Once the business owner decides to hire a new employee, there are several different tax and new employee registration forms that need to be filed with various government agencies. ​ Additionally, there are various forms that will need to be completed by both the business owner and by the new employee and stored in that employee's personnel file. These include forms utilized to collect tax withholding information, to verify the employee's employment status, to determine and define the employee's local residency and to let taxing authorities know that the business has hired a new employee and will be withholding and remitting payroll taxes from the employee's compensation.​ ​ If the business will be utilizing independent contractors to perform services for the business, there will be other requirements that will come into play such as obtaining tax status and tax withholding information. There are also specific rules and regulations that define "who is an employee" vs. "who is an independent contractor" that are very important to understand to ensure the business's compliance with government regulations. ​ Additionally, businesses in certain industries that have employees who regularly receive "tips" from customers, such as in the case of the restaurant and hospitality industry, will have other considerations for their employees. ​ In addition to hiring employees, there are also several important considerations that must be taken into account in regards to employee separations. Whether or not there will be a severance package and how to approach the employee's final paycheck are considerations that the employer must contend with in the unfortunate event of an employee termination.

How a business owner pays themselves out of the profits of their business depends primarily on the type of business structure under which the business operates. ​ If the business operates as an unincorporated sole proprietorship perhaps only having filed a DBA or "doing business as" name or "fictitious name" with the state, the income from the business may end up being reported much differently for the business owner's personal tax purposes than if the business was structured under a separate entity structure such as a corporation, limited liability company or partnership. ​ A business owner who registers and operates a business as an S Corporation, Limited Liability Company, Partnership or C Corporation will likely have to account for contributing money to and withdrawing money from the business differently for tax purposes than a business owner who owns and operates their business as an unincorporated sole proprietor. ​ Business owners will typically need to work with their tax professional and consider their own personal tax situation. Considerations such as how money is being contributed to and withdrawn from the business and in what way the funds are subject to the employment tax rules and/or self-employment income reporting rules is important for the owner of any business, large or small, to fully understand.

Ensuring that the business's payroll is processed accurately and on time, every time, is critical. This is true not only for tax and regulatory compliance purposes, but also for employee morale and business reputational reasons. ​ With that said, complying with the various regulations and tax laws relating to paying hourly and salary employees and independent contractors can be complex at times. ​ Pay types such as overtime pay, disability pay, sick pay, workers’ compensation payments, FMLA, severance and separation agreements and the other forms of payments to employees and independent contractors are in-depth and can be difficult to navigate whenever they arise. ​ Employee benefits including employee contributions to retirement plans such as 401k plans, health savings accounts, flexible spending accounts, life insurance, medical, dental and vision benefits and accounting for fringe benefits can be equally as complex to contend with. ​ As an employer, it is very important to be in compliance with not only the federal government and federal tax rules in regards to processing your payroll, but also in regards to the state and local taxation rules and regulations. ​ How one type of wage or compensation is treated for federal tax purposes may be different than how it is treated for state or local taxes.

Employers must generally file quarterly (sometimes monthly) tax filings with not only the federal taxing authorities but also with the state and local taxing authorities. ​ These quarterly filings are in addition to annual pay statements that must be filed with the government summarizing the annual compensation paid to each employee and contractor, along with Forms W-2 and 1099. ​ Each employer's tax filing requirements may be somewhat different, although many similarities will likely exist. Consultation with a payroll tax professional is very important in understanding the applicable requirements.

