Greetings! Today we’ll be talking about two of the most popular accounting methods: cash basis and accrual basis. Many business owners scratch their heads when trying to decide which method will work best for their business, and how they should set up their accounting software, like Quickbooks Online. At Moose Creek Bookkeeping, we are well-versed in all things accounting and we are happy to share our knowledge with you. Let’s dig into cash basis vs. accrual basis.
Cash Basis Accounting:
Imagine you run a small bakery, and you sell a batch of delicious cupcakes today. With cash basis accounting, you’d record the sale when your customer pays you, and not a moment before. It’s a simple approach that focuses on actual cash inflows and outflows. Perfect for businesses with straightforward, day-to-day transactions, this method is like keeping a close eye on your wallet.
The pros of this method include the simplicity of it as well as the real-time picture it provides. You get a clear view of your actual cash flow, which helps you manage short-term financial needs effectively.
Conversely, as comfortable as cash basis accounting might feel, it doesn’t give you the whole financial story.
And for long-term projects, cash basis accounting might not reflect the project’s real financial status, making it a bit like trying to bake those cupcakes with missing ingredients.
Now, let’s talk about accrual basis accounting. This method goes beyond cold, hard cash and considers transactions when they are earned, regardless of cash movements. It’s like having a crystal ball that predicts your financial future.
Accrual accounting provides a complete and accurate snapshot of your business’s financial health. It accounts for both present and future income and expenses, offering you a well-rounded picture. For long-term projects, accrual basis accounting is a shining star. It helps you track revenue and expenses over time, giving you valuable insights into your project’s profitability and financial performance.
However, accrual basis accounting might feel a little intimidating, as it requires a bit more accounting know-how and organization. Oddly, with accrual accounting, In the short term, your cash flow might not line up with your reported income or expenses. This can be a tad tricky to manage but remember, understanding the difference is key.
That’s where we come in. Moose Creek Bookkeeping has been helping businesses just like yours understand and master these principles. Our holistic approach and long-term insights will guide you to make sweet financial decisions and keep your projects on a path to success.
Reach out to Moose Creek Bookkeeping at any time for a no-obligation discovery call.
Hey there, contractors and project enthusiasts! Welcome to Moose Creek Bookkeeping, where we believe that understanding the financial side of your contracting business can take your success to new heights. Today, we’re diving into two crucial concepts in bookkeeping: Accounts Receivable Aging and Accounts Payable Aging. So, let’s grab our hard hats and discover why these two reports are so vital.
Accounts Receivable Aging is a process that helps businesses keep track of the payments they are owed by their customers. In simple terms, it provides a snapshot of how long invoices have been outstanding and the likelihood of collecting those funds. Accounts Receivable Aging allows you to track the timing and status of each invoice, helping you anticipate and manage your cash flow effectively. By understanding which payments are due, overdue, or outstanding, you can take proactive steps to collect what you’re owed.
In the contracting world, relationships matter! With Accounts Receivable Aging, you can identify clients who consistently pay on time, allowing you to nurture those valuable relationships. For clients who may have fallen behind on payments, you can employ friendly reminders and open communication to ensure they stay on track. By maintaining positive client relationships, you set the stage for future projects and excellent referrals. Using these reports you can quickly identify any delays or potential issues, enabling you to take proactive measures to address them, such as adjusting deadlines.
Now, let’s look at the other side of the equation. As a contractor, you rely on a network of suppliers and subcontractors to bring your projects to life. Accounts Payable Aging is the secret sauce to maintaining strong partnerships and keeping your projects running smoothly. Just like you, they like to be paid on time, so you can see why these two concepts go hand-in-hand.
Accounts Payable Aging allows you to track your outstanding invoices, ensuring you never miss a payment. Paying your suppliers promptly builds trust, strengthens relationships, and ensures a steady supply of materials and services when you need them most. By managing and categorizing your payables, you can easily track project-related expenses, and even identify any billing errors or discrepancies.
We understand that chasing down outstanding payments might not be your thing, so we can do that for you! We offer comprehensive bookkeeping services tailored to your needs, including meticulous management of Accounts Receivable Aging and Accounts Payable Aging. With our assistance, you can focus on what you do best—bringing your projects to life—while we handle the financial details with precision.
Moose Creek Bookkeeping is here to be your trusted ally, offering expert bookkeeping services and guidance for businesses of all shapes and sizes. Please give us a call or schedule a discovery call so we talk about how Moose Creek Bookkeeping can help your business thrive financially.
