The Truth, the Whole Truth, and Nothing But the Truth.
We hear this phrase on TV courtroom dramas, but it really applies to small business owners preparing their financials and tax returns.
Paying, receiving and recording what is truly happening in your business is the truth. Make sure you capture it all correctly. The driving motivation for many business owners to do their books is to file taxes. But, your numbers can tell you so much more if you record them accurately and let them tell their story.
The Whole Truth
When business and personal get mixed together, it can be hard to figure out the whole truth. A few other things to make sure you include on your business financials:
Barter transactions (both income and expenses)
Deposits for the business put directly into a personal account
Expenses paid for business out of a personal account.
Deposits may be net of expenses (For example, $100 less 1% credit card fees for a $99 deposit–both $100 of income and $1 in expenses need to be recorded.)
Assets and debt that is owned or owed by the company (and not personally).
Nothing But the Truth
Your tax advisor can tell you what is really deductible - there are some gray areas - but, in general, if it is not related to the business, it should not be on your books. If you are an LLC or a sole proprietor, your “pay” is not deductible either. That trip overseas? Better check with your tax advisor.
Personal expenses never belong on the books except as a draw or distribution.
Do you have multiple companies? Each company needs its own records and the money needs to stay separate.
Need help with your books to get to the truth? Reach out today!