Greetings, fellow creative entrepreneurs! Congratulations on successfully setting up your creative business! As you reach the end of your first month, it's essential to approach your accounting tasks strategically. Proper month-end accounting ensures accurate financial records and sets the foundation for effective financial management. In this blog post, I'll guide you through the process and provide valuable tips to streamline your month-end accounting for your creative business.

Step 1: Review Bank Transactions:

As the saying goes, "Cash is king," and having a separate business bank account is a smart move. (See my post on setting up your business bank account here.) Begin by thoroughly reviewing your bank statement for the month. Go through each transaction line by line and identify whether it is income or an expense. Consider using a red pen or digital marker to mark each transaction on the bank statement for clarity.

Step 2: Categorize and Enter Transactions:

Once you have identified the income and expense transactions, it's time to enter them into your chosen accounting system. Whether you use accounting software, spreadsheets, or cloud-based platforms, ensure consistency in categorizing transactions. Assign appropriate income and expense categories to each transaction to maintain accurate financial records.

Step 3: Reconcile Cash Balances:

Reconciliation is a critical step in month-end accounting. It involves comparing the cash balance recorded in your accounting system to the bank statement balance. By reconciling the two, you can identify any discrepancies and ensure all transactions are accurately recorded.

To reconcile, cross-reference each transaction on your bank statement with the entries in your accounting system. Make sure all deposits, withdrawals, and fees are accounted for. If you discover any discrepancies, investigate and rectify them promptly.

Step 4: Review Accounts Receivable and Accounts Payable:

Beyond bank transactions, it's essential to review your accounts receivable and accounts payable. Accounts receivable refers to the money owed to your business by customers, while accounts payable represents your outstanding debts to suppliers and vendors.

Ensure that all invoices issued to customers and bills received from suppliers are recorded accurately in your accounting system. Confirm that any outstanding balances are correctly reflected, and follow up on any late payments or outstanding bills.

Step 5: Analyze Financial Reports:

Take the opportunity at month-end to generate financial reports that provide insights into your business's financial health. Key reports to review include profit and loss statements, balance sheets, and cash flow statements. Analyzing these reports helps you assess your revenue, expenses, assets, liabilities, and cash flow patterns.

Pay attention to any significant fluctuations or trends in your financial data. This analysis can guide your decision-making and help you identify areas for improvement or potential opportunities for growth.

Step 6: Plan for the Next Month:

With your month-end accounting tasks complete, take a moment to plan for the upcoming month. Update your budget, set financial goals, and consider any upcoming expenses or business investments. Effective planning and forecasting allow you to proactively manage your finances and stay on track towards your business objectives.

Approaching month-end accounting for your creative business requires careful attention to detail and a systematic approach. By reviewing bank transactions, categorizing and entering them accurately, reconciling cash balances, reviewing accounts receivable and accounts payable, analyzing financial reports, and planning for the future, you can maintain accurate financial records and gain valuable insights into your business's financial performance. Stay organized, stay proactive, and leverage your month-end accounting practices to drive the success of your creative business.

Get your TOP 10 Tips for Starting Your Successful Creative Business HERE!

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The information contained in this blog is for educational purposes only. It is not intended to be relied upon as accounting, legal, or tax advice. Laws are subject to change and the content included in this blog may not reflect all changes to date. Please see full disclaimer here.

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Greetings, fellow creative entrepreneurs!  Today we’ll discuss how to keep your paperwork organized so that you can find what you need when you need it. Grab your file folders, fire up your cloud storage, and let’s get started organizing that paperwork!

Why is it important to keep your paperwork organized, you ask? Well, maintaining an organized system will save you countless headaches when it comes to bookkeeping (check out my previous post on that topic here). By having all your supporting documentation neatly organized, you’ll breeze through your monthly bookkeeping and your periodic tax preparation. You’ll even be more prepared to handle potential audits with ease. 

So, what sort of stuff should you keep and for how long do you have to keep it?

According to the IRS guidelines outlined in Publication 583 (linked here), having receipts for expenses is key. Mere line items on your bank statements won’t suffice if you should ever find yourself under the scrutiny of an audit. As the IRS website states, “Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost.”

Per the IRS guidelines: 

• If the payment is by check, it must show the check number, amount, payee name, and date
• If the payment is by electronic  funds transfer, it must show the payee’s name, amount transferred, date
• If the payment is by credit card, it must show the payee’s name, amount, and date

In general, the IRS states that you should hold onto your records for a minimum of three years, but you may want to hold onto them for even longer. The Period of Limitations per the IRS guidelines are:

• If you owe additional tax and situations 2, 3, and 4, below do not apply to you, then 3 years
• If you do not report income that you should report and it is more than 25% of the gross income shown on the return, then 6 years
• If you file a fraudulent return, then there is no limit
• If you do not file a return, then there is no limit
• If you file a claim for credit or refund after you filed your return, then the later of 3 years or 2 years after tax was paid
• If you file a claim for a loss from worthless securities or a bad debt deduction, then 7 years

Now let’s discuss how best to organize your paperwork - First, you’ll need a physical file system with trusty folders for all your paper documents. You could organize your folders in many different ways, but one easy approach is to grab 12 file folders, label them for each month of the year, and sort your paperwork by month. Within each monthly folder, further organize them by sections such as bank/credit card statements, expense categories, etc.  You could also organize your folders by vendor/bank/service provider and keep all related paperwork within each vendor folder for each year. The important thing is to devise a system that works for you so that you can maintain it each month.

In today’s digital world, we have a lot of virtual documentation. For all your digital receipts, emails, and other digital goodies, it helps to have a similar system in digital form. Again, there are different ways to organize your digital files, and the best bet is to find an organization system that works for you. Personally, I organize my files by vendor/bank/service provider/etc. Just remember to tailor your file names to include the relevant name and date so that the files sort accordingly. Tailor the system to your liking. But, remember to always save these digital folders to a reliable cloud storage service like Google Drive, iCloud, Dropbox, or some other cloud storage to protect yourself from the dreaded hard drive failure..

Don’t forget to organize any other documents that accumulate during the month, both digital and hard copy. It’s also wise to file away your sales tax permit, prior year tax returns (income tax and sales tax), as well as any legal documents, contracts, and important papers.

Remember, a well-organized system will be your ally in the realm of bookkeeping, tax preparation, and audits. So, fear not the paper trails and digital mazes - Embrace them and let your artistic brilliance shine through the organized chaos.

Stay tuned for more posts where we’ll uncover additional gems to help you navigate the path of creative entrepreneurship. Until then, keep creating, keep organizing, and keep painting the world with your brilliance!

Get your TOP 10 Tips for Starting Your Successful Creative Business HERE!

www.nicoletoerber.art/home/