

Training and networking lunches count as well. So if your small business joins the Chamber of Commerce, those lunches (as well as the dues) are tax deductible. The lunches are 50% deductible and the dues are 100% deductible.

The Accounting Game, 2E: Basic Accounting Fresh from the Lemonade Stand
The Accounting Game is a wonderful book for individuals trying to learn basic accounting.  It beautifully explains the equation Assets = Liabilities + Owners Equity.  It illustrates the concepts using a child’s lemonade stand as the model.

I purchased the book to see if it could help me explain some accounting principles to clients.  I use one concept taught by Mullis and Orloff frequently as a way to help clients better understand bookkeeping.  The analogy that turns the light on is: Assets are things a business owns.  Liabilities and equity are who owns them.  It was a very simple explanation that has helped quite a few of my clients.

The book is really fun to read and easy to understand and useful up until about Chapter 7; then it gets a bit convoluted by adding the Cash Statement.  I highly recommend this book to anyone who wants a good understanding of bookkeeping.  If you read the book and start to get confused, just stop after Chapter 6 and you will have a better understanding than most small business owners of Balance Sheets and Income Statements.

Good record keeping is essential, especially when you operate a small business. Did you know that if you are audited, you are assumed guilty until proven innocent? The IRS assumes that people will cheat on their taxes, until you, the small business owner, can prove to them otherwise. So here is a list of how long you should keep various records:

Keep Permanently:

• Business Licenses
• Fixed Asset Records
• Real Estate Purchases
• Construction and/or Leasehold Improvements
• Patents/Trademarks/Copyrights
• Leases/Mortgages
• Stock Transactions
• Annual Financial Statements
• Depreciation Schedules
• Tax Returns
• Audit Reports

Keep all other records for 7 years, except employment applications, which can be kept for only 3 years. These other records should include things such as:

• Employee files (even if they have quit)
• Payroll Records, including Payroll Taxes
• Accounts Payable Records (Bills you pay, including check stubs)
• Accounts Receivable Records (Invoices you send to others and their payments)
• Inventory Records
• Loan payment schedules
• Bank Statements and cancelled checks

For more information visit:

http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

Look at the chart below and you will see that it really is that simple:

Back in the olden days when businesses wanted to keep track of what they earned and what they spent, they developed the double entry bookkeeping system. The basis of this system is that every time you put an amount on the left side, you also put that same amount on the right side. This system helped business owners minimize errors by keeping “All in Balance.” Both the right and left sides had to be the same amounts.

When you debit an account you put the amount in the left column, and when you credit an account you put the amount in the right column. Some accounts are “Debit” accounts because that increases their value and some accounts are “Credit” accounts because that increases their value. Debits must always equal credits. Accounts were kept in ledgers. Each account had it’s own ledger as shown below. Every time you collected money or paid money, this was recorded in at least 2 ledgers. At the end of the month (or week, or whatever) you would post the balance of the ledgers to the General Journal.

Example: On September 2 you deposit $1,000 into your newly created business checking account. On September 3, you pay $500 for web development:

It really is that easy!