Business Registration Links Get an Employer Identification Number (EIN): IRS Form SS-4 or Online Registration IRS Business Tax Account & ID.me Registration PA Online Business Tax Registration: Form PA-100 (PA Tax Accounts & UC Registration) PA Local Employer Registration: Employer PA Local Earned Income Tax (EIT) Withholding PA Local Employer Registration: Employer PA Local Services Tax (LST) Registration New Employee Hire Forms Employee's Withholding Certificate: IRS Form W-4 Employment Eligibility Verification: IRS Form I-9 IRS Form I-9: Instructions Request for Taxpayer Identification Number and Certification: IRS Form W-9 PA Local Residency Form for Employees PA Local LST Exemption Form for Employees Reporting Newly Hired Employees With PA: Pennsylvania CareerLink Resources for Calculating Employee Paychecks IRS Publication 15: (Circular E), Employer's Tax Guide IRS Publication 15-A: Employer's Supplemental Tax Guide IRS Publication 15-B: Employer's Guide to Fringe Benefits IRS Publication 15-T: Federal Income Tax Withholding Methods PA Employer Withholding: Frequently Asked Questions Starting a Business in Pennsylvania: REV-588 PA Employer Withholding Information Guide: REV-415 Employer Payroll-Related Tax Filing Forms Employer's Quarterly Federal Tax Return: IRS Form 941 IRS Form 941: Instructions Employer's Annual Federal Unemployment (FUTA) Tax Return: IRS Form 940 IRS Form 940: Instructions Employer's Annual Federal Tax Return: IRS Form 944 IRS Form 944: Instructions Employer's Annual Federal Tax Return for Agricultural Employees Tax Return: IRS Form 943 IRS Form 943: Instructions PA Employer Quarterly Filings: Visit mypath.pa.gov for More Information Annual Withholding Reconciliation Statement: PA REV-1667 PA Local - Employer Quarterly Tax Return: Local Earned Income Tax Withholding PA Local Annual Tax Return: W2-R Annual Reconciliation of EIT Withheld from Wages PA Local LST Tax Return: LST-1 Local Services Tax Employer Form Form LST-1 Form: Instructions * This is not intended to be an all-inclusive list of employer tax filing forms. These forms are only listed for general reference purposes. Each employer's specific tax filing requirements may differ. *

If you own and operate a brand-new business in Pennsylvania and will be hiring employees, you will need to do a few things from a tax and reporting perspective including, but not limited to: ​ 1) Obtaining an EIN from the IRS and setting up federal, state and local employer tax accounts. ​ 2) Registering as a new employer with the IRS, with the Commonwealth of Pennsylvania, as well as with your local tax agencies. 3) Determining what rules and regulations you are subject to as an employer, such as how often you must remit employee withholding to the IRS, to the Commonwealth of Pennsylvania and to the local taxing authorities.

Once the employees' paychecks have been calculated and the employees have been paid, the business will need to remit the taxes that have been withheld from employee paychecks and independent contractor payments to the taxing authorities. ​ In addition to the taxes that the employer withholds from employees' pay, the employer will also need to calculate their "employer match" of the taxes that were withheld from employee paychecks. ​ There are various considerations for the different types of taxes and withholding. Some taxes that are withheld are withheld from "the employee's compensation only." Other taxes must be "matched" by the employer. Still others are the responsibility of the "employer only." ​ In addition to the types of taxes and withholding that employers must consider, how often the employer is required to remit payment of the taxes to the taxing authorities can vary. ​ Some employers are required to remit payment for their tax payments and withholdings on a semi-weekly basis based on strict calendars set forth by the federal, state and local government agencies. Others are subject to tax payment remittance on a monthly basis or on a different remittance schedule. ​ Additionally, there are various "triggers" and dollar amount thresholds that can change an employer's tax remittance schedule from monthly to semi-weekly and vice versa. Fully understanding the employer payroll tax remittance rules is very important for any business that has employees or independent contractors to ensure compliance with government regulations.

A business's bookkeeping system, in its most basic sense, should be designed to keep the business's accounting records and finances in proper working order. ​ The accounting and bookkeeping process should be designed to generate monthly or quarterly financial statements and financial reports that can be used for various purposes. Quarterly and annual financial reports that are generated by an accounting and bookkeeping system are typically used to help your tax preparer put together quarterly tax estimates, and to prepare the tax returns each year. ​ However, your business’s accounting and bookkeeping system should really be viewed as an important tool that can be used to produce robust financial reporting. Accurate and effective accounting can help improve financial and operational visibility over your business and can assist in business decision-making. ​ Once the bills and expenses are recorded correctly; the sales are tracked and the accounts receivables are collected timely; the bank accounts are reconciled; the adjusting journal entries are posted; and the books are closed for the month or for the quarter: the business's accounting system should be designed to then provide you with helpful, concise and "get-to-the-point" financial information that you can use to help you operate your business and to make tax compliance and tax planning much more efficient and effective. ​ Not only does a well-designed accounting and bookkeeping system help you to know "what’s what" at any given time as it relates to your business’s financial performance – it also makes tax reporting easier and more-streamlined. Keeping clean and accurate accounting records throughout the year will give your tax professional or CPA more time to focus on making sure that you are receiving all of the tax benefits that you are entitled to by eliminating the need for re-examination of, and adjustments to, the accounting information during the busy months of tax season.

In some cases, it may make the most sense to outsource your accounting and bookkeeping to a CPA or other accounting professional. If this is an option that you think may be a good solution for your business, reach out and schedule a free consultation with Aaron. He can review your financial and accounting information and processes with you, learn more about your business and how you, as the business owner, like to have things done, and work with you to come up with a plan of action to meet your accounting and bookkeeping needs.