Percentage-of-Completion Method vs. Completed-Contract Method
Accounting for long-term projects can be complex, requiring careful consideration of income and expense recognition. In this month’s blog, we will cover the two common accounting practices used by contractors and the like for large, long-term projects: Percentage-of-Completion Method and the Completed-Contract Method. We understand you might already be scratching your head regarding what those two methods accomplish or what those words even mean, well you’re in luck! Moose Creek Bookkeeping has been guiding businesses just like yours through the complex calculations required to keep your financials accurate and easy to grasp. Let’s take a quick look at the differences between the Percentage-of-Completion Method and the Completed-Contract Method.
The difference between the two methods lies in the timing of income and expense recognition.
This method accurately represents a project’s financial performance by recognizing income and expenses as a percentage as the project progresses.
Aligns with the matching principle, ensuring that income and expenses are appropriately reconciled in each reporting period.
Contractors using this method can provide stakeholders with regular updates on the project’s progress.
This method defers the recognition of income and expenses until the project is completed.
It is more simple which can save time and effort in estimating and tracking completion percentages.
There is no need for ongoing estimation or tracking of project progress. This reduces the risk of inaccuracies.
With income and expenses recognized in a single period, the Completed-Contract method can provide financial statements with less volatility (no estimates).
Basically, the Percentage-of-Completion method provides ongoing information about the project’s financial performance throughout its duration. In contrast, the Completed-Contract method provides a more static snapshot of the project’s financials at the time of completion.
While both the Percentage-of-Completion and Completed-Contract methods have their merits, the Percentage-of-Completion method is generally considered better for contractors. It provides accurate income recognition and aligns with industry standards. However, there are a host of variables that can determine which method is right for your business. We are happy to discuss those variables with you in further detail.
Hopefully, this gave you some insight into which method might work best for your company. Please reach out to Moose Creek Bookkeeping with any questions you may have. We always offer a complimentary discovery session to help point you in the right direction.
As a business owner or manager, it’s essential to stay on top of your company’s financial health. Wouldn’t it be great if there was one report that could give you a high-level overview of the books so you can make smart financial decisions for the future? Well, there is! We present The Balance Sheet. (ta-da!)
While it’s not a novel idea, a balance sheet is one of the reports that are crucial to understanding. At Moose Creek Bookkeeping we have been translating accounting reports for clients for over 30 years, combined. So, if you still have questions after reading this quick article, please reach out for a free discovery call.
Balance sheets give you a clear picture of your business’s financial position at a chosen time in the past. They can help you make smart decisions about future investments, loans, or other financial activities. It can also tell you if you have enough cash on hand to meet your obligations, or if your interest rates are too high to maintain.
A balance sheet is typically divided into three sections:
Assets are what your company owns, including cash, inventory, equipment, and property. This information is helpful in assessing your company’s liquidity, as well as its ability to invest in new projects.
Liabilities are what your company owes to others, including loans, accounts payable, and taxes. This information is vital in understanding your company’s debt levels and interest rates.
Equity represents the leftover interest in the assets of your company after deducting liabilities. This information is important if you plan to attract investors.
Reading a balance sheet may seem intimidating at first, but it’s not as complicated as it looks. Here are the steps to follow:
Look at the assets section: You’ll see categories like cash, accounts receivable, inventory, and property. Add up all the assets to get your total.
Look at the liabilities section: This section lists everything your company owes, like loans and accounts payable. Add up all the Liabilities.
Look at the equity section: This section lists how much money you and any other investors have put into the company. Add it up!
Check the equation: The balance sheet equation is assets = liabilities + equity. By nature, a balance sheet should always balance. If it doesn’t, it’s likely due to missing or incorrect data. Don’t worry! This is common for many of our new clients; we are able to help right your ship.
Your company’s accounting software should make running a balance sheet report a breeze. If you need further help to understand your reports, Moose Creek Bookkeeping is here to help. We take pride in what we do and our clients benefit from it. Reach out today with any questions you might have.
Today, we’d like to discuss how Moose Creek Bookkeeping services can help your business achieve financial understanding in 2023 and beyond. Every business owner knows how important it is to stay on top of the financials – but two important factors often get in the way of accurate bookkeeping: organization and understanding. In our previous blog posts, we talked about how Moose Creek Bookkeeping can help you maintain organization regarding paperwork, receipts, etc. Now, let’s talk about understanding the most crucial report your accounting software* can generate: Profit & Loss Statement (Aka P&L or Income Statement).
