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Getting Paid 101: Accounts Payable and Accounts Receivable

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If you’re managing a business—and your books—you’ve probably had to learn what is accounts payable vs. accounts receivable. 

Accounts payable and accounts receivable are two different sides of the same coin. In this case, the coin is your business. One tracks money that is going out. The other tracks money coming in. Both are important to maintain a steady cash flow and grow your business.

Without a deep understanding of your accounts payable and receivable, you could face costly setbacks.

At Xendoo, we’ve prepared a detailed guide about accounts payable vs. accounts receivable to help business owners stay on top of their cash flow. Let’s dive deeper to learn more. 

What Is Accounts Payable? 

Accounts payable (AP) is what your business owes creditors—like the amounts for products and services you bought on credit. Accounts payable is a liability account entailing debts (both long- and short-term) due in a specified period, usually a year. 

Accounts payables are balance sheet entries. You record them under ‘current liabilities on the balance sheet. 

If you don’t handle it accurately and efficiently, you won’t pay what your company owes on time or overspend. That means jeopardizing supplier relationships and incurring late payment penalties, among other consequences.  

Accounts Payable Examples

The actual entries you record in your general ledger differ from business to business. However, typical categories of accounts payable include: 

  • Rent and lease payments
  • Travel expenses 
  • Business equipment and supplies
  • Raw materials to make products
  • Transportation and logistics

To record accounts payable, here are a few examples.

Example 1

Suppose your beer company orders $1,000 barley from supplier X. Supplier X sends an invoice on the 15th of June with a 30-day payment period. The $1,000 is accounts payable, and you record it in your general ledger by crediting $1,000 on the supplier’s X account. Then, debit $1,000 into your asset account. 

Example 2

Let’s say your business receives a $500 monthly electric bill. In that case, $500 is accounts payable that you credit on your business journal and debit on your utility expense account. 

What Is Accounts Receivable? 

Accounts receivable (AR) is the money customers owe your business for the goods or services you sell to them on credit. Accounts receivable is an asset account on the general ledger and balance sheet. You record the account receivables in the balance sheet under ‘current assets.’ 

To account for accounts receivable, you need to invoice, collect, and record customer debts.

Understanding your accounts receivable can help you evaluate your overall financial liquidity and stability. 

If you don’t manage receivables well, it may translate to a negative cash flow. For a healthy accounts receivable, you should have an accounting system that accounts for and limits bad debts. 

Accounts Receivable Examples

Typically, accounts receivable include the sale of goods or the supply of a service that hasn’t been paid in full yet. However, the amount is expected to be paid in the short term, within a year or less. 

Example 1

Assume you are an electric company that charges clients after using electricity. In this case, the unpaid invoices (bills by clients) represent the accounts receivable in your company. You record them as current assets in your general ledger and balance sheet. 

Example 2

Suppose your business supplies $1,000 barley to a beer company on credit. In that case, you will record $1,000 as an asset in accounts receivable.

If you’re curious about how other businesses record their accounts payable and receivable, you can easily view the quarterly and annual reports of public companies. Companies submit reports to the U.S. Securities and Exchange Commission (SEC), as well as directly through the company site. 

For example, you can see Nike’s balance sheet listed accounts receivable under assets and accounts payable under liabilities. (Figures are in millions). 

Example balance sheet for Nike

Accounts Payable vs. Accounts Receivable

While accounts payable and receivable are different, they have some commonalities. 

  • Both accounts payable and receivable are general ledger entries—one as a liability and the other as an asset. 
  • You need an overview of both to get an accurate picture of your business’s financial health. 

Analyzing accounts receivable can give you a picture of your total payment owed, and the success rate of your debt collection efforts. 

On the other hand, accounts payable tells you if you are able to pay business debts. Combined, they show your company’s financial stability. 

Accounts payable and receivable are equally important. It’s critical to use the right tools to track, record, and manage both. 

Differences Between Accounts Payable vs. Accounts Receivable

Accounts receivable are assets while accounts payable are liabilities. Accounts receivable amounts must be accurate to help you establish business profitability. 

Second, you can sell your accounts receivables to a lender when you need cash urgently and can’t wait for customers to pay their debts. This method is called invoice financing or accounts receivable financing. 

While a finance company (e.g., a bank) might refuse to buy your invoices past due dates, a debt collection company may buy them at a discount. It is not ideal, but it can add more value than writing off the bad debt. 

On the other hand, accounts payable are liabilities because your business will pay the debt within a specific timeline. 

The table below summarizes the differences between accounts payables and accounts receivable. 

Accounts Payable Accounts Receivable
It’s the amount your company owes creditors It’s the amount your company collects from debtors
You record it as a liability in the general ledger and balance sheet You record it as assets on the general ledger and balance sheet

Your accounts receivable and account payable should be efficient. That way, you will avoid issues during auditing and prevent getting caught up in fraud by unethical suppliers.

When managing your accounts payable, ensure all entries are accurate by minimizing accounting errors in your business. On top of that, watch out for suppliers who may mistakenly bill for more products than they have delivered. 

When managing your accounts receivable, ensure that debtors pay what they owe on time. If the accounts receivable are way past their due dates, you may need to adjust your expectations. 

Debts past due dates (with several months) might translate to bad debts, which you should remove from accounts receivable and record as an expense. 

How to Record Accounts Payable in Accounting

When recording accounts payable, you either use the cash or accrual accounting method. 

Cash vs. Accrual Accounting

Cash-basis accounting is simpler than accrual accounting. With cash basis accounting, you record transactions on a cash basis as they happen—after the money exchanges hands. 

That means you record expenses after the business pays the bills or debts from creditors. For example, let’s say you bought supplies on credit on June 1st and payment is due June 30th. You don’t record the transaction in your books on the 1st but the 30th, when you make the payment.

On the other hand, accrual accounting refers to recording transactions as they happen, regardless of whether or not money exchanges hands. In the above example, you would record the transaction in your books on June 1st instead of waiting for the 30th. 

Which accounting method should you use? 

Consider cash-basis accounting if you own a small business or make products on demand. On the other hand, accrual accounting suits you best if you have a business with a large inventory. Read our full cash basis vs. accrual accounting guide to help you choose the method for your business. 

How to Record Accounts Receivable in Accounting

Recording accounts receivable is a little more involved because you have to coordinate customer invoices and payments. To help your business get paid on time, here are some accounts receivable tips: 

1. Run a credit check

Unpaid invoices happen, but you can limit and prevent some by taking measures like running a credit check before delivering goods or services. Other tips for preventing late and unpaid invoices include: 

  • Get a signed agreement on payment terms before starting work
  • Get a personal guarantee which gives you the right to sue the business owner personally—rather than the business—for unpaid debts. (Save this one for those with a bad credit record.)
  • Send your invoice immediately after work is done
  • Track the customer’s payment history with you and deal with those who are consistently late payers. (Change payment terms or stop doing business with them.)
  • Make it easy for customers to pay you with options such as debit card, credit card, PayPal, Stripe, and more.

2. Send an invoice

As mentioned above, invoices should be sent in a timely manner. The easiest way to do this is with online invoicing software. The invoice is sent to the customer by email and the amount owed is automatically entered into your bookkeeping and collections system.

Good software should also allow ways for the customer to make payments online with a credit card or bank transfer. All Xendoo plans come with invoicing software Xero, and include templates and more. 

With invoicing software, your accounts receivable staff and your customers can save a lot of time. 

2. Track payments

You’ll also want to track payments and set up automatic reminders to go out when payment is near due, and if it’s late. 

Your accounting software should be able to generate an aging report, which lists past-due invoices in order from the least to the most number of days since the due date. Do this regularly, because the longer you wait to pursue payment, the less likely it is that you will ever get paid.