Every company does financial reporting differently. ​ The types of financial reports you may want to see as a business owner can vary from “get-to-the-point” cash flow projections that you review from one week to the next to ensure that you have enough cash flow in the business to meet your financial obligations in the near-term, to more detailed accounting reports. ​ You may want to review monthly or quarterly financial statements, including a balance sheet, profit and loss statement and statement of cash flows. ​ You may only need to be kept informed of your quarterly tax estimate payment amounts when they become due and your annual federal, state and local tax obligations. ​ Whatever your financial reporting needs are, your accounting and bookkeeping software should be able to produce this information for you, on a regular basis and in a format that is useful for you to review and to continuously use to assist you in operating your business.

Ensuring that you have appropriate controls over your business assets is incredibly important. The company’s cash-on-hand is obviously the first and foremost concern of any business owner, and rightfully so. ​ However, there are other concerns that a business owner may have, such as internal controls over various accounting processes and the segregation of ongoing financial duties. Typically, in a large company, such as a publicly-traded company, the accounting and finance department within that company will be staffed by many people allowing for various accounting duties to be segregated. One employee may be responsible for adding a new vendor into the accounting billing system, while another employee may then be responsible for generating the payments to this new vendor and reviewing the check list before payments are made. This makes it difficult for one employee to single-handedly set up a new vendor and pay that vendor from the business's checking account without any other person's review and approval. ​ Similarly, it is typical in a larger organization as it relates to payroll processing (if the business processes payroll internally) for one employee to enter employee data such as the number of hours worked, the employee's pay rate, any changes to the employee's pay rate, etc. while someone else is responsible for providing an additional sign off before a paycheck or direct deposit is released. ​ This segregation of duties and effective internal control function is much more difficult for a small or medium-sized business to handle since one person may be responsible for various overlapping accounting functions or for all accounting and finance functions. ​ As a business owner, you may want to have an accounting professional review your business's internal controls and provide you with a general review and analysis of any risks or weaknesses in your system in order to prevent fraud or even to simply catch mistakes that may otherwise go temporarily unnoticed.

Throughout his career as a CPA, Aaron has seen many accounting and bookkeeping software systems. ​ Some have been pre-packaged off-the-shelf software packages that can work perfectly fine for a small business when used effectively. These software systems can cost somewhere in the neighborhood of a few hundred dollars per year and meet all of the accounting and bookkeeping needs of a business. ​ Others have been industry-specific ERP software suites for larger companies operating in, for example, the energy and hospitality industries. And then there are those accounting software systems that have been designed for robust inventory tracking, particularly suited for retail businesses. ​ The ideal software package for a small business operating in most industries is likely some version of Intuit QuickBooks. There are various versions of QuickBooks on the market, including add-on QuickBooks products to meet the needs of most small businesses. Still, other businesses may need to invest in an industry-specific accounting software that is more useful for their specific business operations and for the industry in which they operate. ​ As a Certified QuickBooks ProAdvisor, Aaron can assist you in determining whether or not QuickBooks would be a good fit for your business. If you already have an accounting system that you are happy with but need some help in refining things a bit, Aaron can assist with that as well. ​ Once you have the correct accounting software selected, you may require assistance with the implementation and set-up of that software system. Aaron can show you how to navigate the software program; how to build a useful chart of accounts that will produce meaningful financial reports; how to pay your bills and code your expenses; how to invoice your customers and reconcile your bank and credit card accounts; and how to generate effective and useful financial reports for you and for your tax preparer.

