The Basic Elements of Bookkeeping

Does your business need help staying organized, but you don’t know where to start? Bookkeeping is an essential component of any successful business. But what is bookkeeping exactly? It may seem like a broad term, but we’ve put together a helpful list to outline some of the basic elements of bookkeeping. 

basic elements of bookkeeping

Debits and Credits

One of the backbones of bookkeeping is debits and credits. Bookkeepers record what your business spends (debits) and what your company earns (credits) to help you keep track of your finances and cash flow. 

Accounts Receivable

While not the most glamorous of tasks, invoicing is crucial to getting paid. Suppose you fail to collect fees owed to you due to oversights in invoice collecting and tracking. In that case, you will be handing out products and services for free and losing money in the process. When you dreamed of opening a business, you probably didn’t picture yourself tracking down invoice payments from clients. This is why hiring a specialized bookkeeper may be an excellent option for you. Not only do professional bookkeepers make invoices are sent and tracked, but we have experience handling the collection of late payments and working with clients. 

Accounts Payable

The other end of the spectrum from accounts receivable is accounts payable—keeping track of the money you owe to others. Your business’s reputation depends on financial stability. Part of that is making sure you reliably make payments on time to local vendors, businesses, and contractors. Build trust in your company, which will keep your credit high and make others want to continue working with you. 

Payroll

Employees are the most valuable asset of any business. Whatever product or service you offer is no good without the people behind them. Not only do your employees interact with customers, but they keep things running smoothly. Once you find suitable employees, you will want to do everything you can to keep them. Turnover and staff training can be expensive and eat up valuable time. Paying employees correctly and on time each pay period is a great way to make sure they are happy. Whether it’s full-time employees or part-time employees, bookkeepers can make sure that all of your staff’s paperwork is in order. They will also organize and collect timesheets, process payments, and file the appropriate tax information.

Bank Reconciliation

Bookkeepers work hard to cross every “t” and dot every “i.” In any business, there is a lot of paperwork to keep track of. Your bookkeeper will make sure that your bank statements regularly match up with your bank accounts.  Having a bookkeeper will help you avoid mistakes, missed deposits, or incorrect funds. 

Tax Preparation 

Taxes can be a stressful ordeal for most businesses. First, there’s the question of whether or not you filed everything correctly. Secondly, there’s the matter of avoiding unnecessary fees and ensuring you get all the credits of which your business is eligible. Your bookkeeper will keep your tax-related documents organized throughout the year, prepare your files, help you plan, and represent you in front of the IRS. 

All in all, bookkeeping encompasses all the nuts and bolts that keep your company running smoothly. Paperwork and accounting are not areas where you want to cut corners. By hiring professionals, you can take a great deal of stress off your plate and give your customers, business partners, and staff complete confidence. Consider booking an appointment to learn about ways in which we might be able to help you and your business by calling 410.764.3731, emailing us at info@plcfo.com, or filling out a form on our website. 

How COVID-19 Has Changed the Future of Money

COVID-19 has spread across the world and closed down businesses everywhere. There have been changes to the world in ways that we never could have imagined. It will have a major impact on the way businesses and individuals handle money. 

hand holding 4 credit cards showing how covid-19 has changed the future of money

Consumer Spending

Spending is low in most industries because of lockdowns and limited locations being open. Some particularly low industries are travel and transportation, apparel, and services. Consumers are expecting lower household incomes for the upcoming months, so money spending is focused on necessities. The uncertainty causes irregular buying behaviors. These behaviors have businesses scaling back on production. 

Industries that have been thriving include grocery stores, house supplies, and at-home entertainment. This is caused by the increased amount of time people are spending indoors. Consumer spending drives economic growth. Although it is positive that these industries are still doing business, it is vital to the economy that other industries pick back up again. 

It is unknown if buying behaviors will go back to normal or not. Gyms may not completely recover because of the increase in at-home workout equipment and virtual fitness subscriptions. Restaurants have lost tons of money from canceled trips and lack of orders. Without a steady income, many of these businesses have had to permanently close their doors. 

Retirement Plans

The CARES Act made three changes to certain retirement accounts. These changes have increased the number of early withdrawals to people’s retirement plans.

