Cash Out: 102
**** Alert! This blog post will put you to sleep! *****
One things for sure, I really don’t enjoy bookkeeping. It is an exceedingly tiresome bore. January, February, March bank statements all the way till December. And then just when you think you’re done, there are a million other cash receipts. All for one client. Multiply that by 29. What’s my favorite part about this hideous chore? Typing in the golden words: Cash out, Account 102. My monotonous labor comes to a close resulting in three things: a Balance Sheet, General Ledger, and Profit/Loss Statement.
Quick dummy definitions:
Balance Sheet: Statement that shows assets and liabilities.
General Ledger: Every single thing that happened in your business.
Profit/Loss Statement: Pretty self explanatory. Did you make money or not over the year?
Reflecting on my first day till the coming close this month, if I were to “cash out” here is my general ledger so far:
Speaking primarily in the boring financial aspect of a business, I have learned a few key things:
Deciding what kind of small business you are: A business can be an LLC (limited liability corporation), a partnership, sole proprietorship, S-Corp, or a regular corporation. I won’t go into definitions, but one should understand the differences. Specifically concerning corporations, you will have to designate what status you want, and will need to file an annual report stating “Look everyone, I sell donuts not just for fun.”
Some businesses have their own separate tax identity. Just like a person has a social security number, a business has a federal identification number called an EIN number.
Hiring employees is kind of complicated. You can hire “employees,” or “subcontractors.” Difference = Employees are listed on a W2 where you agree to consider them part of the business and pay payroll taxes on their checks. Amount that is withheld comes from a W-4. Subcontractors are issued a 1099 form agreeing that they have to pay their own taxes.
Also when hiring a new employee, be sure to fill out employment eligibility verification form (Form I-9) stating that yes, you are indeed who you say you are.
Payroll Taxes: When an employee gets written a check, each check has a gross pay and then a net pay. What gets taken out is payroll taxes (Medicare, social security, unemployment, federal and state withholdings). Each month, the federal withholdings are paid to the EFTPS website, and the state withholdings are paid to the NCDOR website (For NC tax payers). At the end of a quarter, a 941 (withholding) and 940 (unemployment) report are filed which are basically summaries of the quarters totaled aforementioned taxes. If this report is filed late, you will receive a $500 fine. July 31 is the Q2 deadline btw.
Sales Tax: If a business is “buying and selling,” they have to pay state sales tax. This is completed by collecting a series of totals for the month: Sales, Sales Tax received from customer, Sales Tax paid out (Purchasing supplies intended for resale that included sales tax in original purchase).
In order to compute:
Sales w/ Tax: Total Sales
Sales w/o Tax: Total Sales/1.07
Sales Tax Collected: Total Sales Tax
Taxable Sales: Total Sales Tax/.07
Sales w/o Tax - Taxable Sales = Exempt/Resale Sales
Once that information is collected, plug and chug into an E-500 form located on the NCDOR website each month (or quarterly).
General Idea on Tax Form: Schedule A = Itemizing expenses to create deductions on taxes (i.e interest paid on mortgage, property tax, car tax). Schedule B = Interest/Dividends. Schedule C = Profit/Loss of the business. Schedule D = Land, Stocks, Business Property (overall investments/assets). Schedule E = Rental properties, personal vehicle that has been leased to a company (that takes away profit from the company). Schedule F = Farming. The tax preparer then pulls the amounts from the schedules, plugs it into a 1040 (a federal tax return). These letters of the alphabet translate into schedules 1,2, and 3 - and are generally two pages each. Once complete, the tax preparer can transmit these taxes to the IRS using an E-filing system (like ATX), or mail.
Ok, now that I’ve gotten everything out of my system, why did I write all of this?
Here is my profit and loss statement:
Profit: Everybody wants to start a business, but not too many people know what actually goes on in their business. The bad thing is, without knowledge of these things, a business can experience unnecessary troubles. IRS letters, garnishments, fines, etc. Nobody wants that. I’ve learned a lot.
Loss: I didn’t get to party in my house everyday. Hmm.
Here is my balance sheet:
Assets: A summer of learning, making new friends, and my first time being an “employee.” Also, not being fired (they seem to like me).
Liabilities: My horrible gas payments.
If you’ve made it to the end, (which I probably would never even read own blog quite honestly) here is my conclusion:
Businesses are complicated.
To God be the glory,
Alyson