If you perform the accounting and bookkeeping function for your business, then you are likely familiar with the recurring process of organizing all of your company's financial information on a regular basis and “closing the books.” You go through expense receipts, the bills that you received from your vendors, information related to sales made to your customers and the bank and credit statements. If you have employees, you may review staffing levels, pay rates and any overtime incurred. You may have one or more inventory counts conducted throughout the month if you have inventory that you sell to customers. Tracking and recording all of this information accurately is essential to producing meaningful financial reports and is important for accurate quarterly tax estimates and year-end tax planning. Key to this process is “how” you record all of your business’s transactions in your accounting and bookkeeping system. The system that you utilize for coding your expenses when you pay bills from vendors and how you set up your accounting process is crucial to how everything else in the financial reporting and tax planning realm for your business will ultimately play out. One of the most important things that any business or organization can do in setting up and maintaining an accurate and effective accounting and bookkeeping system is to correctly set up its “chart of accounts.” What is a “Chart of Accounts,” and Why Is It Important? A “chart of accounts” is essentially the backbone and possibly the most important aspect of the accounting and bookkeeping system for any business or organization. The chart of accounts is the listing of all of the accounting codes that can be used within the business's accounting and bookkeeping system. These accounting codes are used to record every one of your business's transactions – every time you pay a bill, record an invoice or a sale, buy a new fixed asset, contribute funds to or withdraw funds from the business, etc. Every sale, every expense, every invoice, every purchase - each and every transaction needs to be coded within your accounting system. How effectively, organized and well-thought-out this coding process is performed makes all the difference for your books and for your tax planning. If the chart of accounts is well thought-out and designed correctly in collaboration with your CPA or accounting professional, your business’s accounting, bookkeeping, financial reporting, tax compliance and tax planning functions should run much more smoothly than they may otherwise. What Does a Chart of Accounts Look Like? Below is a screenshot of what a small portion of a chart of accounts may look like within, as an example, a version of QuickBooks accounting software: Each account in the chart of accounts has a) an accounting code, b) a description and c) various mappings that will ultimately roll these individual accounting codes up, categorize them correctly and feed the data directly into your company's financial reporting system. How To Successfully Structure a Useful Chart of Accounts for Your Business Structuring an effective and useful chart of accounts for your business's accounting and bookkeeping system should be a collaborative effort between the business owner (or the individual responsible for the business’s accounting function) and the business’s accountant. The business owner knows the business and the industry better than the CPA or accounting professional, and the CPA or accounting professional will understand the accounting, financial and tax implications and considerations. The way in which a CPA or other accounting professional should go about setting up a chart of accounts for a business or organization is to first, gain a thorough understanding of the business and the industry in which the business operates and to second, review in detail the business’s operating activities. The accountant should review the business’s banking activity, the invoices that the business has received from its vendors, the expenses that the business has incurred and paid, the projects that may be underway related to the business (i.e. location renovations, new product lines, future planned fixed asset purchases and any changes to the company's for-sale product mix, etc.), the sales and revenue sources of the business and the ownership and equity structure of the business, among other things. There are certain accounting codes that every business or organization will need to have within its chart of accounts; however, a useful chart of accounts is going to be customized for, and tailored to, the specific needs of the business or organization. Example Company Below is an example Balance Sheet and an example Profit & Loss Statement (P&L) for a sample restaurant company. The Balance Sheet Note some of the line items highlighted in yellow on the sample balance sheet below (these include, for the Balance Sheet, the line items of 1300 Inventories, 1400 Prepaid Expenses, 1600 Fixed Assets, 2010 Tax Liabilities, 2110 Other Non-Current Liabilities and 3000 Member's Equity). This is in line with how a generic chart of accounts may be structured in an accounting software package such as QuickBooks and provides a good first step for structuring a useful chart of accounts: The business owner, in this example, may want to review a balance sheet report, in addition to the typical company balance sheet above, that is more detailed and a bit more refined. See the re-structured sample restaurant balance sheet report example below: The business owner may want to see a balance sheet report on a monthly basis that shows inventory assets broken out into the various types of inventories that the business carries. In the case of this sample restaurant company, the business owner may want to see food inventories, beverage inventories, paper products inventories and all other inventories broken out into their own groupings. Similarly, the business owner will probably want to break out their fixed assets accounting line into more detailed line items. Segregating purchases and disposals of fixed assets into detailed line items within the chart of accounts will not only make the financial