3. Set a timeline for collections

Next, you need a strategy in place for aging (overdue) invoices. Your accounting software should be able to automatically send past-due reminders, according to trigger dates you’ve established. To plan your collections, answer the following:

  • How will you notify the customer when a payment is past due? Will you send a second notice invoice through email, snail mail, or phone call?
  • How many reminders will you send before you escalate overdue payments? 
  • Will you cut off sales until the outstanding balance is paid?
  • When will you take actions like charging late fees or sending overdue invoices to a debt collector? 

Your software should also be able to generate an aging report, which shows you at a glance all your past-due invoices listed in order from least to most overdue. 

4. Record bad debts

If all your efforts to get the invoice paid have failed, the time has come to write it off as a bad debt. 

You decide when that write-off will occur. Typically, if an invoice hasn’t been paid in 6 months, it is not going to be paid.  

Be sure to include the write-off on your income tax return. If the customer does eventually pay, you can declare it as income on next year’s tax return. You’ll also need to get a tax refund if you’ve already paid taxes on the expected income. 

Failure to collect debts is one of the top reasons small businesses go out of business. So it’s super important to make consistent, persistent efforts to get the money owed to you. 

Accounts Receivable Turnover Ratio

How do you know if your accounts receivable process is working? The accounts receivable turnover ratio measures how efficient your business is at collecting payments. 

It shows how you manage customer debts by showing how quickly you collect them. A higher receivable turnover ratio shows that your business manages debts efficiently. 

A lower ratio translates to inefficient debt management. Here’s the formula for calculating your accounts receivable turnover ratio. 

  • Accounts Receivable Turnover Ratio = Net Credit Sales ÷ Average Receivable

Net credit sales represent debts you collect later. Below is the formula for net credit sales. 

  • Net Credit Sales = Credit Sales − Sales Returns − Sales Allowances (Discounts)

The average receivable is the starting and ending receivables over a set period of time divided by two. 

  • Average Receivable = (Starting AR + Ending AR) ÷2

Example of the Turnover Ratio

A vintage shop had gross credit sales of $50,000 and returns of $5,000. The starting and ending accounts receivables for that year were $5,000 and $7,500. Here’s how to find the account receivable turnover over ratio for that year. 

  • Receivable Turnover Ratio = (50,000 − 5,000) ÷ [(5,000 + 7500)÷2] = 7.2

The business collected accounts receivable approximately 7.2 times over the year. 

Mismanaged accounts payable and receivable can tank your business. If you don’t have the time, capability, or desire, Xendoo can help. Our plans come with advanced bookkeeping software, an automated accounts receivable process, expert debt management, and income tax guidance. Request your free trial today to get started or chat with a Xendoo expert bookkeeper.  

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

What Is the Bad Debt Expense Formula?

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When a small business makes sales on credit, there’s a chance of having bad debt expenses. Most businesses use the bad debt expense formula to account for them. 

Even the customers with the highest credit record can go bankrupt and fail to pay their debts. Tracking and recording these debts gives you an accurate picture of your financial standing.

In this post, we will dig deeper into how to calculate bad debt expenses and what they mean for your business. 

What Is a Bad Debt Expense?

When a company sells goods or services on credit, the risk of customers failing to pay the amount owed is always there. The longer they take to clear the payment, the higher the chances of not paying at all. 

Bad debt expenses are the part of accounts receivable that a company considers non-collectible. In other words, you were unable to collect payment for your product or service. Accounts receivable (AR) refers to the funds due to a company for products or services. It is the amount of money that customers owe you. 

After multiple unsuccessful collection attempts, businesses record bad debt expenses in the general ledger as a negative transaction. They are part of the operational costs under the income statement.

When Do Bad Debt Expenses Happen?

Bad debt expenses occur when a customer cannot pay outstanding bills for goods or services purchased on credit. Customers can fail to pay their bills due to financial difficulties or a disagreement over the delivered products or services. For instance, a customer may dislike how a printing order turns out and refuse to pay. 

If they make no effort to negotiate the payment terms for an extended period, you might consider writing their invoices as bad debts. Writing off these debts helps you avoid overstating assets or revenue while giving you an accurate picture of your company’s financial position. 

What Is the Bad Debt Expense Formula?

Accounting for your debts is good business practice. The bad debt expense formula accounts for the total bad debts from past sales. There are two ways to do this: 

  • Direct or write-off method
  • Allowance method

Let us look at each technique in detail.

Direct or Write-off Method

When many of your clients pay off their bills, and you have fewer bad debts remaining, you might opt to write them off one at a time. 

This mostly happens when the invoice surpasses the deadline, and it becomes clear that the customers won’t pay. The IRS states that you should only write off bad debts after you have made all possible attempts to recover the amount without success. 

So, if you cannot contact the buyer or develop a repayment plan with them after numerous attempts, it might be time to write off the bad debts. In such a case, you will make a simple transaction record in your ledger account where the bad debt expense equals the account receivable value. The write-off method has no formula since actual values are recorded as expenses in your book of accounts.

The write-off method may seem like an easier way to deal with doubtful debts than the allowance method. For one, you only have to record two transactions. Another upside is that it reduces the tax burden because you can write off the bad debt expenses from your taxable income. It also gives an exact amount of bad debts rather than an estimate.

However, there are downsides to using the direct write-off method. It fails to uphold the Generally Accepted Accounting Principle (GAAP) which states that businesses must recognize expenses during their incurred period. With this method, you might not recognize bad debt expenses until the next accounting period. Theoretically, this is not the correct way of identifying bad expenses. Another downside is that, since you record it as a credit to accounts receivable, it can cause balance sheet inaccuracies.

Allowance Method

With the allowance method, you account for bad debts ahead of time. If you do a lot of product or service deliveries on credit, you’ll want to use the allowance method. 

Also known as allowance for bad debts, this method sets aside a percentage of overall credit sales for bad debts. 

Using your historic or past data on bad expenses, you predict the percent of future bad expenses from all credit sales. The allowance is always an estimate because you are trying to predict the future based on the past. However, it can help you plan ahead for bad debt expenses and budget appropriately. 

You can use the bad debt expense formula to estimate the amount that you need to set aside. 

  • Percentage of bad debt = total bad debts/total credit sales

For example, assume your business has been operating for several years and the overall credit sales in the last accounting year were $500,000. Out of the total credit sales, $50,000 ended up being non-collectible. 

You’ll want to account for these bad debts prior to the next accounting year by setting up an allowance. Here is how to do it.

  • Percentage of bad debt = $50,000 (total bad debt expenses) / $500,000 (total credit sales)

That gives you a bad debt allowance of 10%.

If this estimate is practical for future unpaid invoices, create an allowance for doubtful accounts at 10% of this year’s anticipated credit sales. 

If your business is relatively new, the allowance method may not be accurate or reliable. It also will not work if you have a massive non-recoverable debt that is considered an outlier. The large amount can skew your bad debt allowance.  

How to Record Bad Debt Expenses

Keeping a record of bad debts helps maintain balanced statements while allowing you to make better financial decisions. Nonetheless, you can only record bad debts if you use accrual-based accounting. Those using cash accounting principles cannot do this since they have no recorded bad debt to undo or balance.

Recording bad debts using the direct write-off method involves debiting the expense account and crediting the accounts receivable with the exact value.

For the allowance method, you should record your estimated bad debts as a contra asset account. If you are wondering, a contra asset account has a negative or zero balance. This method involves debiting your expense account and crediting the doubtful debts allowance with the same value here. 

Bad debt expenses can bring significant losses to a business, especially those with a large portion of credit sales. However, tracking them paints a clear picture of your cash flow and financial position.

If you need any help streamlining your accounting, Xendoo can help. We have accounting software and a team of bookkeepers to prepare your financial statements every month. Contact us now for a consultation or begin your free trial. 

 

 

 

What is a Balance Sheet vs. Income Statement?

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a balance sheet

Balance sheets and income statements are indispensable financial tools for all business owners. What should businesses know about the balance sheet vs. income statement?

The two complement each other in tracking vital financial metrics such as net income, expenses, profitability, and more. However, there are differences between the two documents.

