Why, what and how you should keep record for your start-up

1. Bookkeeping
Bots
Record Keeping Tips For
Small Business &
Start-up
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620

2. Bookkeeping Bots Technical
Documentation
(Version 1.0, Feb 2012)
www.bookkeepingbots.com
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620

3. WHY
YOU
NEED
TO
KNOW
RECORD
KEEPING
..........................................................................................................
1
BASIC
ACCOUNTING
CONCEPT
................................................................................................................................
1
BUSINESS
START-­‐UP
COST
.......................................................................................................................................
2
INCOME
..................................................................................................................................................................
2
INVOICE
...........................................................................................................................................................................
2
NO
INVOICES
....................................................................................................................................................................
3
RECORD
TO
KEEP
...............................................................................................................................................................
3
WORKING
WITH
BOOKKEEPING
BOTS
....................................................................................................................................
3
EXPENSE
.................................................................................................................................................................
3
TYPES
OF
EXPENSES
............................................................................................................................................................
4
RECORD
TO
KEEP
...............................................................................................................................................................
4
TRAVEL,
ENTERTAINMENT,
GIFT
AND
TRANSPORTATION
.............................................................................................................
5
WORKING
WITH
BOOKKEEPING
BOTS
....................................................................................................................................
6
ASSET
......................................................................................................................................................................
7
.................................................................................................................................................................
7
TYPES
OF
ASSET
RECORD
TO
KEEP
...............................................................................................................................................................
8
WORK
WITH
BOOKKEEPING
BOTS
.........................................................................................................................................
9
LIABILITY
.................................................................................................................................................................
9
TYPES
OF
LIABILITY
.............................................................................................................................................................
9
RECORD
TO
KEEP
...............................................................................................................................................................
9
WORKING
WITH
BOOKKEEPING
BOTS
..................................................................................................................................
10
HOW
LONG
TO
KEEP
THE
RECORD
.........................................................................................................................
10
ARE
THE
RECORDS
CONNECTED
TO
ASSETS?
...........................................................................................................................
10
WHAT
SHOULD
I
DO
WITH
MY
RECORDS
FOR
NONTAX
PURPOSES?
.............................................................................................
11
SOFTWARE
............................................................................................................................................................
11
BOOKKEEPING
BOTS
.............................................................................................................................................
11
SMALL
BUSINESS
BOOKKEEPING
PACKAGE
............................................................................................................................
11
USER CASE
.............................................................................................................................................................
12
Before
................................................................................................................................................................
12
After
...................................................................................................................................................................
12
PRICE
.....................................................................................................................................................................
12
HOW DO I CHOOSE?
.............................................................................................................................................
13
2ND
CHECK-­‐RUN
PER
MONTH
...........................................................................................................................................
13
USER CASE
.............................................................................................................................................................
13
PRICE
.....................................................................................................................................................................
13
HOW DO I CHOOSE
..............................................................................................................................................
13
ADDITIONAL
100
PAYABLE
OR
RECEIVABLE
TRANSACTIONS
.......................................................................................................
14
USER CASE
.............................................................................................................................................................
14
PRICE
.....................................................................................................................................................................
14
HOW DO I CHOOSE
..............................................................................................................................................
14
ADDITIONAL
BANK
ACCOUNT
RECONCILIATION
......................................................................................................................
15
USER CASE
.............................................................................................................................................................
15
PRICE
.....................................................................................................................................................................
15
HOW DO I CHOOSE
..............................................................................................................................................
15
CONTACT
..............................................................................................................................................................
15
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
ii

4. B O O K K E E P I N G B O T S T E C H N I C A L D O C U M E N T A T I O N
Why You Need to Know Record Keeping
If your firm has more than 20 employees, the chances are 95% of you are using
bookkeeper or tax professional to take care of your accounting and tax. Why do you
have to know the little record keeping detail as business owner?
