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Bookkeeping 101

Keeping a record of expenses and income can range from a shoe box to a complex business program.  Following you will find an example which hopefully will make keeping the books a little easier to do and understand.  It is important to remember that it is well worth your time to keep you own books since you know your business better than anyone else.  By doing yourself you should be able to apply additional deductions which might not be understood if you simply give the shoe box of receipts to someone else to complete. 

NOTE:  If time does not permit or you feel uncomfortable with a computer then save ALL receipts (in a shoe box) and keep some type of record as to miles driven for you business.  Small receipts add up and if your taxes are 37% of profit so will your savings.

Step 1

Imagine a blank piece of paper.  Draw a line down the middle.  On the left of the line list the catagory of your expenses and on the right list your type of income.   We will call and list all your expenses using an 800 number and income using a 900 number.  Following is a table which gives a list of expenses and a number assigned to the expense. 

General Supplies
 
801
-
Sales Receipts
901
Office Supplies
803
-
Rental Income
910
Gas & Electric
810
-
Interest Received
920
Phone
811
-
Snowplowing
930
Repairs & Maintenance
820
-
Commissions
940
Bank Charges
830
-
Royalities
941
Interest Paid
831
-
Prizes
942
Rent Paid
840
-
.
.
Insurance
850
-
.
.
Internet Fees
854
-
.
.
Contract Labor
860
-
.
.
Real Estate Taxes Pd
870
-
.
.
Sales Tax Paid
871
-
.
.
Miles Driven
880
-
.
.
Meals
881
-
.
.

The above is only intended as an example.  It is recommended to group similiar expenses.  Example: Freight might be 805 and Postage 806.  Car & Travel could be grouped in the 820's, Example: Car Repairs 821, Car Insurance 822, etc.  When you receive a bill or invoice it is suggested that you write the expense code (an 800 number) on the bill and circle the name, date, and amount.  Likewise when receiving money ( an 900 number).
 
For our example lets assume you have a box of receipts and each receipt has the 800 number on it.  There are also deposit tickets for 900 numbers.  You are ready for the next step.

Step 2

For our example we are going to use Microsoft Excell, which is a lot of rows and columns forming a lot of boxes.  This is a spreadsheet.  Example:  You go down 3 rows and over 7 columns you arrive at a box.  We are going to put the data from the receipts and income received into boxes in the spreadsheet. 

Month
Date
Code #
Description
Paid
Check Number
Rec'd
2
5
803
Joe's Office Supply
$56.00
783
-
2
12
854
Web Link Internet Company
$35.00
788
-

2

15

901

Johnny's Dog House

-

-

$31.80

The first row is for an item you paid for on February 5th  for office supplies to Joe's Office Supply with check number 783 for $56.00.  On February 9th you received $31.80 from Johnny's Dog House.  You enter every receipt using the format (number of columns)you deceide upon.  There is no need to worry about the dates being in correct order since at any time you may sort any or all of your entries.

Step 3

Once you have entered your expenses and income using a standard method, as described in Step 2, you have completed 99% of your work.  Using some of the basic comands in Excell you are now able to organize your data in many forms depending on your needs.  The following is a list of the most popular functions:
 
1)  Sort your data by date.  By being involved in your business you will be able to review expenses and more able to remember forgotten expenses.  Someone doing your work for you does not have this advantage.
 
2)  See your profit or loss with every entry.  If you think about it one might think it is impossible but it is very simple.  Go to row 3,000 of your expense column and add up all your expenses.  Now go to row 3,000 of your income column and add up all your income.  You now have your total income and expenses listed in the two boxes (cells).  Go to the top of your form and in one cell list the total income minus the total expenses.  Now with every entry you enter your income/expense cell will change.
 
3)   There is a comand in Excell where you can sort all your 800 codes and list a total for each 800 number.
 
4)  You may also use the sort function to sort the names of those you paid.  A good advantage you have here is again that you know your business.  So when you sort by those you paid and the public service is only listed 10 times it is probable you forgot to record 2 payments.
 
5)  Sort by check number.  A missing check number will easily appear.

Step 4; Conclusion

All computers are simply a whole lotta on off switches.  Most "bookkeeping" programs are simply spreadsheets as described above.  Unlike those programs which you purchase the above is unique in that you can customize it for your own specific needs.  By far the best advantage is that you can keep it simple rather than buy a complex program.  With a little adaption it is easy to do payroll, mailing lists, invoices, etc.

Fox Tax offers free business set up during our off season.


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