You will be your tax accountant’s favorite client when your books are ready. Doing a review of your books before you send them to your accountant will save them time, and you money! Here’s a breakdown:
First, review your Balance Sheet. On the Assets side, start with the bank accounts – each account should be reconciled with the bank statement. If you have old transactions on bank reconciliations that have not been reconciled, these should be voided or deleted. If you send invoices to your clients, your Accounts Receivable should agree with the Accounts Receivable Summary. If old receivables meet the definition of uncollectable, consider writing these off. If you sell inventory, see that your physical value matches what you are reporting in QuickBooks®. Look through the details of your fixed asset accounts and consider whether small amounts (less than $2,000) should be expensed, instead of capitalized. Your accountant can provide depreciation and amortization expenses to you, in order to keep your books in line with your tax return. Look for any accounts on the Balance Sheet that don’t look familiar, and investigate and correct the transactions in these accounts.
Besides accumulated depreciation and amortization, you should normally have only positive numbers on your Balance Sheet. As you continue reviewing your Balance Sheet, look at the liabilities section to see that this includes all of the items owed by the Company. See that your payroll tax liabilities reported match what you will pay in January of the following year for the prior year’s obligations. The same goes for your sales tax liability accounts. Also, review any loan account balances and make sure these balances match with the details of what is outstanding on the Company’s loans. If monies have been loaned to the company during the year, the loans should be recorded as a liability, but they are sometimes recorded as income. Be sure that all debts are listed on the Balance Sheet. Listing all debts on the Balance Sheet will help prevent overstating the income.
The Equity section of your Balance Sheet might have an account called Opening Balance Equity. This account is set up by QuickBooks when a new account is created and the other side of the journal entry is not known. Tracking down what entries created this account, and correcting those entries, may solve some of the problems you had above, with accounts not balancing. In some companies, there will be Distribution accounts in this section. The entries here should be reviewed, as these are normally profits that are distributed to the owners or shareholders of the company.
Profit and Loss Statement
Next, review the Profit and Loss Statement. As with the Balance Sheet, you should normally only see positive numbers. Negative numbers should be reviewed for correctness. Look for accounts in the income section that might contain monies loaned to the company. The funds received should be reported in the liabilities section, and not in the income section. Similarly, look at the accounts in the expense section by name, such as loan payments and change the transactions in these accounts, to apply against the loan accounts on the balance sheet.
Payroll expenses are often a large expense for companies. Tax accountants often want to see the W-3 and W-2 forms for the company. Recent increased IRS security measures require the information that is reported in the business returns to match the payroll reporting. Tax returns now also report whether 1099s were issued, as required, so providing these returns is also helpful for your accountant.
Companies with owners who have incurred expenses but have not yet been reimbursed for them will need to provide the details of this information. Mileage is a good example of this kind of expense. If your only office is in your home, this may also apply.
Accounts containing expenses for meals, entertainment, charitable contributions, gifts, owner health insurance, disability insurance and life insurance, just to name a few, should especially be separately stated, as these types of expenses require special reporting on returns.
Make It Easy on You and Your Accountant
Most tax accountants don’t want to have you back up a truck and offload boxes of receipts. QuickBooks Online already contains all of your pertinent transactions. Bank statements, credit card statement and loan statements, especially for the last month of the year, are often helpful. Remember to also include the W-3s, W2s and 1099s. If your tax accountant can start and complete your return in one sitting, you both will win!