Your P&L statement is a financial report that shows your business’s revenue, costs, expenses, and profit. This information is incredibly valuable – it can help you identify areas where you can cut costs and improve your profitability. Without this information, it’s easy to make uninformed decisions that negatively impact your bottom line.
Let’s break it down. Simply speaking, your P&L is calculated as Income – Expenses = Profit. Depending on the nature of your business, this can be relatively basic, or mind-numbingly complex, and that’s why we are here to help.
Here are the basic categories you will see on a P&L
Revenue: Revenue also called the “top line” of the P&L, is the money that you’re bringing in from your sales.
Cost of Goods Sold: These are the costs that you incur when you make your products or deliver your services.
Gross margin: Gross margin tells you how much money you have left over to cover your expenses after you’ve covered the cost of the product or service you are selling.
Operating expenses: Operating expenses cover all of the expenses that you incur to keep your doors open, excluding your direct costs of goods as above.
Net profit: This is your “bottom line” that you hear so much about. You started with your revenue as your “top line” and then subtracted things as you went: direct costs, operating expenses, and so on. What’s leftover is your profit, or potentially your loss if you ended up spending more than you earned.
Now, your company might fall somewhere between the basic and the mind-numbingly complex when it comes to P&L reports, but either way, we have you covered. Most of our clients are not massive companies with CFOs and Shareholders to scrutinize the books, so we are here to take the deep dive that so many companies are missing out on. Let Moose Creek Bookkeeping guide you through the complexities of financial reports, identify potential issues and offer solutions to improve your business’s current and future financial health. Please give us a call or schedule a free discovery call.
*If you’re reading this and you currently do not utilize accounting software, please reach out so we can discuss some of our recommended platforms for your unique business.
Welcome back! We hope you have been learning a thing or two about your business accounting practices while reading our blog posts because now is the time to put all your knowledge into action – it’s time to file your taxes! We have many new clients who feel rather unprepared when springtime rolls around so we have compiled a short list of must-haves for filing your business taxes to help you get started. Here is an easy to follow checklist for tax day:
Gather all financial documents: This includes income statements, balance sheets, and expense reports.
Organize receipts: Throughout the year keep track of all receipts and invoices related to business expenses.
Review employee payroll records: Double-check that all employee payroll records are accurate and up-to-date. Prepare all required forms such as W-2 and 1099s.
Determine any deductions: Identify all deductions your business may be eligible for, such as depreciation, interest, and charitable donations.
Check for any tax law changes: Keep up-to-date with any changes to tax laws that may affect your business.
Now, that might sound like a daunting list, and we agree entirely. Luckily, here at Moose Creek Bookkeeping, we have mastered the art of accounting and guiding business owners like yourself through the muddy waters of preparing for taxes. We have helped countless companies become more organized and accurate when it comes to year-round bookkeeping, resulting in a relatively stress-free tax season.
In addition to the items listed above, there are a dizzying amount of documents necessary to file a corporation’s taxes, depending on the nature of your business and how your sole proprietorship, corporation, or LLC is set up. Although our work is different from the work done by a CPA, we are knowledgeable on exactly what paperwork your business is expected to fill out. Working alongside your CPA, we will make sure you have everything necessary to file your business taxes, avoiding any costly mistakes. Some oversights can rack up sizeable penalties including misclassifying employees, missing tax deadlines, and losing track of receipts… all of which we are here to resolve promptly and effectively.
By joining our esteemed client list, you will be able to gain accounting knowledge, while also gaining time, as we handle the nitty gritty of bookkeeping – so you can focus on your passions. Reminder, it’s never too late, or too early in the year to seek help with your books. We offer a judgment-free zone guaranteed to improve your books and your confidence in them.
If you’re reading this article, the short answer is, “now”. Let’s talk about why…
Many entrepreneurs like yourself run on self-sufficiency and a DIY mentality. Up until now, you have brought an idea or a service to market, which is no simple feat and you should be proud! As a small business owner, you are likely wearing many different hats on a daily basis. You are the CEO, scheduler, buyer, marketing director, salesperson, and janitor all rolled into one, but your least favorite hat is the accountant’s visor. While you may be very good at many of these roles, it’s easy to get overwhelmed when you’re wearing so many hats at once. Most business owners tend to push the accounting aspect of the business to the back burner because it’s so foreign and daunting to them. Your passion lies in your craft, not accounting.