The answer is simple: You, not your accountant or bookkeeper or other adviser, or
software run the business, so you can’t rely on someone else to make decisions
critical to your activities.
Furthermore, it’s you and your staff, not your bookkeeper, who is responsbile for
saving the record when transaction happens. If you don’t save the paper trails of
business transactions, no bookkeeper or CPA can help you.
Basic Accounting Concept
Income Asset
Expense Liability
All we do in keeping transaction record is to support each transaction in the above four
areas, income, expense, asset and liability. By “support” here I mean prove the amount,
date, and necessary and ordinary in each transaction.
If you have trouble understanding this accounting Equation (Assets - Liabilities = Equity
+ (Income - Expenses)), feel no shame. Buy an accounting 101 book on Amazon, or you
can call Bookkeeping Bots (617-642-5620). We would be happy to answer your question.
In the following chapter, we will discuss how we can keep adequate records in the above
four areas.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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5. Business Start-Up Cost
Before you are in business, chance are you already start spending money. The money you
spend on (a) creating an active trade or business; or (b) investigating the creation or
acquisition of an active trade or business. Start-up costs include amounts paid or incurred
in connection with an existing activity engaged in for profit; and for the production of
income in anticipation of the activity becoming an active trade or business.
When you start a business, treat all eligible costs you incur before you begin operating the
business as capital expenditures that are part of your basis in the business. Generally, you
recover costs for particular assets through depreciation deductions.
So, you should keep record in the following expenses that are connected to starting your
business:
1) Research expenses
2) Insurance, license and permit fees
3) Equipment and supplies
4) Advertising and promotion
5) Borrowing costs
6) Employee expenses
7) Technological expenses
The form of records would be invoice, receipts, car mileage log, bank statement, contract,
or canceled check. Please refer to “Expense” chapter for detail.
Income
Income is the money you receive from your client. What ever your business is, client could
pay you in the following ways:
1. Cash
2. Credit Card
3. Check
4. Wire Transfer
5. Paypal
Invoice
If your income process requires you to generate invoice, which most of B2B firms do, you
need to save the invoices and give them to your bookkeeper to keep track of your income.
The invoice you sent to client is very important.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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6. Along with the invoice, you also need to save deposit slip, bank statement, Paypal and
other online payment statement.
No Invoices
If no customer invoices required in your line of business, e.g. restaurant or other retail
business, you need to keep cash deposit journal, and bank deposit slip. If you take credit
card payment from customer, the money will automatically deposit in your bank account
in three days.
For example: most of the building owners doesn’t actually send tenant invoice. In this case,
the received check/cash journal and bank deposit slip are two documents you should keep.
Record to Keep
Here are possible documents you need to save for income accounting:
l Receipt book
l Invoice
l Bank deposit slip
l Cash register slip
l Bank statement
l Payment gateway statement, e.g. credit card, or Paypal
Your bookkeeper are rely on this these records to do their work, so is your business.
Working with Bookkeeping Bots
We will ask you about your business and revenue process. After understanding your
business, we will ask you to provide 1) Bank statement and 2) one other record. Most of
the time bank statement along is not enough, unless your business is really really simple.
All you need to do is scan us bank statement and one other record, e.g. bank deposit slip.
Expense
Business expenses are the cost of carrying on a trade or business. These expenses are
usually deductible if the business is operated to make a profit.
To be deductible, a business expense must be both ordinary and necessary. An ordinary
expense is one that is common and accepted in your trade or business. A necessary
expense is one that is helpful and appropriate for your trade or business. An expense does
not have to be indispensable to be considered necessary.
