Are you starting a small business from home and offering products or services such as business consulting, photography, internet selling or an MLM? You are now faced with the task of keeping track of all your expenses and income for your business, and you certainly don’t have the money to hire an accountant or tax consultant just yet. If your company is a sole proprietorship, be it a Canadian company or a US based company, you do not need an accountant to file your company finances (books) with the IRS (USA) or Revenue Canada. Your business income and losses are reported as part of your annual personal income tax. For this small business, you don’t need to buy fancy accounting software like Quick Books or AccPac to track your business.
Only when Bizfare Enterprise Inc. was founded in 2005 was it necessary to hire an accountant. My accountant insisted on using Quick Books software for my business accounting. Until then, using a simple spreadsheet template served my business accounting needs for over ten years. This simple spreadsheet has passed the test of multiple Revenue Canada (CRA and Revenue Canada Goods and Services Tax) audits. Both the printed column pad and an electronic spreadsheet version of my financial books have been accepted by Revenue Canada. (By the way, the exams revealed more opportunities for me to reclaim additional taxes for the last three years! This is my way of exam now!)
In your new start-up business, you will likely generate between 10 and 30 accounting transactions per month. These transactions are items such as expenses, income (sales), liabilities (loans), and sales tax (federal + state/province) collection/deductions. These transactions are further broken down into different business accounts. Any accounts you set up for your business are referred to as a chart of accounts. The recording of your business financial transactions (Journal Entries) can be done pen and ink on an accounting pad or electronically with your computer using a spreadsheet program (MS Excel, Open Office, Star Office).
Whether you use electronic or printed media, you need to develop a simple journal template to create yours Business Synoptic Journal. This Synoptic Journal Format has the benefit of giving you a complete overview of all your individual journal entry transactions for all your different business accounts. Creating this synoptic journal is easier than you think and requires no previous bookkeeping or bookkeeping knowledge.
TIP #1: You could further reduce the accounting line items (journal entries) by deleting similar items such as ‘all sales of the month’ and ‘all parking tickets of the month’ into a totaled line item for the month.
Where do you start to identify the different business accounts required for your synoptic journal?
If you currently work for a company or government, get one of the Employee Expense Forms. Look at each of the areas identified as expenses – meals, mileage, hotel accommodation, taxi, rental car, telephone and cell phone, flight, office supplies, etc. This is an excellent place to identify the different businesses expense accounts You need to set up accounting books for your business. To complete your business chart of accounts, add a business bank account, sales, COGS (cost of goods sold), sales tax collection, marketing expenses, and others as needed. Each of these accounts is listed as a title at the top of each column in your synoptic journal. Each row (line item) contains the individual journal entries that you entered. The journal entries are grouped and summarized for each fiscal month; usually from January to December.
So your synoptic journal would look something like this sample synoptic journal at http://picasaweb.google.com/carl.chesal/BookkeepingTemplate.
The column headings could be in this order (left to right):
DATE | DESCRIPTION | BANK DEPOSITS | BANK WITHDRAWALS | REVENUE | GEARS | SALES TAX COLLECTED AND TRANSFERS | COSTS OF OFFICE SUPPLIES | ISSUE #2 | ISSUE #3 | ETC
TIP #2: Unless your business is a incorporated company or LLC, you do not have to incur the cost of opening a business account with your bank. Typically, business accounts charge a higher monthly fee, check printing (check) fees, and offer no interest on your monthly account balance. Instead, open a separate personal bank account (perhaps a savings account). This shows the tax officer that you separate the business from your personal banking. Remember that you are a sole proprietorship and all of your business income (and losses) is directly applicable to your personal income tax return (as per the IRS and CRA).
To save you time and make it super easy, I’ve already created a simple synoptic journal spreadsheet template that does all the calculations for each month and summarizes the 12 fiscal months so they can easily be included in your annual personal income tax preparation. This synoptic journal template includes debit/credit checks and balances, tracks sales taxes, mileage, and totals for each account for your entire fiscal year. If you want this FREE accounting template, you can download it over at Communicate Innovate. With a few keystrokes that will help you identify, I’m happy to send you this FREE synoptic journal template and any future small business tips too.
TIP #3: An accounting rule is that each time you enter a journal entry (line entry that settles the transaction against the appropriate business accounts), the debits and credits MUST ALWAYS REMAIN THE SAME. This debit equals credit calculator is built into this FREE accounting template. When you have finished entering a line item (journal entry), check that the amount in the debit cell equals the amount in the credit cell. If they are not the same, you have entered the amounts incorrectly in your booking entry. Correct the problem before entering your next journal entry.
You are now able to record your business financial books with a simple accounting software. Happy accounting! And happy selling!