LLC Bookkeeping FAQ

A limited liability company, or LLC, is a business form that allows specific tax benefits and shields owners from personal liabilities in case of litigation. Bookkeeping procedures for LLCs are quite similar to accounting policies for corporations and partnerships, except that LLCs don't pay taxes on their profits. The bookkeeping questionnaire here is only a guide---if you have further questions, always seek the guidance of an accounting professional.

What Is the Company's Chart of Accounts?

An LLC's chart of accounts includes five main account categories: asset, liabilities, expenses, revenues and equity. Assets relate to the company's resources and include cash and accounts receivable. LLC liabilities are debts the company must repay and include salaries due and vendors payable. Equity represents investments that company owners made in the LLC. Revenues are income the LLC generates by selling goods or providing services. Expenses are charges incurred in operating activities.

What Accounting Method Do I Use?

If you're an LLC bookkeeper, you may use cash accounting or accrual accounting to record transactions. The IRS allows both, but accrual accounting is the preferred option. This is because this record-keeping method conforms to generally accepted accounting principles and industry standards.

How Do I Book Partner-Related Transactions?

As an LLC bookkeeper, you would record corporate transactions in accordance with GAAP, generally accepted accounting principles. That means crediting an asset or expense account to reduce its amount and debiting the account to increase its balance. The opposite holds true for an equity, revenue or liability account. You would book partner-related transactions in the equity account category.

How Do I Record Non-Partner-Related Transactions?

You would record in the other four accounts all transactions that don't relate to partner equity. For example, if the firm sells merchandise worth $10,000, you would debit the customer-receivables account for $10,000 and credit the sales account for the same amount.

How Do I Prepare the Firm's Balance Sheet?

At the end of a specific period---such as a month or fiscal quarter---an LLC accountant prepares the firm's balance sheet. This accounting statement lists corporate assets, liabilities and equity.

What Do I Indicate on the Company's Income Statement?

If you perform record-keeping duties for an LLC, you may help an accountant gather data to include in an income statement. This financial report shows the firm's revenues, expenses and net income. You would show a net loss if expenses exceed revenues.

How Do I Prepare the Firm's Cash Flow Statement?

An LLC's cash flow statement indicates how the company spends its money and where the cash comes from. It also shows where the firm earns most of its revenues. As an LLC bookkeeper, you would distinguish three liquidity categories when preparing a cash flow statement. These include cash flows from operating, investing and financing activities.

What Do I Report on the Company's Partnership-Equity Statement?

LLC bookkeepers record in the partnership-equity statement all transactions linked to corporate owners. These include withdrawals, periodic dividends and annual income distributions. By law, LLC owners or partners pay taxes at the personal level, not at the corporate level. In other words, LLCs don't pay taxes on their profits; these flow through owners who pay fiscal dues when they file personal income data with the IRS.

References

• Vermont Secretary of State: Corporations Division: LLC Frequently Asked Questions (FAQs)
• My Own Business: Cash Flow and Accounting
• National Hispanic Business Information Clearinghouse: Building Your Small Business Accounting Team
• Bean Counter: Bean Counter's Accounting and Bookkeeping "Cheat Sheet"
• Northwestern University Kellogg School of Management: Online Accounting Essentials
• Accounting Coach: Debits and Credits