It is important to separate business expenses from the following expenses:
u The expenses used to figure the cost of goods sold,
u Capital Expenses, and
u Personal Expenses.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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7. Types of Expenses
In general, small business will incur the following types of expense, which will be treated
as ordinary and necessary:
l Advertising
l Auto and travel expense
l Cleaning and maintenance
l Commissions
l Depreciation
l Insurance
l Interest
l Legal and other professional fees
l Local transportation expenses
l Management fees
l Mortgage interest paid to banks
l Points
l Rental payments
l Repairs
l Taxes
l Utilities
l Payroll
Record to Keep
l Canceled checks
l Cash register tape
l Invoices
l Bills
l Credit card statement
l Account Statement
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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8. l Petty cash slips for small cash payment
l Contract
A good record should meet the following three criteria to be tax deductible:
1) Substantiate of payment
Means you actually paid this amount.
2) Ordinary
An ordinary expense is one that is common and accepted in your field of business
trade, or profession
3) Necessary
A necessary expense is one that is helpful and appropriate for your business, trade, or
profession. An expense does not have to be indispensable to be considered necessary.
Travel, entertainment, gift and transportation
The reason we pay special attention to travel, entertainment, gift and transportation is because
IRS has special requirement for record keeping in these expense categories. For detail please
refer to IRS Publication 463. It’s a 60 pages comprehensive tax guide. By consulting many
CPA and tax professionals, Bookkeeping Bots helps you summarize the record-keeping guide
in the following one page table.
If you have THEN you must keep records that show details of the following elements:
expenses for Amount Time Place or Business Purpose and
Description Business
Relationship
Travel Cost of each Dates you Destination or area
separate expense left and of you travel (name Purpose: Business
for travel, lodging returned for of city, town, or purpose for the expense
and meals. each trip and other designation) of the business benefit
Incidental expenses number of gained or expected to be
may be totaled in days spent gained. Relationship: N/A
reasonable on business
categories such as
taxis, daily meals
for traveler, etc.
Entertainment Cost of each Date of Name and address of Purpose: Business
separate expense. entertainmen location of place of purpose for the expense
Incidental expense t. (Also see entertainment. Type of the business benefit
such as taxis, Business of entertainment if gained or expected to be
telephones, etc., Purpose.) not otherwise gained. For entertainment,
may be totaled on a apparent. (Also see the nature of the business
discussion or activity. If
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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9. daily basis. Business Purpose.)
the entertainment was
directly before or after a
business discussion: the
date, place, nature, and
duration of the business
discussion and the
identities of the persons
Gifts Cost of the Gift Description of the who took part in both the
Fair Market Value Date of the Gift business discussion and
as of Date of Gift. Gift the entertainment activity.
Relationship:
Occupations or other
information (such as
names, titles, or other
designations) about the
recipients that shows their
business relationship to
you. For entertainment,
you must also prove that
you or your employee was
present if the
entertainment was a
business meal.
Transportation Cost of each Purpose: Business
separate expense. Date of the Your business purpose for the expense.
For car expense, expense. For destination. Relationship: N/A
the cost of the car car expense,
and any the date of
improvement, the the use of the
date you started car.
using it for
business, the
mileage for each
business use and
the total miles for
the year
Working with Bookkeeping Bots
If you are not sure your record is adequate, have no worries, Bookkeeping Bots will advice
you to keep good record to support your tax deduction.
All you need to do is scanning your expense records, e.g. invoice, bill, lease contract, loan
statement, petty cash journal every month, and dump those files to Dropbox share folder,
we will help you sort through those files, then convert to a full blown financial statement
in Quickbooks. Your tax accountant will love you when you give him an impeccable
financial statement in Quickbooks with records to support each transaction.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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10. There are some expenses that even if you keep perfect record, you still cannot deduct, e.g.
government penalties. Please check with your tax accountant.
Asset
Anything tangible or intangible that is capable of being owned or controlled to produce
value and that is held to have positive economic value is considered an asset. Simply stated,
assets represent ownership of value that can be converted into cash (although cash itself is
also considered an asset) For example, your rental property, machine, and office furniture
are your asset in business.