statements that are produced more useful for you whenever you review them; it will also assist your tax preparer in ensuring that your fixed assets are in the correct categories, since each grouping of assets will be "depreciated" for tax depreciation deduction purposes using different depreciation methods, various time periods over which to depreciate the assets, etc.. The business owner may want to break out other items within the chart of accounts, such as payroll and payroll tax liabilities on the balance sheet, so that they will know how much payroll tax they have withheld from their employees during any payroll period and how much is still yet to be paid to each of the taxing authorities. One item that is very important for business entities that are structured as LLCs, Partnerships, S Corporations or C Corporations is how the owner's equity section of the chart of accounts is structured. The accounting and bookkeeping system needs to be able to track: a) The beginning equity in the business; b) Funds that have been contributed by the owner(s) to the business; c) The Fair Market Value of other (non-cash) contributions by the owner(s) to the business; d) Any funds or assets that the owner(s) have withdrawn from the business; and e) Any debt that has been taken out on the business (i.e., a line of credit, credit cards, etc.) These items all factor into the business owner(s) personal "tax basis" in the business which plays a large role in what income or losses will be reported from the business at the end of the year on the owner(s) personal tax return. As a business owner, if you have losses due to business operations or due to tax depreciation, for example, your tax basis in the business will determine how losses can and will be carried forward and applied to offset taxable income that you may have in future years, if applicable. The P&L Having a well-structured, detailed and yet manageable P&L chart of accounts is just as important, if not even more so, than breaking out the balance sheet into segregated line items. Note some of the line items highlighted in yellow on the sample P&L report below (these include, for the P&L, the line items of 4000 Sales, 5000 Cost of Goods Sold, 6100 Utilities Expense, 6200 Marketing & Advertising Expense, and 6300 Wages & Payroll Tax Expense): All of these line items are essential for "having a place" to put or to code each transaction as you go about reconciling your business bank accounts and recording bills. However, you may want to have a more detailed, intentional chart of accounts for your business's P&L. Below are a few line items on the sample P&L that have been broken out into more detailed line items: If you are reviewing your company's P&L and want to see how much money your business spent on payroll during the month, having one line item that is labeled "Wages & Payroll Tax Expense" is probably not ideal. You will likely want to see the amount of wages that were incurred related to groups of individuals whom you employ: managers, kitchen personnel, front-of-the-house staff members, etc. The wages paid for each of these groups of employees probably fall into more specific hourly and salary (and tip) wage categories. Likewise, being able to quickly and easily see how much overtime was incurred for the month should be an output of your accounting and bookkeeping system and should be incorporated into your company's monthly or quarterly financial statements. It's possible that you will want to track certain metrics such as food costs as a percentage of food sales on a monthly basis. Below is a snapshot of an output that you could obtain from your accounting records, provided that the accounting and bookkeeping is recorded at a detailed level: Did the prior month or prior quarter actual results match your expectations? Keeping the Chart of Accounts Useful Spending the time and effort to set up a detailed, well thought-out accounting system and chart of accounts for your business should be followed up with a strategy to utilize that system in the way it was intended to be used. If you are working with a CPA or other accounting professional, that individual should be available to you to walk you through how to go about coding the business's transactions once your chart of accounts has been set up or revamped. They should sit down with you and a) go through your business's various recurring invoices that you code each month, b) walk you through how to code your payroll and wage expenses and payroll tax liabilities, c) formulate a plan to track the business's fixed asset purchases and d) come up with a way to ensure that your equity-related transactions are being tracked appropriately. All of this is a process that requires some time and effort, but if done correctly, can really be a game-changer in terms of financial reporting and tax planning.

What is the “Goal” or the “Purpose” of Your Business’s Accounting and Bookkeeping Process? (1) Is your company’s accounting and bookkeeping being completed every month for internal purposes only? Is the bookkeeping and accounting being done: a) to ensure that the bank and credit card accounts are reconciled; b) to pay your vendors and to record all of the invoices, bills, expenses and sales; c) to ensure that the payroll is recorded and tracked appropriately; and d) to ensure that the tax preparer has what they need to prepare the business’s quarterly tax estimates and the business's (and your personal) annual tax returns. (2) Is it to do all the above, but also, to generate internal financial statements every month or every quarter for you, the business owner, to review internally; or (3) Is it to generate financial statements for a third party, such as for the bank or for a financial institution that requires the company’s financial statements as part of a lending agreement with the business. Knowing the exact goal or purpose of your company’s monthly or quarterly accounting and bookkeeping process is crucial in determining a whole host of things that will dictate how the accounting and bookkeeping process is, and should be, structured. Note. Having financial statements prepared for a third party as outlined