Understanding these statements can be the first step in making better financial decisions and improving your business performance. 

This guide provides an extensive overview of the balance sheet vs. income statement to help you understand what they mean for your business.

What is a Balance Sheet vs. Income Statement?

Financial statements like balance sheets and income statements give you insights into your business’s financial performance and health. 

Usually, a balance sheet represents what a business owns and owes at a specified time. An income statement explains a company’s total revenue and expenses.

Accountants prepare the two statements from financial records. Businesses use them to determine how well they are doing, their worth, and the areas that require improvement. 

When combined, the balance sheet and income statement provide a better knowledge of the overall financial position. 

What is a Balance Sheet?

A balance sheet provides a clear view of its financial position at a specific time. Its key components are assets, liabilities, and shareholder’s equity. Assets represent what a business owns, including cash, property, trademarks, and equipment.

Liabilities include everything the company owes, such as short-term and long-term debts. Stakeholder’s equity represents the remaining assets after settling all liabilities. Overall assets are equal to the summation of the total liabilities and shareholder’s equity. Like any other financial statement, the structure of a balance sheet will vary based on the company.

  • Assets = Liabilities + Shareholder’s equity 

Usually, businesses create balance sheets every fiscal quarter and at the end of the fiscal reporting year. You can track company performance since inception, including all transactions, acquired assets (and their current valuations), and accumulated debts, all in one statement. Let us look at the components of a balance sheet in detail.

Assets

Assets in a balance sheet represent what your business owns at a specified time. There are two classifications of assets, namely current and long-term or non-current assets. The current ones are those that are effortlessly convertible into cash. Types of assets include: 

  • Cash and cash equivalents (Stocks and bonds)
  • Inventories
  • Money in the bank
  • Accounts receivable
  • Short-term investments
  • Prepaid expenses

Conversely, it is not easy to convert non-current assets into cash. In other words, non-current assets are assets that you do not expect to generate revenue within the accounting year. 

Non-current asset examples are:

  • Properties such as land and buildings
  • Intangible assets like patents, copyrights, and trademarks
  • Machinery and equipment
  • Long-term investment

Liabilities

A company’s liabilities are what it owes to creditors and vendors. Just like assets, there are two categories of liabilities—current and long-term. The current ones are those that are due within one accounting year. 

Current liabilities may include:

  • Accounts payable
  • Accrued expenses
  • Employee wages
  • Taxes

Long-term liabilities are a company’s financial obligations that are due more than one accounting year in the future. 

Long-term liability examples include:

  • Mortgages 
  • Loans
  • Payable bonds
  • Dividends payable

Stakeholder’s Equity

Stakeholder’s equity refers to the net value of a business or the money left over for stakeholders, owners, and executives, after paying all liabilities. It equals the sum of the total assets minus the total liabilities. 

Retained earnings from treasury bonds, stocks, capital investments, and gains are also part of stakeholders’ equity. Profitable businesses have positive retained earnings, while those experiencing losses have a negative figure. 

Equity can help banks and financial institutions determine how solvent your business is and its ability to meet financial obligations. Lenders will assess this before approving you for business loans.

What is an Income Statement?

The income statement summarizes the financial health of your business during a specified period. Accountants also call it a profit and loss (P&L) statement. This statement categorizes a business’ revenue and expenses, with the difference between the two representing profit or loss.

An income statement helps business owners know whether they generate profit or loss during the statement period. The period could be monthly, quarterly, or yearly based on the business needs and personal preferences. A company’s income statement has two parts. 

  • Operating portion – Includes revenue and expenses that come directly from the core operations. It may include the revenue obtained from selling products and services or costs incurred from product development.
  • Non-operating portion – Includes revenue and expenses derived from activities that aren’t closely linked to core operations. Examples include profit from investments, dividend income, or expenses like interest payments and asset write-downs. 

In addition, there are two methods of documenting revenue and expenses in an income statement. 

Single Step Income Statement

The single-step income statement uses a simplified format to report net income. It uses a one-step subtraction method. To use it, you subtract all expenditures from the total revenue. 

  • Net income = (Revenues + Gains) – (Expenses + Losses)

Most small businesses have less complicated core operations and accounting and prefer the single-step income statement.

Multi-step Income Statement

This statement is comprehensive compared to a single-step statement. It utilizes several equations to determine a company’s net sales. There are three formulas or steps used in the multi-step statements.

  • Gross profit = Net income – Cost of products sold 
  • Operating income = Gross profit – Operating expense 
  • Net income = Total operating income + Non-operating income

Large and complex companies often use this option since they have many different sources of revenue, employees, and activities. Small businesses usually do not need to take this approach.

Balance Sheet Example

Here is an example of a balance sheet from Facebook. It is a condensed statement from the last quarter of 2020. 

Facebook balance sheet example

Facebook has among the healthiest balance sheets, with the total assets adding up to $159,316,000. That is enough to clear four times the total liabilities, which add up to $31,026,000. The total stakeholder’s equity is impressive, totaling $128,290,000. 

From this statement, Facebook has a chance to be flexible by trying new things without suffering any long-term consequences if they fail. 

Income Statement Example

Below is an income statement example from Apple. The reporting period is from the second quarter of 2020, compared to 2019. It is a multi-step income statement, with figures represented in millions. It includes operating income and expenses.

Apple income statement example

The operating income adds up to $11,249,000, for Q2 2020, respectively, increasing from the same quarter in 2019. Finally, the total net sales are $58,313,000, and $150,132,000, for three-month and six-month periods. 

Comparing the total net sales with the previous year, Apple made significant improvements despite the pandemic.

Remember, Facebook and Apple are huge enterprises with complex accounting needs. An income statement or balance sheet for a small business will look much simpler. 

Balance Sheet vs. Income Statement: What Comes First?

The income statement comes first. By now, you know that income statements break down revenue and expenses. 

First, you need to know whether your business is making a profit or loss. If your revenue is positive, it means your business is profitable. Negative revenue means you are experiencing a loss. An income statement then gives you the information you need to generate a balance sheet.

Similarities Between Income Statements and Balance Sheets

When you look at balance sheets vs. income statements, there are some similarities. Each provides information about a company’s financial position. They offer core financial reporting, and any omissions or errors lead to inaccurate results for both statements. Investors also look at balance sheets and income statements to evaluate your ability to repay loans.

The two also follow a similar accounting cycle, with an income statement coming before a balance sheet. 

Ultimately, there is a lot that business owners can learn from balance sheets and income statements. A balance sheet provides a clear picture of what a business currently owns and owes. An income statement records the revenue and expenses for a specific period. These financial statements are crucial in helping you make strategic choices for the future.

If you need help getting your business finances in order, reach out to Xendoo. Our online booking and accounting team can help your small business prepare and understand financial statements and more.

 

What Do Accountants Charge for Small Businesses?

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If you run a business, you’ve likely wondered–how much does it cost to hire a tax accountant? Do I need accounting services, and will they save me more money than they cost? 

While doing accounting and business taxes, you may worry about making mistakes or missing opportunities that a pro would spot right away. Furthermore, taxes can feel like chores—no one enjoys doing them. The cost of hiring a tax accountant for your business may more than make up for the time and energy you’ll save doing them.

Small business accountant fees vary depending on a number of factors, including expertise levels, types of services offered, technology integration, and industries or niches served. 

For example, a bookkeeper that does routine data entry charges less than a CPA (Certified Public Accountant). A CPA is an accounting expert that is highly qualified to advise you on business strategy or tax planning.

If you’re fed up with trying to do your own books, you’re not alone. For many small business owners, accounting is definitely not an area of expertise. 

To help you decide, we’ve put together an accounting cost guide. It covers how much it costs to hire a tax accountant and other typical accounting costs.

Accountant Hourly Rate

How much does an accountant cost per hour? Traditionally, bookkeepers have charged an hourly rate. The more time they spend on your books, the more you have to pay. 