How much your asset worth is very important in accounting, because the amount will
determine the following depreciation expense, therefore will impact how much income tax
your pay. The value of your asset is called basis in accounting. The basis of asset you buy
is usually its cost. The cost is the amount you pay in cash, debt obligations, other property,
or services. Your cost also includes amounts you pay for the following items.
- Sales tax,
- Freight,
- Installation and testing,
- Excise taxes,
- Legal and accounting fees (when they must be capitalized),
- Revenue stamps,
- Recording fees, and
- Real estate taxes (if assumed for the seller).
You may also have to capitalize (add to basis) certain other costs related to buying or
producing property.
Types of Asset
Any item of economic value owned by an individual or corporation, especially that
which could be converted to cash. Examples are
1) Cash,
2) Securities,
3) Accounts receivable,
4) Inventory,
5) Office equipment,
6) Real estate,
7) A car, and
8) Other property
On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred
stock, and retained earnings. From an accounting perspective, assets are divided into
the following categories: current assets (cash and other liquid items), long-term
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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11. assets (real estate, plant, equipment), prepaid and deferred assets
(expenditures for future costs such as insurance, rent, interest), and intangible
assets (trademarks,patents, copyrights, goodwill).
Record to Keep
In small business, you want to put your expense into the expense category, not asset
category, because expense can be deducted fully at current year whereas asset can only be
recovered through depreciation in the future year. IRS has very detailed rule about
classification, please consult your tax accountant. Either way, you need to keep an
adequate record. Your tax accountant will need these documents to establish the basis of
your asset. Here are some record examples:
l Sales contract
l Bills & invoices
l Cancelled check
l Appraisal
l Insurance bill
If you are building a real property yourself, here are the documents that are crucial for
establishing the basis:
l Land Price
l Labor and materials cost
l Architect fees
l Building permit charge
l Payments to contractors
l Payment for rental equipment, and
l Inspection fees
If you are using your own employee to build the real property, you also need the following
documents to establish the basis of the property:
l Employee wages paid for the construction work
l Depreciation on equipment you own while it is used in construction
l Operating and maintenance cost for equipment used in the construction; and
l The cost of business supplies and materials used in the construction
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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12. Also for each asset, you need to have a document to detail what depreciation method you
used and how many has been depreciated already, so that your tax accountant would have
full information to do his work.
For example:
Property Address: 453 Hancock St, Boston, MA 20122
Property class…..: 27 years
Date placed in service: May 3, 1993
Recovery period ……: 27 years
MACRS system (GDS or ADS): GDS
Depreciation rate( from tables): .1429
Work with Bookkeeping Bots
We will work with your CPA or our own partner CPA to determine if the expense
should be capitalized. Luckily, for small business, most of the small purchase can be
expensed safely due to the Section 179 Tax Deduction (www.section179.org). In
2012, the first $139,000 new equipment purchase, even if it’s an asset, can be expense
at current year. How sweet is that?
Liability
Liability is the money you own to others. E.g. you borrowed $200k to buy a property, the
$200 should appear under your liability column.
Types of Liability
Current liabilities are debts payable within one year, while long-term liabilities are debts
payable over a longer period.
Most of the liability is established because you enter some kind of business agreement with
other party, e.g. you borrowed money from a bank, you take money from client in advance,
you own money to your supplier, or you own tax to the government (very expensive money
to borrow, avoided it all cost).
Record to Keep
You can order iPad 2 and paid $600 to Apple before iPad 2 launches next year. The $600 you
paid is the liability to Apple, even if no contract is available. Examples of record for liability
are:
1) Mortgage contract with bank
2) Other debt financing agreement with 3rd party
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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13. 3) Invoices from your vendor
4) An IOU note
5) Court ruling
6) Legal settlement agreement
Working with Bookkeeping Bots
Just scan us the contract and paper records in the above category, we will help you
establish the correct liability in the Quickbooks.
