How to Account for Your Profits in a Small Business
It is important to properly account for all profits from a business, for tax reasons and also if you plan on taking your business public. The best way to do this is to keep accurate records of all business transactions. This article will help you properly account for your small business profits.
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Instructions
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Instructions On Accounting For Profits In A Small Business
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Decide on your fiscal year accounting date. Many businesses use the 30th of June, but you can choose a date that is most convenient to you. Some companies choose a calender year while others decide to end the fiscal year in a certain quarter of the year. it may also depend on the seasonal activity of your business.
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Show your gross profit-that is, the amount received through the accounting date for sale of services or goods. In other words, the total sales before deducting expenses.
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Show the cost of raw materials and goods, and also creditors who still owe you money. This is your cost of sales or just your normal operating cots. You, of course, want this to be as low as possible while keeping sales high.
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Deduct your allowable business expenses, including vehicle costs or mileage if applicable. Other deductible expenses could include travel and entertainment expense. Accounting and legal fees may also be deducted. You will need documentation to back this up and you may be limited in the amount you can deduct. Check with your accountant to make sure you are following the correct guidelines.
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Subtract taxes paid on your business and profits. This includes sales taxes, business and property taxes and taxes on last year’s net profit.
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Take into account your inventory, including any depreciation. Also take into account orders paid for, even if you have not received the goods yet. An accountant can help make sure you are depreciating your assets correctly. You may have a choice of schedule to use. Discuss with your accountant which is the best way to depreciate the assets of your business.
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Tips & Warnings
Using a computerized accounting system is the best way to have up to date information at your fingertips if needed. Quickbooks is a common accounting software, but you can use any one you are comfortable with and meets your accounting needs.
If you had a public stock offering, you may need a professional to help you determine the true profits from your business