in (3) above may require a financial statement audit, review or compilation to be completed for the business’s financial statements, perhaps on an annual basis. If your business falls into this category, you will want to reach out to a CPA firm that conducts audits, reviews and compilations. Aaron does not currently perform audits, reviews and/or compilations of financial statements for clients but may be able to refer you to a reputable CPA firm that offers these services if the need arises. This article is written as a reference guide primarily for businesses and organizations in which the accounting and bookkeeping system is designed for 1) effective internal recordkeeping, 2) quarterly and annual tax preparation and tax planning and 3) review of internal financial statements by the owner of the business. Audited, reviewed and compiled financial statements that are prepared for third parties are outside of the scope of this article. An Overview of the Company’s Financial Statements The preparation of the company’s financial statements is the end-product, or the output, of the business’s accounting and bookkeeping system. If your company’s books are closed on a monthly or quarterly basis, then your accounting system should be able to generate financial statements for you. This is true if the accounting and bookkeeping process, accounting software and internal controls have been correctly set up and put into place and have been appropriately maintained. However, there will likely be additional accounting adjustments that will need to be made by an accounting professional once the books are closed and the bookkeeping is completed, prior to the financial statements having meaningful value to you. These adjustments may include things like the reclassification of expenses as needed, the depreciation of fixed assets, reserving for any uncollectable accounts receivable, among many other possible adjustments depending on your company’s accounting and tax situation. How Your Company’s Financial Statements are Structured For most business, specifically for privately-owned, for-profit, business entities, the financial statements will include four separate statements: 1) The Balance Sheet 2) The Income Statement (or the “P&L”) 3) The Statement of Cash Flows 4) The Statement of Owner’s Equity Each of these statements is interconnected (each links into the others in some way or another). Note. The Statement of Owner's Equity and the Statement of Cash Flows are integral parts of the business's financial statements but are outside the scope of this reference guide and will be covered in a separate article. The Balance Sheet The Balance Sheet is an “as of” financial statement meaning that it is essentially a presentation of the company’s assets, liabilities and owner’s equity “as of” a particular date. It is a “snapshot in time” of the business’s assets, liabilities and owner’s equity. Below is an example of a sample company’s Balance Sheet: The top section of the Balance Sheet will show, as of a specific date, the dollar value of the company’s assets, such as: Current Assets 1) Cash and Cash Equivalents 2) Accounts Receivable 3) Inventories 4) Prepaid Expenses 5) Other Current Assets Non-Current Assets 1) Fixed Assets 2) Other Non-Current Assets Cash and Cash Equivalents The Cash and Cash Equivalents line of the balance sheet includes the reconciled bank account balances “as of” the date of the Balance Sheet. It also includes the amount of cash that you have on hand at your business location(s). The company’s bank accounts and credit card accounts should be reconciled on a monthly basis for general accounting and recordkeeping purposes. Accounts Receivable The Accounts Receivable (or A/R) line on the Balance Sheet includes any money that your business is owed, typically from customers. If you invoice a customer whenever you sell a product or provide them with a service, but they have not yet paid you by the “as of” date of the Balance Sheet, then the money that they owe you should be reflected in Accounts Receivable. Accounts receivable from customers should be monitored on an ongoing basis to ensure that you are getting paid. There are many useful reports that can be run out of almost any accounting and bookkeeping software, such as an Accounts Receivable Aging Report, which will show you the number of days that every open account receivable has been due or overdue and from which customer(s). Inventories Inventories include all the items that your business has on hand for sale to customers. For a retail store that sells kitchen appliances, inventories will include all the appliances for sale on the showroom floor plus all the inventory being held in, for example, the stockroom or warehouse. For a restaurant, inventories will consist of all the food, beverage and paper supply products that go into producing the food and beverages sold to customers. This includes the value (typically what you paid for) all the food and beverage products in your freezers, coolers, dry unopened products, etc. Businesses that carry inventory for sale to customers really need to have an accounting system that is capable of tracking inventory, or at the very least, have a system outside of the accounting software, such as a well-built inventory database in Microsoft Excel or Access, that can load purchases of inventory, sales and regular inventory counts that the business conducts. There are many POS or “Point of Sale” systems in existence that can do much, if not all, of this tracking for your business and connect directly into your accounting system, or at the very least, can provide your accountant with the information that they will need (purchases, sales, inventory count results) to load the accounting into your books throughout, or at the end of, the month or quarter. Tracking and valuing inventory for businesses remains one of the more difficult tasks for many businesses whenever it comes to recordkeeping. A well-thought-out inventory system and having a way for that system to feed into your accounting software or accounting and bookkeeping process can make accounting for and tracking your inventory much more accurate and