How long to keep the record
The short answer is it depends. The length of time you should keep a document depends
on the action, expense, or event the document records. Generally, you must keep your
records that support an item of income or deductions on a tax return until the period of
limitations for that return runs out.
Table 3. Period of Limitations
THEN the
IF you...
period is...
1 Owe additional tax and
(2), (3), and (4) do not 3 years
apply to you
2 Do not report income that
you should and it is more
than 25% of the gross 6 years
income shown on your
return
3 File a fraudulent return No limit
4 Do not file a return No limit
5 File a claim for credit or
refund after you filed The later of 3 years or 2 years after tax was paid.
your return
6 File a claim for a loss from
7 years
worthless securities
Are the records connected to assets?
Keep records relating to property until the period of limitations expires for the year in
which you dispose of the property in a taxable disposition. You must keep these records to
figure any depreciation, amortization, or depletion deduction and to figure the gain or loss
when you sell or otherwise dispose of the property.
Generally, if you received property in a nontaxable exchange, your basis in that property is
the same as the bases of the property you gave up, increased by any money you paid. You
must keep the records on the old property, as well as on the new property, until the period
of limitations expires for the year in which you dispose of the new property in a taxable
disposition.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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14. What should I do with my records for nontax
purposes?
When your records are no longer needed for tax purposes, do not discard them until you
check to see if you have to keep them longer for other purposes. For example, your
insurance company or creditors may require you to keep them longer than the IRS does.
Software
Bookkeeping Bots would definitely recommend Quickbooks 2012. It doesn’t matter if it’s
desktop version or online version. Because Quickbooks is the de facto standard for small
business accounting. Some tax preparer will give you discount if you submit him a
Quickbooks file.
Bookkeeping Bots
Bookkeeping Bots provides low cost, high quality remote bookkeeping service for small
business, starting at $150 per month. Our $150/month package will generally cover small
business with $500k revenue.
Small Business Bookkeeping Package
This is the default bookkeeping service package designed to meet the needs of most
small business. This package include:
l Total of 100 receivable and payable transactions
l One bank account reconciliation
l Input all your company credit card expenses (one credit card) into Quickbooks
l All other transactions, e.g.: mortgage, owner withdraw, employee advance, car
mileage etc.
l One check-run per month.
Note: check-run is the day you print and mail all the checks to your vendors for better
efficiency and easier cash management. A business normally maintains a 30-day policy,
meaning it pays its vendor in 30 days.
What Bookkeeping Bots will do is to make sure all unpaid invoice you scanned to us will
be entered into Quickbooks before the check-run day, so that on that day, you can just use
Quickbooks print all the checks and mail them.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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15. User Case
Before
Tony is running a seafood buffet restaurant in New York City. His business is
doing about $700,000 last year. Everyday after closed, he has to spend 30
minutes input invoice into Quickbooks. Each month, he also has to spend a
whole afternoon match bank statement and with transactions in Quickbooks,
and enter all credit card expenses. His wife is also actively involved in the
business to help him do the mailing and filing of records. Year-end, his tax
account asked him to submit many other records to establish the basis of
depreciation, which delays his tax filing.
After
When adopting Bookkeeping Bots, Tony bought a scanner and printer all-in-
one for $200 from Staples, which is also tax deductible, to scan all the
expense, cash deposit receipts, and POS machine records to Dropbox share
folder. Every month, He also scans his bank account statement and business
credit card statement.
All the scanning will take him in less than 30 seconds a day, then he got an
impeccable financial statement in Quickbooks with electronic records filed in
chronological order to support each transactions.
His wife doesn’t have to work for him filing paper records. He can search
through all records easily on his computer. Meanwhile, he is still in total of
control of vendor payment.
His business tax return can be filed within three days, because Bookkeeping
Bots provides his tax accountant all the necessary information and error free
financial statement.
Price
$150 per month that can be terminated anytime
*Special risk free trail is available from new referral client.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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16. How do I choose?