We like to think of hiring a bookkeeper as purchasing insurance for your bank account. It’s never too early – or too late – to take advantage of professional guidance when it comes to your finances. We can save you time and money by making sure all the financial details are in order — from keeping track of payroll and receipts to ensuring bills get paid on time, avoiding any unchecked interest and late fees that can bring a business to its knees. We also give a high-level assessment of your company’s current and future financial health.
Here are a few cues that tell you when it’s time to hire a bookkeeper.
You’re strapped for time. We will make tedious tasks like categorizing receipts and keeping up with various taxes our priority so that you can prioritize growing your business.
You’re missing receipts. This is very common and we have developed trusted methods of keeping track of expenses in efficient and user-friendly ways.
Monthly reconciling is not your thing. Recon-what? Reconciling is a critical yet complicated part of the accounting process. If it’s done incorrectly, or not at all, issues can arise, especially at tax time. We can help you stay ahead of the game, every month.
Here are a few ways Moose Creek Bookkeeping can improve your business:
Reduced time and worry spent on accounting activities.
Improved cash flow management, which allows you to focus on growing your business.
Better financial reporting for tax purposes can lead to less tax liability for you.
You’ll know exactly where your money is at all times.
The idea of hiring a bookkeeper can be intimidating if you’re a small business owner who’s always been in charge of your own books. Or perhaps you’re great at accounting but your business is growing too fast to keep up, either way, hiring Moose Creek Bookkeeping will help you save time, make better decisions and avoid costly mistakes.
Happy New Year! January is a very important time for many of our clients because it’s time to buckle down on taxes, and they rely heavily on independent contractors. Have you paid someone, or been paid over $600 in 2022? Then, this article is for you.
Tax season can be daunting for any business, but it’s especially important to make sure all of your 1099 forms are sent out by the January 31st deadline unless you’re hoping for a letter from the IRS. In this blog post, we will discuss the consequences of missing the deadline for sending out 1099s, how employees can be penalized, and what an employee can do if the company doesn’t send out 1099s by the deadline.
When a business pays an independent contractor over $600 they are required to report that payment to the IRS, and so is the contractor. Failure to send out 1099 documents by the deadline can result in monetary fines, interest on late payments, and possible criminal charges. At Moose Creek Bookkeeping we specialize in accounting for businesses who regularly hire 1099 independent contractors, so we are versed in the timing, accuracy, and execution of 1099 documents.
According to TurboTax, “If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $280 per form in 2022. If a business intentionally disregards the requirement to provide an accurate 1099, it’s subject to a minimum penalty of $570 per form in 2022 or 10% of the income reported on the form, with no maximum.” That sounds a little intimidating, we agree – so we are here to help.
Now, if you’re a contractor and your employer fails to send out your 1099 by the deadline, you may be in a difficult situation so it’s important to communicate with your employer if the end of January rolls around and you have yet to see your document. If you fail to report your income, the IRS can fine you 20% of the unreported income, plus the originally owed amount. Whether your employer sends out a 1099 or not, it’s up to you to report your income, even if you have to estimate to avoid any penalties.
So, as you’ve learned, the timing is everything when it comes to issuing and reporting 1099-NEC or 1099-MISC. If you are unsure about the difference between the two, or just have basic accounting questions, please reach out. We take pride in providing the most accurate books to our clients whether they are a large company with 100 independent contractors or a small company with just four W-2 employees, we can bring accuracy, clarity, and confidence to your books at tax time and beyond.
The debate of fiscal year vs calendar year is one that has been around for a long time. If you are scratching your head about whether you are using the proper calendar for accounting, congratulations! This is a “good problem to have”, as we say. Your company is growing and perhaps you are realizing that there may be a benefit to transitioning into a fiscal-year accounting system. There are pros and cons to both bookkeeping methods, and the answer of which one is better for your business largely depends on the type of business you have. But first…
What’s the difference between a fiscal year and a calendar year?
A fiscal year (FY) is a 12-month period that a company or government uses for budgeting and reporting financial activity. This period can start on any day of the year, but we often recommend choosing the last day of a quarter. It can also fall on a repeating date such as the last Friday in February.
