Bookkeeping 101 | Bookkeeping Basics and Tips for Business Owners

The script introduces a webinar on bookkeeping basics aimed at small business owners. Hogan, the regional director of a Small Business Development Center, expresses gratitude to various organizations and sponsors for their support. The presenter, Katisha Galicia, a CEO with over 16 years of accounting experience, is welcomed. The webinar's goal is to demystify accounting, covering the accounting cycle, and teaching how to gather financial records, record transactions, and prepare financial statements. The importance of bookkeeping for business success is emphasized, and participants are encouraged to think positively about their ability to understand accounting.

This section delves into the distinction between a business and a hobby, focusing on the intention to make a profit. A business is profit-oriented, while a hobby is not. The IRS uses nine factors to determine whether an activity is a business or a hobby, with the primary factor being whether the activity is carried on in a business-like manner, including maintaining complete and accurate books and records. The tax implications differ; losses from a hobby cannot be deducted, whereas business losses can be, provided there is earned income. The importance of proper bookkeeping for tax purposes is highlighted, including the concept of 'pre-accounting' to organize financial documents effectively.

The script emphasizes the necessity of maintaining a systematic approach to financial documentation, including bank statements, credit card statements, loan documents, and invoices. It advises having a separate business bank account to avoid mixing personal and business finances. It also covers the importance of keeping financial records for at least three years from the date of filing a return, as recommended by the IRS, and the need for a filing system that can be paper-based or digital, but must be organized and consistent.

This part of the script discusses various deductible expenses for businesses, such as cost of goods sold, salaries, wages, rent, interest, taxes, and insurance. It also touches on the importance of tracking business miles and the potential for a home office deduction. The script advises business owners to keep track of all financial documents related to income and expenses, including invoices, receipts, and bank statements, and to consult with an accountant for tax advice and document retention.

The script explains the concept of cost of goods sold (COGS) as it relates to the direct expenses incurred in the production or sale of goods or services. It distinguishes COGS from other deductible expenses and provides examples of both. The importance of accurate record-keeping for these expenses is reiterated, as they can significantly impact a business's taxable income. The script also addresses questions from participants regarding the treatment of merchant fees and startup expenses for tax purposes.

This section discusses the tax deductions available for business use of personal vehicles, including the option to use either the standard mileage rate or actual expenses. It also covers the considerations for deducting home office expenses and the potential tax implications when selling a home that has been used for business purposes. The script advises consulting with an accountant for specific tax situations and emphasizes the importance of accurate record-keeping for tax deductions.

The script provides an overview of various accounting software options suitable for different business needs. It mentions Excel templates for simple bookkeeping, cloud-based solutions like QuickBooks, FreshBooks, Wave, and Xero, and their capabilities, such as receipt capture and bank account integration. The importance of selecting software that can accommodate business growth and the ability to track specific business needs, such as inventory or sales tax, is highlighted.

This part of the script focuses on the process of recording financial transactions using accounting software like QuickBooks. It explains the importance of categorizing transactions accurately to reflect the correct accounting treatment, such as distinguishing between income, expenses, assets, liabilities, and equity. The script provides examples of how to categorize various types of transactions and emphasizes the significance of this step for generating accurate financial reports.

The final section of the script discusses the preparation of financial statements, including the balance sheet and income statement, to assess a business's financial health. It explains how these statements are used for internal decision-making, external reporting to stakeholders, and loan applications. The script stresses the importance of regular review of financial statements and provides an example of a profit and loss statement for a landscaping business.