If your restaurant or other business have less than $5 million revenue, and use
Quickbooks 2012, Bookkeeing Bots service is designed for you.
We are always there~
2nd Check-Run Per Month
Some business needs to print check for vendors or employee bi-weekly. This the
service option for you. With this option, we will make sure all the unpaid invoice you
scanned to us two weeks before check-run date, entered to Quickbooks and check is
ready to be printed on 2nd check-run date.
This option doesn’t mean you can only pay somebody on check-run date, although it’s
a good cash management practice. When you need to make urgent payment, you can
do it anytime, and stamp them invoice “paid”, or scan us other record for this payment.
User Case
Andrea is running her newly opened liquor store, due to not enough tracking
history, her distributor only extend her 15 days for payment, which is called
Net 15 Term. So Andrea has to print and mail check every two weeks.
She chose this option because 2nd check-run is just what she needs. Besides, if
only one vendor demands Net 15 Term, she can also pay this vendor anytime
she wants without adding this this service option. But if you have many other
vendors to pay out at bi-weekly basis, or you used to come to your store two
times a month to sign checks and do inspection, this option will help you
reduce lots of complexity.
Price
$50 per month, on top of Small Business Bookkeeping Package
How Do I Choose
If your currents practice is writing check bi-weekly, you should select this option to
allow Bookkeeping Bots fully integrated with your procedure
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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17. Additional 100 payable or receivable transactions
The Small Business Bookkeeping Package only covers a total of 100 payable or
receivable transactions, which is enough for most of small business. If your business
generate more than that amount of transactions, you should select this service options.
User Case
John Ho runs a successful fresh produce distribution business, serving local
restaurants in Boston area. His business generates over 100 invoices, whose
payment needs to be collected based on different term ranging from one
week to 30 days.
His business has also need to pay 30 suppliers. Due to the higher volume of
his transaction, John should select this service options.
Bookkeeping Bots will not help you collect payments from customer, nor pay
out your vendors on your behalf, because we prefer to limit on what we do
best, helping you generate impeccable books backed by sufficient transaction
records.
Price
$100 for additional 100 payable or receivable transactions
How Do I Choose
If you have transactions volume that is higher than 100 receivables and payables, you
should add this service option, because the basic Small Business Bookkeeping
Package only cover the first 100 payable and receivable transactions.
Typical high transaction volume businesses are distributor, trucking, or property
management, etc.
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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18. Additional Bank Account Reconciliation
The basic service, Small Business Bookkeeping Package, only covers one bank
account reconciliation. If you have another bank account in your business that needs
to be reconciled every month, this is the additional service option you should choose.
The reason for reconciliation is to make sure the transactions in your bank accounts
match transactions in your book. It’s a typical accounting activity and financial
control, which is very time consuming if a discrepancy discovered in this process.
Luckily, Bookkeeping Bots will help you complete this task for you every month.
Any un-reconciled items will be communicated to you directly over email or phone.
User Case
Jim is the owner of a property management firms. He manages about 50
luxury apartments downtown. He has two bank accounts, one for rent paid
by tenants, the other for security deposit only. In this way, he can makes
clear what is revenue and what is money that should not be kept safe on
behalf of tenant.
Both accounts are important to his business, will generate lots of
transactions, and both need to be reconciled every month. To ensure error
free books and transactions, Jim needs to add this service option on top of his
Small Business Bookkeeping Package.
Price
$50 per month, on top of Small Business Bookkeeping Packages
How Do I Choose
If you have more than one bank account under your business, which also had some
transactions, and these transactions are also important to you, I highly recommend
you add this service option, just like Jim’s example.
Contact
Bookkeeping Bots LLC
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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19. 91 Hillview Rd, Westwood,
MA 02090, USA
TEL: 617-642-5620
Email: nicolas@bookkeepingbots.com
Bookkeeping Bots LLC, 91 Hillview Rd, Westwood, MA 02090, USA, Tel: 617-642-5620
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