It's never too early to get ready for the end of the year - and tax filing. Follow these steps to get your books in shape.
Step 1: Enter all your business transactions into Wave
The first step to get your books ready is to make sure that all of your business transactions are entered into Wave. The easiest way to do that is to link your business bank and credit card accounts so that your transactions will flow in automatically. Otherwise, you can upload transactions from your bank, or you can enter all the transactions yourself, via the Transactions page.
It's best to have separate bank and credit card accounts set up that you only use for business activity. Using the same bank account for personal and business transactions makes your bookkeeping process more complicated and error prone.
Step 2: Categorize all your transactions
The next step is to make sure that all the activity in your business is correctly categorized. You can track down all your uncategorized transactions by navigating to the Transactions page, selecting “Filter,” choose “Uncategorized” from the dropdown box, and clicking “Apply.”
If you're not sure how to categorize a transaction, you can create a new category called "Ask my accountant" or "How do I record this?" and temporarily categorize those transactions until you have time to figure out what to do with them.
Step 3: Prepare your final payroll
If you have employees, remind your employees to submit any outstanding expense reimbursements, and complete your payroll. Also include any year-end bonuses, annual benefits, or other final adjustments that need to be included. Remember that the final check date must be in 2020 in order for the amounts to be included in 2020 reporting. For more specifics on important payroll processing dates, see this article:
Step 4: Reconcile your bank and credit card accounts
Once all your transactions are entered into Wave and are categorized, you can pull out your bank and credit card statements and start reconciling. Navigate to Reconciliation and choose one of the accounts listed.
When you reconcile your bank, credit card, and loan accounts, you're comparing the activity in Wave to the activity recorded by your financial institution. This is the best way to make sure that your books aren't over- or under-counting the money you've received and paid out. Reconciling your accounts is the most important thing to do for year-end, so as tempted as you may be to skip this step, don’t!
Step 5: Collect important paperwork
In order to file your taxes, you’ll need a couple of reports from Wave: the Profit & Loss for the fiscal year and the Balance Sheet as of the last day of the year.
You should also collect:
- Bank and credit card statements for December 31st
- Receipts or bills for any fixed assets you purchased during the year (like computers, vehicles, furniture, equipment, and real estate)
- Loan statements for December 31st and amortization schedules, if available
- Any tax documents you receive (like 1099s)
Step 6: Collect past due invoices
To accurately account for what is truly owed to you, this is a great time for you to collect on your past due invoices.
If a customer does not pay and you want to recognize the non-payment as a bad debt expense, create a journal entry on the transactions page where you debit “Bad Debt Expense” and credit “Accounts Receivable”.
Once you’ve completed these steps, you’re ready for tax time, and you can start the new year with clean accounting. As you think about New Year’s resolutions, consider adding reconciling your bank accounts to your list. You’ll thank yourself at the end of next year!
Have questions? Looking for more help? Contact Wave Advisors for coaching or bookkeeping services.