Note, that bookkeepers tend to manage the day-to-day recording of financial data. Accountants or CPAs do that and many other functions. CPAs are able to manage your books, identify big-picture financial insights, conduct audits, prepare taxes, financial statements, and more. For this reason, you pay a little more for CPA and accounting services. 

Typical hourly rates for bookkeepers and CPAs are: 

  • Bookkeeper hourly rate — $30 to $90 per hour
  • CPA hourly rate — $150 to $450 per hour

Accounting Fees Per Engagement

Some accounting services don’t make sense to bill hourly. For instance, businesses must file taxes every year, but you don’t need an accountant every day of the year. 

With that in mind, you may be asking—how much do accountants charge to do taxes?

If you only need an accountant for an occasional project such as tax preparation, the typical cost to hire a tax accountant is: 

  • Tax return (unincorporated) — $200 to $500
  • Tax return (incorporated) — $800 to $1,800

The National Society of Accountants (NSA) reports that the average fee to file individual taxes with no itemized deductions is $176. The average cost for business tax preparation is much higher. Businesses have more tax requirements, complicated forms, and accounting needs. Cost varies based on the type of business and forms you are filing, but the tax return costs above are a good estimate. 

Now, let’s say you need other accounting services besides tax preparation. Again, the cost depends on the complexity of your business and your specific need. In general terms, the cost of hiring an accountant for special business services like financial statements and audits is below.

  • Financial statement — $1,000 to $2,500
  • Audit — $2,000 to $5,000

Flat Monthly Accounting Fees

A common question that we hear is–what is an affordable accounting fee for small businesses? Small businesses often choose accounting services that charge a fixed amount every month.

Flat rate accounting services are easier to budget. Plus, it can cost half what you would pay an hourly accountant for the same amount of service. 

That’s why Xendoo offers flat rate pricing plans to our clients. 

It is also important to consider the area where you live and the cost of living. You may want a local accountant, but if you live in a high-cost area, expect to pay a higher than average rate. 

Alternatively, you can hire a tax accountant online. It is common for CPAs, bookkeepers, and accountants to work remotely. As long as they are familiar with your state and local requirements, you can work with an online accounting service like Xendoo without issue. 

Before You Hire an Online Accountant

Research the firms you’re considering to make sure they meet your needs and quality standards. Some things to consider:

  • Credentials. Unlike professions such as law or medicine, anyone can call themselves an accountant. Don’t just trust in a CPA certificate. Check certifications, education, training, and years in practice.
  • Service level. How often and how easy will it be to communicate with your accountant? Do you prefer to be contacted by telephone, email, an app, or all of the above? How fast do you want a response—within 24 hours or sometime next week?
  • Processor vs. advisor. A processor type of accounting firm mainly provides data entry and reconciliation services. An advisor can help you analyze your financials to spot trends, challenges, and opportunities for improvement.
  • Specialization. Ideally, the firm you choose will have experience in your industry and the size of your business. In-depth knowledge of the challenges you face adds value and insight to their services.

Are Accountants Worth the Money?

You know how much it costs to hire a tax accountant, but is it worth it?

With so many business accounting software choices now available, you may assume that letting your computer do everything will be cheaper than the cost of accounting services. And you may be right. However, there are some things that still need an expert accountant who can save you significant money, time, and hassle.

For example, an experienced accountant can help with: 

  • Tax savings advice, such as when to make capital purchases, what you can deduct, and how to reduce taxes on capital gains
  • Answering your questions about financial reports, cash flow, depreciation, and other accounting processes
  • Identifying opportunities to improve profit margin and business growth
  • Setting up systems for business accounting and teach you best practices
  • Preventing costly missed tax deadlines and noncompliance penalties

Xendoo specializes in providing expert accounting and bookkeeping services to small businesses. Because this is our niche, we can deliver tried-and-true expertise. Because we know small businesses need affordable accounting services, we leverage accounting technology to reduce costs while maintaining gold standard quality.

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This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

How to Set Up Accounting for a New Business: A Full Guide

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If you are reading this, then it probably means you’ve just launched or intend to start a new business in the near future. As you try to figure out which need to prioritize in your new venture, it is crucial that you first learn how to set up accounting for a new business.

While it might seem mundane, good accounting is integral to the success of any business. You may have the best managers and staff, but it’s impossible for your business to flourish without properly monitoring and managing your money.

An experienced accountant can help you get your business set up faster and create a system for accurate accounting that grows with your business. However, we know that money can be tight for new business owners. 

Learning the basics of accounting can help you better understand the inner workings of your new business. As you grow, it’s easier to outsource or delegate the responsibility to a professional, so you can focus on other parts of your business. 

If you are only just starting out and have no clue where to begin, this article is for you. We will take you through the essentials of setting up your accounting for a new business.

1. Separate personal and business finances

As any established business owner will tell you, you need to treat your business as a separate entity to yourself. This means separating your business and personal finances.

In fact, it is a legal requirement of LLCs and corporations to manage their business incomes in separate bank accounts. On the other hand, sole proprietors have a bit of leeway. They can use their personal accounts for business, but we strongly advise against it.

Here’s why:

  • It will make it easier to file taxes for your business (since they are separate from your personal accounts)
  • Your accountants and bookkeepers can monitor the account more freely
  • It protects your individual assets in case of lawsuits or bankruptcy
  • Having business financial records will increase chances of getting funding from investors or creditors
  • It makes it easier to monitor your business cash flow

Separating your business accounts go beyond setting up separate bank accounts. Here are some additional steps for new business. 

Establish your business officially

Before you can get your business a bank account, you’ll need to register it with the state. Your business needs a name and other personalized details for you to open an account.

Get a business bank account

Just like you would a personal account, you should open both a checking and savings account for your business. This way, your money can be kept in an organized manner.

The rule of thumb is to keep a majority of your revenue in the checking account and then a small portion in the savings account to cover such things as emergencies and taxes. It is recommended that you set aside and save at least 30% of your total income for taxes.

To open a business bank account, you’ll need a few details. They include:

  • Business name
  • Business license
  • Social security number
  • Employer identification number
  • Organizing documents

Get a business credit card

Getting a business credit card comes with its share of benefits, but mainly, it will help establish a credit rating for your business. With the right card at hand, you can even get travel points or back cash rebates each time you make a purchase.

Track business expenses

Other than preventing instances of petty theft, tracking your expenses can help save a ton of money in tax deductibles. If you are keen, you’ll find a plethora of small expenses within your business are tax-deductible, meaning you can claim them on your tax return. However, the condition is that you have records of the expense.

The IRS demands that you have with you any documentation proving income credits or deductions that appear on your tax return. A few fundamental documents you should make sure to keep include:

  • Credit card and bank statements
  • Bills
  • Receipts
  • Invoices
  • Canceled checks
  • Proof of payments  
  • Previous tax returns    
  • Financial statement from your bookkeeper      
  • W2 and 1099 forms

Now, as you may know, storing paper receipts can get a little messy. And while they can just as easily be stored in a shoebox, it is better to keep them in an organized manner to allow for easy tracking. You can store them in a file, organize them by date or alphabetical order, or use an expense tracking system.

Alternatively, you can take photos of the paper receipts and store them online using software like QuickBooks online. If they are electronic receipts, you can either leave them stored in your computer or online storage systems like Expensify.

2. Choose a bookkeeping system and accounting method

Before we get into accounting methods, it is important to know what bookkeeping entails and how it all fits in.

To break it down, bookkeeping is simply the day-to-day act of recording transactions in business and reconciling bank statements. Accounting, on the other hand, is a higher-level process. It involves closely examining how the company is progressing and using data obtained from bookkeeping to build financial statements.

How to record business transactions

There are a few methods you can use to manage your books.  

  • DIY (by hand) – If you choose to do the bookkeeping yourself, you can make the entries manually using software like Wave or QuickBooks. First-time business owners that start with Excel spreadsheets regret it, so we advise using cloud accounting software.    
  • Outsourcing – If you’d rather spend your time managing other aspects of your organization, you can leave it to a professional bookkeeper. This can be either a remote or part-time local bookkeeper.   
  • In-house – This is usually the most expensive option. If you have the funds, you may employ a full-time in-house accountant or bookkeeper and leave everything to them.

