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has a business entity and the entity of choice is the S-corporation.
While good business practices may apply to every business, the user
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The Chart of Accounts
Dealing frequently with small and start-up companies, many basic questions are repeated. That is the way with “What is a chart of accounts?â€
The chart of accounts is a structured set of general ledger accounts that simplifies recording business transactions and facilitates channeling those transactions into appropriate income and deduction categories. Translated for lay persons (non-accountants), it is the possible pigeon-holes in to which every business expense may/should/must be plugged in order to get the proper credit at tax time. Income has fewer options with less confusion; all income must be reported. Since income and expenses happen all year round, this “chart†is always relevant.
What does the chart of accounts look like? Here is a sample one. Keep in mind that one may not use all the categories and other categories may need to added based on the business.Advertising/marketing
Auto and Truck Expense
Bad debt
Bank Charges
Business Gifts
Charitable contributions
Commissions
Continuing & Professional Education
Credit & Collection Costs
Discounts
Dues & Subscriptions
Income
Income, other
Independent Contractors
Insurance
Insurance – Disability
Insurance – Life
Insurance – Medical
Insurance – Shareholder Disability
Insurance – Shareholder Life
Insurance – Shareholder Medical
Interest Expense
Interest Income
Janitorial & Cleaning
Legal, Accounting & Professional fees
Licenses & Permits
Meals & Ent – Company Party
Meals & Entertainment
Office Expenses
Parking Fees & Tolls
Payroll – Officers/Shareholders
Payroll – Other Employees
Postage & Delivery
Printing & Copying
Rent Expense – Office/Equipment
Repairs & Maintenance
Retirement Plan Contributions
Security
Taxes – Other
Taxes – Payroll
Taxes – Property
Taxes – State Income/Franchise
Telephone/Internet
Tools
Travel
Uniforms/Laundry
Utilities
Worker Compensation
The reason for separating the expenses into the above classes is that different types of expenses may well get different treatment at tax time. Separating them as entered into your books makes that task easier… and tax time much less stressful.
JACS is not an accounting service, but companies struggle with poor bookkeeping methods all the time (a major reason for failure). If your company has poor bookkeeping habits and is without a corrective plan, JACS can help. Do not wait “until after the first of the year”!!!
Written by James Allen, August 11th, 2009
Filed under: Operations
« Drafting Business Descriptions for Internet Marketing
What Corporate Actions Need Board Approval? »
Comments: 2 Responses so far
Mr Allen,
Thank you so much for laying it out for us to follow. Nice work. But I have a question. When traveling, how do we catergorize meals, and groceries bought for eating while on the road working for a company like [mine]?
Another question would be buying concert/sport event tickets for entertaing coworkers and clients. How would they be catergorized?
Thank you.
GR — August 11th, 2009, 8:31 am
Thanx, GR, for stopping by. Pigeon-holing expenses is a subtle art.
Each accountant has his/her preference for each of the two areas you question. The latter is shorter to answer, so on the chart of accounts they go in “Meals & Entertainment”, unless the event is a company wide event, then it may slide into “Meals & Ent – Company Party”, which is listed adjacent.
There are multiple defining words in the first question, “on the road” can be traveling for the day or multiple days and at least one night. “Meals” and “groceries” are deductions limited by definition of the “road trip” duration. Those that qualify (check with your account for specific IRS rules) would go under the sub-category of “Travel-Meals” in “Travel” expense category. This allows qualified “eating expenses” to get their 50% of cost deduction for your company at tax time. ~JA
James Allen — August 11th, 2009, 8:39 pm
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