Ellen Rohr
Contributing Writer
Bare Bones Biz

As a business owner, your job is to manage the business and the risk.  It’s your responsibility to know where the money comes from and where it goes.

Count on your CPA to make sure that you stay in compliance with Uncle Sam and pay only what you owe in taxes.  Also, ask your CPA to help you understand the financials.  If you don’t “get” what’s happening on your reports, keep asking until you get a straight up answer.

Sometimes your CPA or your bookkeeper will try and razzle-dazzle with complicated accounting.  There are things that must be done as standard operating practice in accounting.  However, some complicated accounting is merely a style choice.  Here are two accounting activities that may have gotten all fancy pants at your company.  Let’s see if we can help you get back to bare bones basics.

Prune the Payroll Entry

Payroll is a multifaceted transaction.  When you do payroll in-house, you must calculate the payroll and taxes due and…

• Debit the expenses for Field Labor, Owners/Admin wages, and Payroll Taxes.
• Credit the Liability accounts on the Balance Sheet for Federal and State taxes for the employer and the employees.
• Credit cash for the net amount of the paychecks. 

Then, mark your calendar!  You are responsible for paying the employer and the employee payroll taxes…right amounts, at the right time and to the right agency.  At that time, you will…

• Debit the Liabilities.
• Credit cash for the payroll taxes due.

This is essentially a do-able task.  Except if you go on vacation or get sick or just forget.  Ugh.

Instead, use an outsourced payroll service.  The fee is nominal, especially when you consider the cost, frustration and time involved with a payroll audit.  With a payroll service, you will enter the transaction with a check or a journal entry with information provided on the payroll report.  You don’t have to carry any liabilities because the payroll service pays your taxes every time they process the payroll.  Easy peasy.

Minimize the Material Entry

Managing your materials can be summarized like this:  The right parts at the right place at the right time…accounted for properly.  It is a complicated procedure no matter how you do it.  Still, you don’t need to make it extra complicated.

Don’t bother trying to create a “Real Time” inventory management system.  Theoretically, it is a pretty seductive idea.  Order materials and receive them in your warehouse and keep track of Inventory and Materials expense in your accounting system.  Awesome!  If it worked.

The reality is that it rarely does.  Instead of “Real Time” Inventory, start this New Year with a simpler approach.  Here’s the basic process:

• Count the Inventory on the shelves and the trucks once a year, or every quarter.
• Using a Journal Entry, adjust Inventory on the Balance Sheet to the current amount.  Make the other part of the double entry to the Materials expense in the COGS section.
• Then, as you purchase Materials, code them to the COGS Materials expense.

In other words, avoid detouring day-to-day transactions through the Balance Sheet.  Expense it now…and be done with it.

Be sure to review these ideas with your CPA or accountant.  Depending on the size of the jobs you do, your corporate structure, and your accounting system, you may have to account for your Payroll and Materials and other transactions differently than I suggest here.  However, if you think your CPA is making things complicated for no good reason, let me know.  I will reality check it for you. ellen@ellenrohr.com