Choose an accounting method

Once you have decided on a suitable bookkeeping solution, the next step is to determine which accounting methods to use. In this case, there are two main types: cash method or accrual method.

If your business is receiving revenue of $5 million each year, you can use either one to track the flow of money in and out of your business.

  • Cash basis method – Here, expenses and revenues are recognized the moment they are actually paid or received to or by the business. It is the most commonly used accounting method by individuals to balance their books.
  • Accrual method – In accrual accounting, any income or expenses are recognized the moment the transaction happens, regardless of whether the cash has arrived or left the bank. You’ll need to track payables and receivables.

Now, of the two, new businesses are better off using accrual accounting. With accrual accounting, the transactions are recorded early on in the process. With this, the business can better track accounts receivable and accounts payable. Ultimately, you get a more realistic view of foreseeable future profits.

Also, once any business reaches the $5 million a year in revenue mark, it is legally required to use accrual accounting anyway. Therefore, if you use accrual accounting from the start, you won’t need to switch methods once your business grows.

Determine how you’ll be paid for your products or services

Unlike the olden days, where you could only get paid in cash, there are now a variety of payment systems that customers can use. This can either be online, in person, or using a point of sale or POS system.

  • POS systems/in-person payments – POS or point of sales systems refer to payments made in person by customers at your store. An efficient system will accept payments and keep track of sales in the store. You can make use of various digital POS software that incorporate contactless payment options, mobile POS, and e-commerce capabilities.
  • POS payments only – If you’ll only be doing POS sales, you want to look for a POS system that will work with your cash register or a separate credit card reader. For this, you’ll have to open a merchant account that will act as an intermediary between your business bank account and the payment system.
  • Online payments only – if you’ll only be accepting online payments, you can use PayPal or Shopify if you are an online-based retailer.

Set up a payroll system

As your business grows, you might need to hire employees or contractors to assist run the business. In this case, you’ll have to establish a payroll processing system to handle payments.

For best results, you want a payroll system that automates most of the tasks and automatically dishes out the funds.

Also, as you add people to the payroll, it is important that you place them in the right category. Either as independent contractors or employees. Failure to do so might result in penalties from the IRS.

Determine tax obligations

Your tax obligations will depend on your business legal structure. For instance, if you are a sole proprietor, self-employed, partnership, or LLC, you can claim business income on your personal tax return.

On the other hand, corporations are taken as separate entities and are therefore taxed separately from the owners. Therefore, you will be taxed independently as an employee of the corporation.

If you are self-employed, you’ll need to withhold taxes from your income and then remit them to the government the same way an employer withholds taxes from their employee’s pay. If you owe upward of $1,000, you’ll have to pay estimated quarterly taxes(four times a year).

3. Set up an online accounting system

Once you’ve established the steps above, all that is left is to set up an online accounting system. The easiest way to do this is by using cloud accounting software such as QuickBooks. Usually, it will come with everything you’ll need to record, analyze and report your business transactions.

Can you do accounting on your own?

If you are only just starting out, this might all seem like a lot. You might be wondering: is it really possible to do accounting on your own?

Well, to answer the question, yes; it is entirely possible to do accounting on your own. How well you do it depends on the scale of the business and your depth of knowledge on the matter. As we saw, there are various online bookkeeping software options that can help record transactions and streamline various accounting processes.

Still, doing your own accounting has its downsides. It’s not only prone to errors but will also take time away from focusing on other business activities. To do it successfully, you’ll need to have an aptitude for numbers and a general understanding of basic accounting practices and business taxes.

4. Outsource your accounting

If your heart’s not in it, you’d be better off leaving it to a licensed Certified Public Accountant (CPA) or a professional virtual accounting team like Xendoo. We not only have the knowledge and accounting tools, but also the experience of navigating all the balance sheets, chart of accounts, complex sales tax regulations, and rules.

Xendoo will also help with such things as lease negotiations, ongoing tax reporting, cash and treasury management, and developing long-term strategic plans for your finances.

Every entrepreneur faces challenges when starting a business. To get your business off the ground, you are going to need all the help you can get. Hopefully, by following the steps above, you have one less thing to worry about.

Of course, you don’t have to carry the weight on your own. If you’d rather focus on other aspects of your business, Xendoo is here to assist. With years of experience managing books, our professional accounting team is more than ready to help with all your accounting, bookkeeping, or tax needs. So feel free to contact us today and chat with one of our agents.

How Long Does It Take an Accountant to Do Taxes?

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An accountant reviews tax forms.

An accountant reviews tax forms.

As tax season looms, you may be wondering whether you should have an accountant prepare your taxes. In addition to considering how much an accountant costs, you’ll also want to consider how long an accountant will take to do taxes compared to trying to do it yourself.

How do you know when to bring in a tax professional? Complicated tax situations like inheritance, small business taxes, or other big life changes usually warrant bringing in a certified public accountant or CPA. 

How Much Time Does it Take an Accountant to Prepare Taxes?

The time it takes an accountant to do taxes depends on the complexity of your return and how quickly you make your tax information and necessary documents available to them. 

It is better to plan ahead before the tax filing deadline. You can ask an accountant to have a better understanding of the timeline required to complete the process. There are a few ways that you can speed up the process.

Cost and Time Considerations

A number of factors affect the time it takes to file taxes. Not all of these will be the responsibility of the tax preparer. 

First, you must make sure that you have all of the required documentation available for the tax preparer. Documentation includes any statements of income you have received from an employer or other entity, as well as any other tax forms for expenses. 

Some of the most common forms include: 

  • W-2
  • 1099-NEC
  • 1098 

The W-2 is used to report income earned from an employer, as well as the payment of any taxes. A 1099-NEC includes independent contractor earnings. The 1098 form is a statement of any mortgage interest or insurance premiums paid. 

Deductions are another consideration. If you prefer to itemize rather than take the standard deduction, you’ll need to have receipts available. 

Typical items that are itemized include:

  • Medical and dental expenses
  • Mortgage interest
  • State or local property tax

All of your receipts should be organized and provided to your tax preparer.

Tax Preparation for Small Business Owners

Business owners will have more complex taxes. Businesses are able to claim certain deductions for expenses incurred throughout the year, but they need to have appropriate evidence of these expenses. 

Gathering this documentation may take some time, especially if you haven’t kept track of your receipts during the year. Online accounting software can assist in managing small business income and expenses.

The cost of the tax preparation and filing varies. More complex returns will incur higher fees. Often you may offset the cost of these services with your tax refund if you are eligible for one.

If you choose to use a local accounting firm that specializes in tax return preparation, you will pay significantly more. However, if your tax situation is complex, it pays to engage the services of true tax professionals. 

Xendoo has a variety of plans that are priced to meet tax needs for businesses of all sizes. The accounting team will be familiar with tax law and tax code and can make sure to include all deductions available to you. Xendoo’s team can also assist you with tax planning to mitigate your tax expense in future years.

How Much Time Do You Spend Preparing Your Return?

If you have filed your own tax return in prior years, you may have spent a significant amount of time to ensure you filled it out properly. When you did, you likely had to gather all of your tax forms and expense records. Then, check that you included each applicable tax form, including form 1040. 

You may have struggled with situations that required more complexity, such as capital gains or business deductions. Perhaps you had significant medical expenses that required you to itemize rather than take the standard deduction. 

Whatever the reason, you likely spent significant time and effort preparing your own tax return. At the end of the process, you may not have even been entirely comfortable that your return was correct. This oversight is why it makes sense to hire someone to handle tax preparation for you.

Plus, if you have errors in your tax preparation, it can slow the process down. Tax professionals can prevent common errors so that your taxes are filed faster. 

Is It Worth Getting an Accountant to Do Your Taxes?

