End of the Year Bookkeeping Review
Almost to the end of 2020
Towards the end of the fourth financial quarter, it is essential to take stock of where your company stands. Hopefully, you have been keeping track of your business’s economic activities throughout the year, so you are not scrambling to catch up. We know that taxes are one of the main ways the U.S. government manages to bring in revenue, and they certainly won’t accept any excuses when it comes time for them to collect from you. To reliably pay what you owe the IRS without any issues, you need to record your revenues and losses correctly. Your net profit is a huge determining factor in what you are paying and can change dramatically year over year. Thus, it would be best if you were very mindful of this number.
What counts as profit?
The word profit is tossed around a lot in modern society. The general public often associates this with large corporations and CEO board-meetings. However, all businesses need to remain profitable. Pre-tax profit is the amount of positive revenue after subtracting the operating expenses, interest, and preferred stock dividends. While your final profit will consider the amount of taxes paid, it is essential to think about how to reflect your profits in general properly. Throughout the year, you must utilize the revenue recognition principle to keep on top of your book. This principle relies on revenue-generating events to trigger the recording of revenue. For example, if you are a baker and sell a wedding cake, this event would be considered a revenue-generating event. Similarly, you must recognize expenses throughout the year. While there are a few ways of noting expenses, they all adhere to a matching principle. This means that expenses need to be recognized during the same time frame as their associated revenues.
Ending the year on a High Note
Towards the end of the year, you must close your income statement accounts to reflect the company’s standing properly. Included are income statement accounts that have credit balances reflecting revenue. Accounts with debit balances, of which the most common form is expense accounts, must also be closed out. Once both of these types of accounts are closed, you will take your final year to date revenue and subtract the expenses, other costs, and later taxes to arrive at your final profit. If you have been keeping up, year-end should be a piece of cake!
by Nick Climan – Content Creator at Half Full Marketing
How Alron Can Help Your Business
If you’re in over your head, get help from a professional accountant. Someone who knows the world of business numbers will ensure you aren’t missing anything important, and save you from major headaches down the road. Here at Alron Bookkeeping, Inc., a subsidiary of Alron Enterprises, Inc., we simplify accounting for you, so that you can focus on what matters most: growing your small business. Let our bookkeeping specialists handle your accounts and put your mind at ease. Contact us at 321-951-7626. We look forward to working with you!