efficient for accounting and tax purposes. It is always a good idea to bring your accountant or CPA into the discussion surrounding inventory, as that individual will likely understand “the whole picture” whenever it comes to what the needs are from both an accounting and tax perspective. Fixed Assets Fixed assets are those purchases of items that are going to be used for longer than one year. For example, if you purchase a vehicle for your business, that vehicle would be classified as a fixed asset. The cost of that vehicle would be included on the Fixed Assets line of the company’s Balance Sheet. If you purchased a new computer for your business or a new freezer for your restaurant company, these are considered fixed assets. Additionally, if you are having renovations done to your business location, such as the installation of new flooring, reconstruction of a section of your business location, or even something like repaving your parking lot, these are all classified as Fixed Assets and are shown as assets on your company’s Balance Sheet. Unlike regular expenses that are shown as “expenses” on your company’s P&L, such as utility bills that can be deducted whenever you incur the expense or pay the bill, fixed assets are: 1) shown as a Fixed Asset on your Balance Sheet, and 2) depreciated over the useful or “statutory tax” life of the fixed asset. All of your business's fixed asset purchases need to be tracked on an ongoing basis. Your accountant or CPA can include these fixed assets in a depreciation or fixed asset software program and can depreciate these assets for you. If, for example, you purchase a vehicle for your business, the cost of the vehicle is “depreciated” over a specific period of years (say, for example, over a five-year period). Every year, your business would deduct on your P&L 1/5th of what you paid for the vehicle. Note. Your business may be able to deduct the entire cost of your fixed assets for tax purposes using mechanisms in the tax law such as “Bonus Depreciation” or “Section 179 Expensing” (discuss with your tax professional whether or not this is applicable to your business's tax situation). However, you will still need to track and segregate each of your fixed assets even if you are able to write them off immediately. Additionally, your fixed assets may be depreciated one way for federal taxes and a completely different way for Pennsylvania or other state taxes. For example, you may be able to "write off" the entire cost of your company’s fixed assets for your federal taxes and only a portion for your Pennsylvania taxes. Tracking all of your company’s fixed assets for both accounting and tax purposes is very important. The bottom half of the Balance Sheet will show, as of a specific date, the balance of the company’s liabilities and owner’s equity, including line items such as: 1) Accounts Payable 3) Accrued Payroll & Payroll Tax Liabilities 4) Any debt, such as “Outstanding Notes Payable” or “Line of Credit” 5) Other Liabilities Accounts Payable The Accounts Payable (or A/P) line on the Balance Sheet includes any money that your business owes, typically to vendors. If your business owes money to a vendor for purchases that were made or for services that were received, but your company has not yet paid the bill or the invoice by the “as of” date of the Balance Sheet, then the money that your business owes should be reflected in Accounts Payable. Accrued Payroll Tax Liabilities The Accrued Payroll & Payroll Tax Liabilities line on the Balance Sheet includes all of the company's accrued wages (wages you owe to employees but that are not yet due to be paid) as well as employer payroll taxes that you, the employer, have withheld or incurred "as of" the date of the Balance Sheet but have not yet paid to the taxing authorities "as of" the date of the Balance Sheet. If you have withheld taxes from your employees but do not make payment to the taxing authorities until the due date, you may have a payroll tax liability on your Balance Sheet. **Note, it is very important to know the payroll tax remittance requirements for your business. Most taxes, such as federal and state withholdings, may be due immediately after every payroll is completed.** Various line items on your company’s Financial Statements such as "Prepaid Expenses" in the Assets section of the Balance Sheet and "Accrued Payroll & Payroll Tax Liabilities" in the Liabilities section of the Balance Sheet may only be included in your financial statements if your company’s “basis of accounting” requires it. A company’s accounting is kept on a specific basis of accounting which will typically be one of the following: 1) The Cash Basis of Accounting (this is used by many sole proprietors, single member LLCs and other small businesses, specifically those that file a Schedule C along with their personal tax return); 2) The Accrual Basis of Accounting (this is used by companies that keep their books and records in accordance with Generally Accepted Accounting Principles (or GAAP)). There are various accounting and tax reasons that the GAAP basis of accounting may be used. 3) The Tax Basis or Modified Cash Basis of Accounting (these are other specific basis of accounting that a business may use). If there is something that you do not understand in your business's financial statements, it may be worth discussing it with your CPA or accounting professional to know what affects various line items on your Balance Sheet, P&L and Statement of Owner's Equity, and what this may end up meaning for the accounting, business tax, and ultimately for your own personal tax situation. The P&L The Company’s P&L (which stands for “Profit and Loss” Statement, also known as the “Income Statement”) is the financial statement that shows the business’s activity for a specific timeframe. While the Balance Sheet (as explained above) will show you what the value of your business’s assets (like your cash balance) was as of a specific date, the P&L will show you what the business’s revenues, expenses and overall net income or net loss was for the business for a specific period of time. As an example, let’s assume that your accountant, who performs