There are three main types of qualified tax preparers. These include enrolled agents (EAs), certified public accountants (CPAs), and tax lawyers. Other individuals may prepare taxes through retail firms, but often they will not have received education specific to tax. 

Thus, if your tax situation is complex, it makes sense to hire someone to prepare your taxes who has the education and experience that fits your particular situation.

While there is an expense associated with hiring a qualified tax preparer, doing so saves you time, energy, and potentially even money. Tax preparers are generally familiar with most of the IRS tax code and must stay up to date on any changes that are made. They will be aware of deductions that you may not know you qualify for. 

If you own a business, it is likely that you will need the services of a tax preparer. Business taxes are typically much more intricate than personal tax returns. 

They involve a number of different considerations, especially if your company has employees, equipment, or investments. Tax consulting services can assist you with ensuring your business tax return is properly completed.

Tax Accounting Software

Some people decide that engaging the services of a professional isn’t necessary, especially if they have simple returns and have some knowledge of tax. They may choose to utilize tax software to prepare their returns. 

To prepare yourself for tax time, there are a few online accounting software options that may help.

When you get a Xendoo plan, you can also sync to online accounting software and tools through our partners. These include:

  • Xero 
  • Quickbooks

Although these tools can make the tax filing process easier, there is still some heavy lifting that you need to do. Xendoo comes with accountants that can advise you when filing tax returns.

There are a number of factors that impact how long it takes to complete income taxes. To speed up the process, store all of your tax-related documents throughout the year and keep them organized.

For small business owners and more complex tax needs, using a tax preparer like Xendoo can save time and money. If your return is complicated, consider small business tax preparation services.

Accounting for Startups — Starting Off on the Right Foot

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Author’s Note: This blog post was updated on February 22, 2022, to include new information, resources, and links.

Accounting for startups means more than just keeping up-to-date financial statements and records. Startup founders wear many hats, from sales to accounting.

Accounting may not be on the top of the list, but it is critical to business health and growth. A business that sets appropriate accounting policies from the beginning will have a better chance of success than one that doesn’t.

Does a Startup Need an Accountant?

When opening a new business, there are many decisions to be made. Startups may not need to have an accountant on staff if the business is simple and hasn’t generated a lot of revenue yet. As a startup grows, it will become more important to have the right accounting tools and expert advice. 

Business owners gain a competitive advantage by having a strong accounting system set up from day one. An accountant helps startups plan for the future. They can assist with services like payroll, catch up bookkeeping, tax planning, and more.

Why Is Accounting Important for Startups?

When first launching a business on a tight budget, it’s tempting to choose a cheaper accounting solution such as Excel spreadsheets. However, that “cheap” solution can turn out to be more expensive. It can’t prevent human error, can cost many unnecessary man-hours, and in the end, not meet your needs.

Instead, it’s wise to have an accounting strategy planned out in advance. Working with Xendoo’s accounting system you can accurately account for all of your company’s financial needs. 

For example, accurate accounting records can assist startups in obtaining a business loan or investment. Both investors and commercial lenders will look at your books during the funding process. They will be more likely to supply you with funds when you show a clean set of accounting books.

However, accounting services can help startups with many more aspects of their business.

What Are the Benefits of Startup Accounting? 

Not having proper accounting records from the inception of your business can result in problems down the line. Xendoo uses a cloud-based accounting system for the many ways it saves startups time and money.

There are several benefits of using a cloud-based accounting system. Here are a few ways that Xendoo helps startups with their accounting.

Startup Accounting Expertise That Scales

If you are unsure about how to handle accounting tasks (or simply don’t have the time to do so), it’s worth the cost to use a service like Xendoo that specializes in accounting for startups.

Your accounting should scale with your business needs. As your business grows, its accounting gets more complicated. 

If you choose to handle accounting tasks on your own, you may find yourself stretched for time. Instead of focusing on scaling the business, you may spend too much time on administrative work.    

Time-Saving Accounting Automation

Xendoo can sync with your bank, so every transaction is automatically entered into the bookkeeping system. It saves many hours of work and avoids the risk of error when a human operator transcribes the numbers.

Instead of spending lots of time at month-end trying to reconcile financial transactions in the general ledger, cash transactions have already been booked accurately. You no longer need to wait for bank statements or credit card statements.

You can know your cash position by having your cash transactions automatically posted in real-time. You’ll be able to make better decisions on upcoming expenses and have better insight into the financial health of your business. 

Other entries may also be recorded automatically, such as depreciation on equipment or other fixed assets. 

Cost Savings

Xendoo can save you serious money on your office staff. You may be employing multiple staff members to handle your accounting tasks, but it may not be necessary. Our trained accountants can handle the accounting transactions for multiple industries, including ecommerce, professional services, and retail. 

Our expertise allows us to easily accommodate the needs of your business. The cloud-based accounting system ensures that your financial records are up-to-date and accurate. Plus, you can message your Xendoo CPA team anytime for a fast response.

Offering more remote and part-time work options enables you to reduce your full-time office staff, as well as the overhead costs of accommodating them. Because data is stored in the cloud and not your servers, IT expenses can be trimmed.

Employee Tax Forms and Payroll

If your startup hires employees or independent contractors, accurate records become even more important. A startup accountant can ensure that payroll is handled properly and the requisite taxes are withheld and paid to state and local governments.

There are other tax issues that a startup accountant may assist you with, such as sales taxes, local taxes, and accounting for any fixed assets. Accurate records will help you prepare for your business tax returns at year-end. 

From a tax perspective, startup founders can save a lot of time and effort with books that are ready to go for tax season. There’s no need to scramble for records related to business expenses — they’ll already be recorded in the Xendoo cloud-based accounting system.

Financial Reporting

One huge advantage of working with Xendoo is that you’ll have an accounting system in place that provides you with the reports when you need them. You don’t have to read paper receipts or sit at your office computer to see financial reports or bank transactions. 

This enables you to respond to changing conditions as they happen, minimizing the risk of losses or missed opportunities. Xendoo provides accurate financial reporting, including a balance sheet and income statement. 

The accounts payable and receivable reports include an overview of outstanding accounts, so you can make quick business decisions based on current information. Startup accounting with Xendoo can also help you reach out to customers who are overdue on their invoices.

Complete, accurate, and up-to-date financial reports are available at any time. Every entry is tax-coded, so no extra work is needed to prepare for filing taxes or being audited.

Financial Planning

Another advantage of using Xendoo is financial planning and cash flow statements. A strong understanding of your current cash position can assist with making adjustments to your business strategy as needed.

A basic spreadsheet can’t tell you much about your financial big picture or warn you when things aren’t going according to plan. Xendoo’s monthly P&L statements show where you stand and what needs adjusting at a glance. The CPA team can also offer expert advice on planning for the future. 

Don’t waste time with Excel spreadsheets that can quickly lead to an accounting mess. Instead, take advantage of a solution designed to assist startups as they scale for growth. An accurate reporting system set up from day one gives up-to-date information on the financial status of your business. 

Leave the accounting to our knowledgeable team that understands accounting for startups. Xendoo can assist you with accounting processes like compliance, reporting, and financial planning. 

The cloud-based accounting system is user-friendly, allowing you to easily view your accounting books at any time. Xendoo’s flexible plans are designed to take a business from startup to enterprise level. While Xendoo handles the bookkeeping, you can focus on making your new business the best it can be.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

When Can You File Small Business Taxes in 2022?

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This year, make things easier on yourself by planning ahead. You’ll thank yourself for filing business taxes according to the prescribed deadlines. Not only will this save you from sweating over a shoebox full of receipts, but making on-time tax payments will save you from any late fees or interest payments.

To help you with this process, we’ve put together this complete guide for filing business taxes in 2022. You can use the information and the dates we provide to form a strategic plan for preparing and filing your taxes in 2022.

What Is the Business Tax Filing Deadline for 2022?

You may have already marked April 18, 2022, on your calendar to remind you to pay your personal income taxes. This date is a slight change from previous years since April 15 (the common tax deadline) happens to fall on Good Friday.

