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Small Biz Accounting Tips, July 2014
July 01, 2014
Good Morning!

Welcome to your July newsletter on Small Biz Accounting Tips!

Well, it's summer. Happy Independence Day!

After that terrible winter we had, and we just couldn't wait for it to end, it seems unbelievable that the year is half over already!

Hope you're taking a little time away from your small biz to enjoy the warmth and blue skies this summer.

This month we're going to talk about disbursements - payments made for business purposes either by cash - check - or credit.

So let's get started!


Cash Disbursements

Cash disbursements for my purposes here includes any business transaction that you use cash for. This includes petty cash as well as your checking account.

What is considered a business transaction?

--purchase of materials or supplies
--payment of rent, utilities, phone, advertising, etc.
--payment of subcontracted services
--payment of payroll and taxes
--payment of loans or leases
--purchase of business assets or investments
--distributions to owners

What is NOT a business transaction?

--paying for lunch for yourself, unless there is a client with you and you discuss business
--paying for your personal bills
--paying for anything personal, or that doesn't directly affect or benefit your small biz

Well, you get the idea.

Cash disbursements should be entered in a Journal (a book of original entry). A Journal can be on paper or on the computer, and should track each disbursement of cash (or check) for your business.

A good Cash Disbursements Journal will also keep track of the business purpose of each transaction. You should also keep receipts for each transaction, either scan them into a folder on your computer or keep a paper file of the bills and store receipts for documentation.

If you have a business lunch, write on the receipt who you met with and what business you discussed right on the receipt. If it's a cash register receipt, make a copy of it. The original may fade with time until at one point it'll be unreadable.

For more on the discussion of building a Cash Disbursements Journal,

click here.

Journal Entries for Cash Disbursements

What kind of Journal Entries would you make for these kinds of costs?

Some basic disbursement entries would be for your usual business expenses paid by check, right?

Here’s some sample Journal Entries:

Let’s say you pay the rent (or phone bill or gas bill etc.) with a check.
Rent Expense………………$500

Or, let's say you have the printer down the street make up some "sale" signs to put in your windows.
Sales Promotions Expense………$2,500

Then let's say you reimburse yourself for expenses you paid cash for out of your own pocket. Maybe you do this monthly, and keep the receipts to put with the check stub in your files. You had purchased paper for the copy machine for $50, had lunch with one of your customers to discuss a new project for $35, and had traveled 176.5 miles, which you reimburse at the IRS mileage rate of 56 cents per mile.
Automotive Expense………..$100
Office Expense………………………$50
Meals & Entertainment..$35
Cash in Checking..................$185

But what if you pay for purchases on your credit card?

You can do that one of two ways.

You can wait til the end of the month, when you get your credit card statement, and make one journal entry to record all the months expenses.

Like this:

Meals & Entertainment......$80
Automotive Expense.........$190
Credit Card Payable..................$1800


You can enter each credit card purchase as you go along. But you may miss a transaction if you don't sit right down and make an entry. I think it's easier to wait for the statement. But it's up to you.

What about keeping Petty Cash on hand?

Most businesses keep some cash on hand.

We accountants call it Petty Cash. Not that it's really 'petty', just that it's small.

You may keep $50 or $500, depending on the size of your business and your need to have cash on hand.

Keep your cash in a locking cash box, make note of each transaction, and count the cash regularly. You don't want to forget to write something down, and you don't want someone 'borrowing' $20 without you knowing about it.

For more about setting up a petty cash fund, and how to account for it, click here.

Is your checkbook your accounting system?

If your business is part time, or just in the beginning stages, you may just be using your checkbook as an accounting system.

If you are, you may want to consider using a system I’ve created. It uses a simple Cash Receipts Journal and Cash Disbursements Journal to record your business activity each month.

These journals can be created on paper or in Microsoft Excel (or the free version), whatever works best for you. They need not be complicated or fussy.

But you can pack a lot of info into these journals, and get a lot more information that just a checkbook entry. And, from these journals it’s an easy couple of steps to an Income Statement.

For more info on this system, click here. manual acctg system

QuickBooks is having a sale.

QuickBooks is a full accounting software system, and it's the #1 small business accounting software package on the market. I use it, so I know it has a lot of great qualities. You can invoice customers, pay bills, pay your employees, track your jobs or projects, and prepare all manner of reports. So if your business has outgrown your manual system, check it out.

Have any questions?

Feel free to send me an email. Use the link below.
Click here to send me an email.

Well, that's it for this months newsletter.

I'll be back next month with more news and tips to help you with your small business bookkeeping.

Take care!


PS: Please feel free to let your fellow small biz owners know about this newsletter! Send them to my sign up page - the last button on my navigation panel.

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