A calendar year is the period of time between January 1 and December 31. This is the year that most people are familiar with, and it’s the year that the IRS uses for taxes.
Because a fiscal year can fall on dates of your choosing, it’s time to look at your financial activity calendar. Do you have a large spike in income at one point in the year? When does the majority of your income take place? Ideally, you want your fiscal year to end after your peak season, not smack in the middle of it. This is important and clearly evident for seasonal companies large and small such as Christmas tree farms or Target. These two business models both end their peak season in December so it makes sense to end the accounting year on Dec. 31st. Now, let’s look at a snowplow contractor who has a peak season through March in some areas – they will want to end their accounting year well past Dec. 31st and into May or June.
The benefits of using a chosen fiscal year are numerous, the largest being that you don’t have to divide your peak income period into two different tax returns. It also avoids a tax burden by helping you time when your taxes are due, rather than the standard April 15. As there are pros, there are also cons – the main one being the complexity of dealing with two different calendars. Hint: That’s where we come in. 😉
Here are some examples of companies and the fiscal years they use:
S. Federal Government: Oct. 1 to Sept. 30
Nonprofit organizations: Many use July 1 to June 30
Apple Inc.: Last business day of September.
Microsoft Corporation: End of June.
Other big-name companies that have adhered to the standard calendar year include Facebook, Google, and Amazon.
We encourage businesses to recognize their income patterns early and chose a calendar to stick to. It is possible to change your accounting year with the IRS, but some hefty paperwork is involved. At Moose Creek Bookkeeping, we specialize in helping contractors develop the correct bookkeeping practices for their business needs, this includes high-level assessments such as which accounting calendar is the best, detailed assistance with receipt management, and everything in between. Please reach out to us at any time to discuss your business activity and whether switching to a FY is the right move for your growing business.
Welcome back! The cool Fall weather is finally arriving marking the beginning of the holiday season. As Christmas trees are already on display we are reminded that our favorite time of year is just around the corner… TAX TIME! Not your favorite, you say? Are you worried you haven’t been organized enough during the year? Well, you’re not alone. Most people dread tax time because they are unprepared. We are here to discuss the number one way you can prepare for tax time: Saving your receipts. Saving your receipts isn’t optional, it’s crucial to your business and offers peace of mind if you’re up late worrying about the dreaded IRS audits.
Year-round, Moose Creek Bookkeeping is helping companies large and small learn how to prepare for tax time and the very first lesson we teach is “save your receipts”. This is because your receipts contain critical information that might be lacking if you are only looking at a bank statement. Receipts contain the date, description of good/service, vendor, price, taxes/fees, and mode of payment. Your bank statement only shows the date, vendor, and price, which isn’t adequate, according to the IRS. You must be able to show a detailed view of all expenses to prove they were legitimate. The IRS cannot discern between a $400 Epson Printer versus a $400 Cat Tree. You will need to prove the purchase was an office expense and not a luxurious cat condo for Mr. Fluffpants.
Now, we understand keeping track of receipts is no small feat. As a small business, we use and recommend a digital receipt keeper called Hubdoc. Hubdoc has been a game-changer for all our clients who chose to use it. It does require input from you in the form of a photo or upload, but that’s where your work ends. Hubdoc reads your receipts, gathers critical information, and magically creates usable data – no more data entry! This program has saved our clients countless hours with its ease of use and friendly interface. Even our old-school, paper-saving clients have made the change to digital receipt keeping.
In addition to using a digital receipt tracker, we always recommend adhering to best practices to keep track of receipts before you need to enter them in Hubdoc. Here are some tips we offer to all our clients:
Always write a note at the top of each receipt about what the expense was for. This can also work as a reminder for future reference. Hubdoc features a ‘notes’ section for this exact reason.
Make sure the receipt contains all the necessary info. If it is lacking information, promptly make a note, to not forget.
Supply ‘receipt bags’ to employees to aid them in receipt organization and emphasize the importance of receipt retention.
Keep telling yourself that all this record-keeping will pay off in the event of an audit. All your hard work will benefit your business in the long run.
Please reach out at any time to set up a discovery call with us. We’d love to talk about how we can help your business improve its books, aid in receipt management, and give you peace of mind when it comes to accounting. At Moose Creek Bookkeeping we are dedicated to teaching you the best accounting practices, offering solid advice, and giving you the tools to build a strong financial foundation that can weather any storm that may come; including an audit.