the accounting and bookkeeping for your business, closes the books and completes the accounting for the month of April 2025. The financial statements that you, as the owner of the business, will receive from your accountant for April 2025 will likely include the following four financial statements: 1) A Balance Sheet as of April 30, 2025 2) An Income Statement (P&L) for the month of April 2025 3) A Statement of Cash Flows for the month of April 2025 4) A Statement of Owner’s Equity for the month of April 2025 Note that the April 2025 Balance Sheet will provide you with the dollar amount balance of your assets, liabilities and owner’s equity as of the last day of April (regardless as to what the balance of these items was during any specific day during the month). The P&L, the Statement of Cash Flows and the Statement of Owner’s Equity, on the other hand, will show you the activity for the month of April. The P&L will show you what the total revenues and total expenses for the entire month of April amounted to and whether the business turned a profit or incurred a loss during the month. How To Review the P&L The P&L may only end up being useful to you if it is structured appropriately in a way that is a) presented in detail and b) is presented in line with the industry in which your company operates. As an example, if you receive your company’s April 2025 P&L, and the lines on the statement are condensed and grouped into large, unspecific buckets, the amount of detail that you will have to review may be limited. Below is an example: It may be more beneficial for you, as the business owner, to have a more detailed P&L prepared, in addition to a condensed P&L, that has various line items broken out into more detail. Below is an example: Even further, it may be useful to review a “P&L trend report” each month. A P&L trend report will show the entire P&L in detail, but will show, say, 6 months of the P&L, each month next to the previous month, for comparative purposes. Below is an example: You may want your CPA or accountant to perform some analysis on the P&L for you prior to sending it to you to review. For example, with a P&L trend report, your accountant could review the activity in the statement for each month and highlight any line items for any given month(s) that “stick out.” Below is an example of an analysis for the P&L shown just above: There are many ways in which valuable reports and metrics for your business can be generated from your P&L and from your accounting and bookkeeping’s general ledger data. Something that you may want to do may be to request various P&L reports from your accountant for a specific month, see which one(s) are most valuable to you and are most efficient for you to review, and simply request that report or multiple reports be sent along to you every month going forward. Your Company’s Chart of Accounts Having a P&L that can be reviewed at a detailed level or on detailed trend can be extremely useful for a business owner. It can help with visibility over your business operations and keep you up to date with trends that exist in your business. The main sticking point is that the accounting and bookkeeping system and process may need to be set up (for a new business) or revamped (for an existing business) in order for the data to be available in a useful format as shown above. The revenues, cost of goods sold, payroll expense and other operating expenses need to be entered into your bookkeeping system with the end goal of producing robust financial reports in mind. You will likely need to work in collaboration with your CPA or accountant to build a solid chart of accounts that will appropriately feed into your business's financials and generate the reports and metrics that you want to see. The bills, receipts, invoices, etc. all need to be coded to detailed accounting codes within a chart of accounts that is intentionally tailored to your business and industry. See Building a Custom “Chart of Accounts” for Your Business.

If you need assistance with your QuickBooks payroll or QuickBooks accounting software, contact Aaron today. As a CPA and tax professional who is also certified in QuickBooks, Aaron can assist you if you are running into issues with your QuickBooks payroll or QuickBooks accounting software. How To Get Help with Your QuickBooks Payroll or QuickBooks Accounting Software One of the quickest and most efficient ways to get assistance with your QuickBooks payroll or QuickBooks accounting software is to add your accountant to your QuickBooks software (for QuickBooks Online subscriptions). You can do this by a) inviting your accountant to access your QuickBooks payroll or QuickBooks accounting software directly from their own computer, and b) by speaking with them over the phone or in person about the issue that you are encountering with the software. You can add your accountant to your QuickBooks software in real time by following these steps: 1) Open your QuickBooks payroll and accounting software. 2) Navigate to the “Gear” icon in the top right corner of the software program. 3) Under “Settings,” select “Manage Users.” 4) Select “Accounting Firms.” 5) Add your accountant’s a) first name, b) last name and c) e-mail address. 6) Select “Save” at the bottom right-hand corner of the screen. Your accountant will then receive an e-mail invitation allowing them to set up an “accountant” login to your QuickBooks. Your accountant will then be able to access your QuickBooks Online software from their own computer. ***NOTE. Do not invite your accountant (or anyone else) to access your QuickBooks software until you have spoken with them about it first, and they have agreed to assist you.*** Screen-By-Screen Instructions 1) Open your QuickBooks payroll and accounting software. 2) Navigate to the “Gear” icon in the top right corner of the software program. 3) Under “Settings,” select “Manage Users.” 4) Select “Accounting Firms.” 5) Add your accountant’s a) first name, b) last name and c) e-mail address. 6) Select “Save” at the bottom right-hand corner of the screen. Get in touch with Aaron today if you are experiencing issues with QuickBooks and need assistance.