Finances

Internal accounting controls are vital to every business. The coffee shop owner needs to be sure that all sales are rung up and that all cash is deposited in the bank. The plumber needs controls to make sure that all time and material costs are captured and assigned to the right job.

Proper internal controls should be part of everyday procedures in a business. They should work in a way that helps prevent fraud and theft or detects them early. Having an audit or review of your financial statements once a year will not necessarily detect fraud.

Every business should be sure it has set up an adequate system to safeguard all its assets- cash, inventory, equipment, etc.- with periodic reviews to be sure the controls are working.

Use the following checklist to review your internal control procedures. The list is not all-inclusive and is no substitute for thorough internal control analysis.

Cash

• Are cash handling and cash recordkeeping duties segregated?
• Are all expenditures authorized and documented?
• Do you conduct unannounced checks of petty cash and other cash accounts?
• Do you prohibit any single employee from handling a transaction from start to finish?
• Do you deposit all receipts intact to the bank daily?
• Do you prepare bank reconciliations?

Sales

• Do you have proper segregation of duties to preclude an employee from pocketing cash from a sale but never reporting the sale?
• If you have too few employees for adequate segregation of responsibilities, do you play an active role in monitoring sales activities?

Accounts Receivable

• Do you have different employees responsible for the various duties associated with accounts receivable? (For example: taking the order, shipping the product, customer billing, collecting receivables, depositing collections in the bank.)
• Do you account for and physically control returned merchandise?
• Do you bill customers promptly?
• Is an accounts receivable aging schedule prepared regularly?
• Do customers receive monthly statements?

Inventory

• Are inventories physically counted at least annually?
• Is central control over inventories maintained?
• Are perpetual inventory records maintained?
• Is inventory adequately insured?
• Do you maintain safeguards against theft and pilferage?

Fixed Assets

• Are fixed assets acquired only with proper authorization?
• Do you take regular inventory of fixed assets?
• Are discrepancies between physical counts and accounting records resolved?
• Are fixed assets adequately insured?
• Are small tools and supplies properly safeguarded?

Debts

• Is there proper authorization for the creation of any debt?
• Are liabilities promptly recorded?
• Are accounts payable checked for accuracy?
• Are bills paid only when the merchandise has actually been received?
• Do you take advantage of vendor discounts?

Stock

• Are designated officers the only ones allowed to sign stock certificates?
• Are stock certificates prenumbered and carefully accounted for?

Contact us for more information.

Creating order out of chaos

As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year? Here are some tips.

1. Keep it all in one place. It seems obvious, but how often have you found yourself going through piles of paper looking for that elusive missing 1099 tax form or charitable deduction receipt? If you only do one thing, this is it. Granted if all you do is this, you end up with a massive jumble of paper, but it is better than missing something.
2. Time to sort. The best idea here is to sort your information into the same buckets as your tax return. At minimum sort the information into the basic categories. If you have a lot of something, then sort into sub-detail categories. A basic list of the more common items is here for your use.
   1. Income
      • Wages
      • Alimony
      • Business income (K-1s)
      • Interest Income (1099 INT)
      • Dividends (1099 DIV)
      • Winnings (W-2G, 1099 G)
      • Social Security
      • Investments (1099 B)
      • Other Income Items
   2. Income Adjustments
      • Student loan interest
      • Alimony paid
      • Educator expenses
      • Moving expenses
      • Other education expenses
      • IRA contributions
      • HSA/MSA contributions
   3. Itemized Deductions
      • Taxes Paid
      • Interest expense (mortgage/home equity)
      • Medical/Dental expenses
      • Investor/other expenses
      • Casualty/Theft losses
      • Charitable contributions
   4. Credit information
      • Child & dependent care expense
      • Other credit related expense
      • Adoption expenses
      • Education expenses
   5. Business/Rental
      • Sort income and expenses for each business activity or hobby activity or rental unit. Note: Remember this list is not all-inclusive, for instance, you will need to retain Form 1095 to prove health care insurance. It is here to help you sort your information into a usable form to make tax filing easier.
3. Not sure bucket. There may be things you receive that you are not certain about needing for tax filing purposes. These items should be gathered in one place for review.
4. Time to sum. Once the information has been categorized, create a summary of the information. This summary can be a printed copy of an organizer or it could be a simple recap you create.
5. Is something missing? Pull out last year’s tax return and create a list of things you needed last year. Use this as checklist against this year’s information. While this process will not identify new items, it will help identify missing items that qualified in prior years.
6. Finalize required documentation. Certain deductions require substantiation and/or logs to qualify your expense. Common areas that require this are: business mileage, charitable mileage, medical mileage, moving mileage, non-cash charitable contributions, and certain business expenses. These logs should be maintained throughout the year, but now is a good time to make sure they are complete and ready to go for tax filing.

With the amazing mix of taxable income items, various deductions, and credits it is very easy to overlook something. Hopefully, by following these tips that risk is greatly reduced. Contact us for more information.