2024 Taxes

 Now is the time to start preparing for your 2024 year-end tax filings!

Huh?

If you have a business, this is the time to update and improve your company bookkeeping. This will 1) save you money at year end 2) improve accuracy and 3) provide a base for better business analytics.

For you individual returns this is the time to improve your filing system and to make a checklist of items, using the 2023 return as a starting point.

Next February is the wrong time to start preparing for the 2024 tax returns.

Politics and Business

 A small business near our house has a prominently displayed digital sign.

Some of the information is about services and prices...... but

Much of the information is very bitter, nasty, bigoted, sometimes outright false political commentary.

Good or bad for business?

We do not know, but we would not patronize this business.

So is mixing politics and business a good idea?

In our opinion, usually, no.

But the owner's choice.

Bookkeeping Part V - Expense Clasiffication

 Accurate expense classification are critical for 1) accurate financial statements, 2) accurate tax returns and 3) accurate analytics.

This starts with a chart of account that is well constructed and has enough account classifications (but not too many).

Beyond that, the day-to-day coding and classification of payables and disbursements is critical to accuracy.

Design and operational accuracy are both critical.

Bookkeeping Part IV - Revenue Capture

Capturing every revenue transaction promptly and accuratelyis a critical phase of bookkeeping.

First it is critical to capture the revenue. Second this will allow the business to tie-out cash and receivables accurately.

If you cannot tie-out cash and receivables your internal control system is inadequate.

Whatever system you use, it must be customized to your type of business and your specific circumstances.

Cash** only

Cash and billing on account  (generating receivables)

Billing  accounts only  (generating receivables)

Prepayments / retainers

Single transactions (e.g., car dealers) per customer

Consult your accounting and tax advisors, and possibly your IT advisors, for assistance with customizing and monitoring your revenue accounting.

** "cash" meaning currency, checks, debit and credit cards, portal sales (Pay Pal), wire transfers and any other financial transfer means

Bookkeeping Part III - Chart of Accounts

The chart of accounts is a simple yet critical part of the bookkeeping system.

Simple - a list of the accounts you will use in the balance sheet and the incone statement.

Not so simple - the chart must be customized to fit your organization - not too many accounts, not too few accounts with accurate names and in a logical sequence.  

(if your computer system requires numbering the assignment of number is an important task)

Bookkeeping Part II - must be customized

 Every business and every organization is different.

Restaurants are not identical to each other.

Churches are not identical to each other.

Day care centers are not identical to each other.

There will be similarities in each sector, but also differences.

Buying and using a computerized bookkeeping and accounting system is not a plug-and-play adventure.

The bookkeeping and accounting system, starting with the chart of accounts, must be customized to the business model and to each location (if rielevant).

This is not an overwhelming project, and your accounting and tax providers can probably help.

Some time and money spent now will save headaches later.

Bookkeeping is boring - but absolutely critical

Bookkeeping is boring, and costly and it does not directly make you any money.

However......it is critical.

Bookkeeping is the capture, analysis, recording and summary of transactions - the beating heart of the business.

Bookkeeping is the raw material of financial statements, analytics, budgeting and tax returns.

Speaking of tax returns....

If your tax preparer has to untangle your bookkeeping there is a cost, sometimes a considerable cost. Don't blame the accountants if you drop a mess on their desk (or more literally into their portal).

Internal Controls Week Part 5 - Review, Review then Review

 Separation of duties is always the most critical internal controls.

A part of that separation is the review process.

If Sally writes checks, Joe should reconcile the bank statement.

If Bob does payroll, at least one owner or senior manager reviews the payroll regularly.

If an outside vendor does payroll with input from Jane, someone besides Jane reviews the payroll.

Sounds simple?  Not really.

Everybody is too busy, there are too many deadlines, the crush of daily work makes this difficult. 

BUT REVIEW IS ESSENTIAL.

   

Internal Controls Week - Part 4 - IC Quick Reference

 

INTERNAL CONTROLS (IC) QUICK REFERENCE

 

ICs are a risk prevention and a risk mitigation system; an accounting process and an element of organization’s culture

 

Segregation of duties IS THE MOST IMPORTANT control

 

The objective is reasonable assurance NOT perfection

 

Basic techniques are well known and must be implemented

 

          Policies and procedures custom designed for organization

          Employee screening, training, retraining and supervision

          Relentless (not nasty) supervision and support

          Accounting system elements design fitted to the company

                   Approval and authorization

                   Document movement and retention paths

                   Physical control of assets

                   Verification processes

                   Reconciliations of transactions/documentation/ cash

                  

Information system controls designed for the organization

External review and audit used as required

 

Internal controls Week Part 3 - Employee Theft

 

https://tomealey.substack.com/p/types-of-employee-theft

Internal Controls Week Part 2 - Risk Management

 Risks, including financial risks,  can be battled with a well-known set of management principles.

 

The primary rule of risk management is PREVENTION with internal controls, then

 

If a risk event happens, detect and mitigate the damages, then

Use risk transfer to mitigate damages (usually insurance), then

Prevent recurrence of the risk event

Internal Controls Week Part 1

 Internal Controls Defined

 What do we mean by internal controls?  How are internal controls defined?

 The rules and procedures implemented by an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

 Definition by the: Committee of Sponsoring Organizations. COSO was organized in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, 

 

 Our comment:

 The controls, policies and procedures customized for the organization – type of business, product/service, ownership format, physical location, work force and location.

Excepted from 

Internal Controls and Embezzlement Protection

Small Business Edition    (c) Tom Ealey 2024

Now is the Time! (Year End Governance)

 The New Year triggers a lot of accounting, tax and governance issues and tasks.

Now is the time to get organized and get a checklist together of year end and year beginning tasks.

The key players in this are your accountants and your legal counsel. The accountant for certain, and maybe the legal counsel. 

Ignoring governance tasks, such as board meetings, can have no consequences or huge consequences.

Do not have a relationship with a business law attorney? This is the year to fix that omission.

Happy New Year!