But what about your small business taxes? The deadlines for filing business taxes depend on how your business is structured. Here are the deadlines for common business types:

Sole Proprietors, LLCs, and C Corporations

April 18, 2022, is the tax deadline for sole proprietors, limited liability companies (LLCs), and C corporations. They all must all file their taxes by this common April due date.

These businesses can also file for a tax extension, and this extension must also be received by April 18. Once your extension is approved, your new tax deadline becomes October 17, 2022.

It’s important to remember that your tax return must be at least postmarked by the due date. If you choose to send a paper return through the mail, take this into consideration to ensure you comply with the April tax deadline.

S Corporations and Partnerships

Some business types must file their taxes earlier than the April 18 tax deadline. For S corporations and partnerships, the deadline is March 15, 2022. 

These businesses can also file for a six-month tax extension, which places their final deadline at September 15, 2022. As with the return itself, applications for a tax extension must be postmarked by March 15, 2022.

Estimated Tax Payment Deadlines

It’s quite common for business owners to make estimated tax payments. These payments are made in each quarter, though the deadlines don’t always fall at precise intervals. For the 2022 calendar year, businesses must adhere to the following quarterly tax payment schedule: 

  • April 18, 2022 (for income received from Jan through March)
  • June 15, 2022 (for income received from April through May)
  • September 15, 2022 (for income received from June through August)
  • January 16, 2022 (for income received from Sept through Dec)

Keeping these estimated tax payment deadlines on your calendar can ensure that you meet your tax obligations. Keep in mind it’s better to overpay than to underpay, as the latter can result in a penalty if your payments are too low.

When Can I Do My Taxes for 2022?

We recommend that business owners not wait until April 17 when filing business taxes. Some entrepreneurs may be particularly eager to file their taxes, hoping to take advantage of deductions based on careful planning on their previous year’s taxes.

Generally, the IRS will begin accepting electronic tax returns by late January. In 2021, the IRS didn’t begin accepting returns until February 12, though this seems to be an anomaly. By January 24, you’ll likely be able to file a business tax return.

This date, of course, assumes you’re ready. Some business owners prefer to have a financial professional or tax services give their tax return a final check before filing to verify its accuracy and ensure that they received all of the deductions and credits to which they’re entitled.

Key Dates

Ready to mark your calendars? Here are all of the important dates for filing business taxes in 2022. You can bookmark this page for future reference or transfer this data to your personal or company calendar, so you never miss a deadline.

  • January 20, 2022: Employees who earned over $20 from tips in the month of December must report this income to their employers using Form 1070.
  • January 15, 2022: Your fourth-quarter estimated tax payment for 2021 is due on this date.
  • January 31, 2022: Employers must send W-2 forms to their employees and 1099 forms to their contractors for earnings from 2021.
  • February 10, 2022: Employees who earned over $20 in tips during the month of January must report this income to their employers using Form 1070.
  • February 15, 2022: Financial institutions must send Form 1099-B (sales of stocks/bonds/mutual funds through a brokerage account), Form 1099-S (real estate transactions), and Form 1099-MISC unless the sender is reporting payments in boxes 8 or 10.
  • February 28, 2022: Businesses must mail Forms 1099 and 1096 to the IRS.
  • March 1, 2022: Farmers and fishermen must file individual income tax returns (unless they paid 2021 estimated tax by Jan 18, 2022).
  • March 10, 2022: Employees who earned over $20 in tips during the month of February must report this income to their employers using Form 1070.
  • March 15, 2022: Corporate tax returns (Forms 1120, 1120-A, and 1120-S) for the tax year 2021 must be filed by this date, or you may file for a six-month extension using Form 7004 (for corporations using the calendar year as their tax year), or Form 1065 (for filing partnership tax returns).
  • March 31, 2022: This is the deadline to e-file Forms 1099 and 1098 to the IRS (but not Form 1099-NEC).
  • April 11, 2022: Employees who earned over $20 in tips during the month of March must report this income to their employers using Form 1070.
  • April 18, 2022: Household employers who paid $2,300 or more in wages in 2021 must file Schedule H for Form 1040.
  • April 18, 2022: Individuals must file their personal tax returns for 2021, or Form 1040 or Form 1040-SE. Form 4868 must also be filed by this date in order to request an extension.
  • May 10, 2022: Employees who earned over $20 in tips during the month of April must report this income to their employers using Form 1070.
  • June 10, 2022: Employees who earned over $20 in tips during the month of May must report this income to their employers using Form 1070.
  • June 15, 2022: Second-quarter estimated tax payments for the 2021 tax year must be received by this date.
  • June 15, 2022: U.S. citizens living abroad must file individual tax returns (or Form 4868) by this date to receive a four-month extension.
  • July 11, 2022: Employees who earned over $20 in tips during the month of June must report this income to their employers using Form 1070.
  • August 10, 2022: Employees who earned over $20 in tips during the month of July must report this income to their employers using Form 1070.
  • September 12, 2022: Employees who earned over $20 in tips during the month of August must report this income to their employers using Form 1070.
  • September 15, 2022: Third-quarter estimated tax payments for the 2021 tax year must be received by this date.
  • September 15, 2022: Partnership and S-corporation tax returns for the tax year 2021 must be filed by this date if an extension had been previously granted.
  • October 11, 2022: Employees who earned over $20 in tips during the month of September must report this income to their employers using Form 1070.
  • October 17, 2022: Final deadline to file individual or corporate tax returns for 2021 using Form 1040 and Form 1120 (if an extension had been previously granted).
  • October 17, 2022: Eligible taxpayers who earned $72,000 or less in adjusted gross income during 2021 can use Free File to file their returns by this date.
  • November 10, 2022: Employees who earned over $20 in tips during the month of October must report this income to their employers using Form 1070.
  • December 10, 2022: Employees who earned over $20 in tips during the month of May must report this income to their employers using Form 1070.

Remember, if you miss one of these important dates, you could face a penalty. At the very least, you might end up paying additional interest on the taxes you owe, so it’s important to keep these dates on your calendar and meet any deadlines that might apply to your business.

Tax Preparation and Planning Made Easy

Filing small business taxes doesn’t have to be a headache. In fact, with the right planning and preparation, your tax return can be the culmination of a year’s worth of hard work and careful strategy. 

When you plan ahead for your next tax year, you can take full advantage of any deductions, credits, or other features that can save you money and keep your business financially healthy.

At Xendoo, we can help with that. Our team can help you with monthly bookkeeping in addition to helping you plan and prepare your business tax returns. Our tax preparation for small business services can help you save money and meet the IRS requirements, all while relying on our professional team to keep things running smoothly.

Want to learn more? Click here to get started, and our free trial can show you how Xendoo’s innovative features can take the stress out of your tax preparation.

Fallen Behind on Bookkeeping? Here’s How to Catch Up

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bookkeeping and accounting team

Tax season can be stressful, especially if your books are behind, inaccurate, or both. We estimate that roughly 25% of small businesses seek information on how to catch up on business taxes and get their financial records in order.

The benefits of clean, accurate books extend far beyond tax season. When your books are up to date, your business will be better equipped to make strategic financial decisions, analyze expenses, and manage cash flow.

Conversely, when you get behind in your books, it doesn’t just make it harder to prepare and file taxes. Outdated or inaccurate books can limit your ability to cover your expenses, pay your employees, or secure a small business loan.

You’re probably reading this because you already know you’re a little behind on books. The biggest decision to make is whether to try to get your books caught up on your own or secure the assistance of a catch-up bookkeeping service. We’ll help you decide by covering the pros and cons of both approaches in this article.

The Pros of DIY Catch Up Bookkeeping

When you’re considering how to catch up on business taxes, you might decide to handle your own books. That’s not a bad strategy, really, since DIY-bookkeeping offers the following advantages:

Costs Less

Let’s face it: today’s business owners need to cut corners any way they can. Rather than hire an in-house bookkeeper or outsource your bookkeeping needs to an accounting firm, you can simply catch up on your books yourself. 