  1. It doubled the amount a person can take out as a 401(k) loan. 
  2. It allowed people to take early hardship withdrawals of up to $100,000 from 401(k)s and IRAs in 2020 without paying a 10% penalty before the owner turns 59 1/2.
  3. It allowed retirees and those who have inherited IRAs to skip taking a required minimum distribution (RMD).

This may cause people to feel more comfortable taking out extra money when the CARES Act is not in place. There are rules and restrictions on that you can find here. 

Cash Payments

Many stores started to only take plastic cards and virtual payments like Apple and Samsung Pay. This is one way to reduce the spread of germs. There might be a shift in some of these places to only accept these payments over cash permanently. Some people have opted out on using cash on their own for the same reasons- to flatten the curve.

Other businesses have completely reduced contact with payments. Their solution to this is mobile payment applications. Venmo and Cash App are two increasingly popular examples of this. These apps are easy to download. After the pandemic, people will be more likely to use this form of payment after they feel more comfortable and trust that it works. 

Future of Money

Businesses need to adapt to the changing world. Changes in spending habits, retirement plans, and cash payments are some ways COVID-19 has affected money. We can help you navigate the future of your business’s money. Serving the Baltimore area for several years, we are dedicated to providing customized services to fit each one of our client’s unique needs. 

Please contact us at (410)-764-3731 or at https://www.plcfo.com/contact/ for questions or to book an appointment

What is a 1099 Vendor?

 

Companies contract 1099 vendors to complete services for them. It is typically for work they want to outsource to professionals in that specific field. For example, a company may outsource its books to a company that specializes in bookkeeping. Another example is when a company hires a freelancer to create a logo and redesign their website for them. They hire these people because they don’t have the expertise in-house.

 

Who qualifies as a 1099 vendor and what does that mean for your business? Keep reading for all the information on 1099 vendors.

 

1099 Vendor

 

Payments and Taxes

 

1099 vendors are not employees of a business. Do not include them in your company’s payroll. They send companies an invoice after performing the work for them. Since these vendors are not on your company’s payroll, do not withhold taxes from their payments. 

 

1099 vendors withhold taxes from their own income. Businesses need to accurately report their payments to the government. This is a way of verifying the income the vendor received and if they withheld the proper number taxes. 

 

When working with vendors, it is important to keep your accounts payable and receivable organized. Ensure that you don’t miss any payments to the contractors and possibly incur a late fee. As a vendor, make sure the businesses that hire you are paying you accurately and on time. Keep your taxes organized in a spreadsheet or with online accounting software.

 

1099 Forms vs. W-2

 

The main difference between these two is that a 1099 form is for a contractor, while a W2 is for an employee.

 

Salaried and hourly employees of a business receive W2’s during tax season. This summarizes their earnings and taxes paid throughout the year. Employers pay the government the employee’s taxes. 

 

You know that someone is an employee when your business controls when and how work will be done. Businesses provide equipment and materials that employees use to work. Another sign that they are an employee that receives a W-2 form is that your business provides benefits to the worker and pays business expenses of the worker. 

 

If you are contracted/hired to do specific jobs and are paid for over $600 of work, you will receive 1099 forms from each company during tax season. Independent contractors determine their payroll taxes, and then they have to pay the sum every quarter. 

 

You know that someone is an independent contractor if they service many different customers or clients who pay them directly for their services. This worker controls when and how the work is performed. 

 

How Many 1099v Forms are There?

 

There are many types of 1099 forms. These forms depend on the type of work done. Vendors used to receive 1099 MISC forms from clients when completing over $600 of work in a year. As of 2020, this form is now used to report miscellaneous income such as rent or payments to an attorney. 

 

The common form that 1099 vendors will now receive is the 1099-NEC. It is the same thing as what the 1099-MISC used to be. 

 

Tax Deductions as a 1099 V

 

If you are an independent contractor, you can deduct work-related expenses on your taxes. Some of the most common deductions include home office deduction, internet, travel, and business meals.

 

1099 Vendor Financials

 

If you work with vendors, our team will help you with bookkeeping and financial planning. If you are a vendor, we can help you maintain great accounts receivable and ensure that tax season runs smoothly for you.

 

Contact us today to work with our team at PL Consulting!