If you’ve already got some experience in filing taxes and managing your accounting needs, this can be an area where you can minimize expenses. For a full overview of the costs of catch up bookkeeping, check out this post here. 

Intimate Knowledge of Your Business

No one knows your business better than you do. When you handle your own books, you’ll have an intimate knowledge of your income and expenses and will be in a better position to make updates and correct errors as you proceed. 

This consideration might be especially true if you’ve collected a lot of receipts and paperwork on your own. Having these documents on hand can make it easier to record income and business expenses as they happen, and by handling your own bookkeeping, you’ll be better able to identify expenses.

Privacy

As a business owner, you might be reluctant to hand over your sensitive financial data to a third party. By handling your own books, you eliminate all possible breaches in your data security, and you keep your business information limited to your eyes only.

The Cons of DIY Catch-Up Bookkeeping

There’s a reason that so many small businesses outsource their needs to a catch-up bookkeeping service. While there are many business tasks that you can handle on your own, bookkeeping isn’t always one of them and there are so many benefits to catch up bookkeeping. 

Business owners often discover that the bookkeeping process can be:

Time-Consuming

Stop and think about this for a minute. How did your books get so behind in the first place? For a lot of entrepreneurs, it comes down to a lack of time. But if you didn’t have time to maintain your books, how likely are you to find time to catch up on your books?

This contemplation actually brings us back to the question of money. Sure, handling your own books will cut down on your administrative expenses, but at what cost? Your efforts are better spent on the revenue-generating activities of your business, not the administrative details of your back office.

Confusing

It can be a challenge to get books caught up in time for tax season. Accounting terms and software tools aren’t always easy to navigate, especially without some degree of specialized training. And that’s to say nothing of the jumble that can occur when you get behind in your books.

This confusion is why it’s best to rely on an accounting professional who knows how to catch up on business taxes. They can sort through the mess on your behalf and bring clarity to your books, so you don’t have to sweat the process when it comes time to pay your taxes.

Inaccurate

The more tasks you’re juggling, the easier it is to make mistakes. But errors in your books can cost you, especially when it comes to tax preparation. Reporting errors can change the actual amount of taxes you owe, and if you underreport, you could be subject to penalties.

Having access to a team of financial professionals can ensure that your books are fully up-to-date, as well as free from any inaccuracies that can cause problems for your business. Plus, a financial professional may be able to help you maximize your deductions, saving you money and enhancing your profitability.

Get Started Now

If we’re honest, most of us make a plan to get started “tomorrow.” But by the next day, we put it off once again.

The best time to get started is now. With tax season looming on the horizon, you can’t afford to wait for another “tomorrow.” In fact, the more you put it off, the more your overdue books can snowball into an even messier problem.

This time crunch means that whether you plan on catching up on your own books or relying on a professional service to provide catch-up bookkeeping for small business, you’ll want to get a plan in place so you’ll be prepared for tax season.

How to Catch Up on Business Taxes Faster Than Ever

The expert team at Xendoo has already provided catch-up bookkeeping for small business owners across the country. We can bring your books up-to-date so that you’ll be prepared for tax season and put you on the road to greater financial control.

How much does catch-up bookkeeping cost? Your final price depends on how far behind you are, but Xendoo can provide catch-up services starting as low as $295. The real value is found in the peace of mind you get, knowing your financial records are handled by a trained professional.

Find out for yourself by signing up for a free trial, and see what Xendoo can do for your business.

The Top 5 Benefits of Catch Up Bookkeeping

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Young cafe owners sitting at table, working on their catch up bookkeeping

Whether they coach chess players or sell organic puppy food online, every small business owner shares a common driving force: a passion for growing their business. Increasing sales and gaining new customers is one part of the equation. Consistent bookkeeping provides the financial insight needed to strategize for long-term success. With so many obligations resting on the business owner’s shoulders, it can feel like there are not enough hours in the day to accomplish every task, and eventually the books may fall behind. 

Even if the books are only behind a few weeks, up-to-date records are crucial for the financial well-being of every business. Catch up bookkeeping accelerates business growth by increasing financial visibility, which enables business owners to make decisions based on accurate information and remain tax-compliant throughout the year! In this blog post, we are exploring the top 5 benefits of catch up bookkeeping!   

Reliability in Your Opening Balance

The Opening Balance is the amount of money in your bank account at the beginning of a new financial period, such as the start of the month. Be aware that your bank account does not necessarily reflect the exact amount of cash that is available to spend. For example, if your Opening Balance states that you have $50,000, but $20,000 worth of checks have not cleared yet, the actual balance is $30,000. The best practice is to consult your updated accounting software or financial statements, which provide insight into your true financial position.

The financial statements report revenue, expenses, and profitability, all of which contribute to the Opening Balance. They also guide decision-making and reveal opportunities for business growth. The more up-to-date your books are, the more reliable your financial statements (and Opening Balance) will be! 

If your bookkeeping is behind, there will be little to no financial data for that time period, which means you will not know your true Opening Balance for today. For example, if your account was reconciled in January, but February was skipped, the Opening Balance would be incorrect for March. This could skew your numbers going forward, and costly choices could be made based on inaccurate data. This could also affect future bank account reconciliation, as well as the balances in your revenue, costs, and expenses. It is a vicious cycle.

Catch up bookkeeping corrects these issues and provides clarity and accuracy in your financials. Once your books are caught up, keeping them up-to-date becomes second nature.

Financial Accuracy Through Bank Account Reconciliation   

A bank account reconciliation is performed to confirm that your accounting records match the information in your bank account. It is an opportunity to identify and correct any bookkeeping errors before the financial statements are finalized, as well as detect and prevent fraudulent activity in your bank account. Bank account reconciliation also ensures that you are accurately reporting your income to the IRS. The best practice is to reconcile your bank account once a month. 

Proper bank account reconciliation can only be accomplished when the books are up-to-date. By getting your books caught up, you can ensure the reliability and accuracy of your financials each month. 

 

Cash Flow Management

Catch up bookkeeping can have a significant impact on cash flow. When your books are caught up, you can pinpoint how and when cash enters and leaves your business each month. This delivers a deeper understanding of your cash needs, so you can create a plan for cash flow management. 

For example, as your books are caught up, you may uncover past due invoices, or find that you are sending out vendor payments before you receive the cash needed to cover them. 

With this insight, you can monitor your Accounts Receivable to ensure you are paid in a timely manner going forward, and find solutions for the timing of your own payments. You can also forecast future cash needs to be confident you have what you need for continued operations.   

Click here to learn more about cash flow.  

Insight into Net Income

Keeping your books up-to-date plays a vital role in calculating your bottom line, or Net Income, which is the profit that remains after all costs and expenses are subtracted from revenue. In order to know your true Net Income, all business expenses must be accounted for through accurate and timely bookkeeping. This understanding of your Net Income provides the opportunity to increase your bottom line. 

Getting your books caught up is also essential when applying for loans. Creditors and investors examine Net Income when deciding to invest in a business, as it highlights the business’s ability to pay back loans efficiently. Catch up bookkeeping determines your bottom line, so you can understand and increase the profitability of your business, meet loan requirements, and secure funding for your next venture!     

Click here to learn more about Net Income.   

Tax Compliance

As tax season draws closer, a concern that many business owners have is under or over reporting their earnings, and missing out on deductions. They may also experience a back and forth with their Tax CPA over missing documents and gaps in their financials. Breathe a sigh of relief – catch up bookkeeping takes the headache out of tax season!

By getting (and keeping) your books caught up, you can identify the deductions you qualify for, maximize your tax return, and stay compliant all year long! 

Get Your Books Caught Up with Xendoo

Behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Get a fresh start with catch up bookkeeping services from Xendoo, so you can take your time back and focus on the future of your business. 

Let’s chat! We would love to get to know you and your business. Click here to schedule a free consultation.