Accounting

Top Accounting Questions & Answers for Phoenix Business Owners

May 31, 2024

As one of the premiere bookkeeping services in Phoenix, we encounter a lot of the same questions over and over among Arizona business owners. Learning from other people’s bookkeeping mistakes or successes is the cornerstone of building a business (that doesn’t make costly errors). In this article, we’ve pulled together the top accounting questions we get from Phoenix business owners and give our best answers.

If you don’t find an answer to your question below…

Schedule a free consultation with us here. We want you to feel heard!

Because when it comes to your business, there’s no question too small or insignificant that we won’t take the time to clarify for you.

What are the most common bookkeeping mistakes that business owners make? How can I avoid them?

Although it’s not always the first question we get, it is certainly one of the top accounting questions we get that we love to answer. If you’re thinking about bookkeeping mistakes, then you’re ahead of most small business owners.

Learn from these bookkeeping mistakes, and you’ll save time and money that can be invested elsewhere in your business.

  1. Failing to keep receipts: This leads to inaccurate expense tracking. Avoid this by keeping all receipts organized, either digitally or physically.
  2. Mixing personal and business finances: This complicates accounting and tax filings. Avoid by maintaining separate bank accounts and credit cards for business and personal use.
  3. Not reconciling accounts regularly: Skipping this step can result in overlooked errors or fraudulent activities. Avoid by reconciling bank statements monthly.
  4. Ignoring tax deadlines: This can incur penalties. Avoid by using calendar reminders and setting aside funds for taxes.
  5. Incorrectly categorizing expenses: This distorts financial reports. Avoid by learning basic accounting categories or using software with built-in categorization.
  6. Not backing up financial data: Data loss can be catastrophic. Avoid by using cloud-based accounting software and regular backups.
  7. DIY bookkeeping without expertise: This can lead to errors. Avoid by hiring a professional bookkeeper or taking bookkeeping courses.

If you’re hungry for more info on avoiding bookkeeping mistakes, then learn more about the Basics of Bookkeeping here.

How often should I update my books? What daily, weekly, and monthly tasks should I perform?

When you get behind on one oil change, your car engine will start to build up residue and sludge. When you get behind on multiple oil changes, the engine starts overheating and the performance suffers. Miss enough oil changes, and your car will end up broken down and on the side of the road.

Bookkeeping is like car maintenance… the more attention you give it, the better your company will perform.

Daily, you should record transactions and log receipts.

Weekly, you should reconcile bank accounts, review and categorize expenses, and issue invoices.

Monthly, you should review financial reports, ensure all transactions are recorded, and prepare for taxes.

To make this less burdensome, use accounting software to automate tasks, set aside dedicated time for bookkeeping, and consider outsourcing to a professional bookkeeping service in Phoenix.

What’s the difference between cash and accrual accounting? Which method is best for my business?

They say there’s more than one way to skin a cat, just like there’s more than one method for accounting within a business. Understanding the difference between these methods will help you make informed decisions about how to track your income and expenses. (This is also a top accounting question found on every Accounting 101 test)

Cash Accounting records transactions only when cash changes hands. Income is recorded when received, and expenses are recorded when paid. It’s simpler and provides a clear view of actual cash flow.

Cash Accounting is typically used by small businesses, sole proprietors, and service-based businesses with simple transactions and low inventory levels, as it provides a straightforward way to track actual cash flow.

Cash Accounting may be best for you if you’re a:

  1. Freelancer (writers, graphic designers)
  2. Small consulting firm
  3. Local retail shop
  4. Independent contractor (electricians, plumbers) 
  5. Personal service provider (hairdressers, personal trainers)

Accrual Accounting records income and expenses when they are earned or incurred, regardless of when cash is received or paid. This method provides a more accurate picture of a business's financial health by matching revenues with related expenses in the same period, but it can be more complex to manage.

Accrual Accounting is generally used by larger businesses. Those with more complex transactions, or companies that need to provide detailed financial reports to stakeholders. This method is required for businesses that exceed certain revenue thresholds or need to comply with Generally Accepted Accounting Principles (GAAP).

Accrual Accounting may be best for you if you’re a:

  1. Manufacturing company 
  2. Large retail chain 
  3. Construction firm 
  4. Business with long-term contracts
  5. Wholesaler or distributor with significant inventory

Of course, there’s more nuance to deciding on an accounting method that suits your business, and then building it into your processes.

Don’t know how to decide on an accounting method for your business?

Schedule a free call with one of our accounting professionals and take your business to the next level. 

What bookkeeping software do you recommend for a small business?

When you get the right bookkeeping software, accounting becomes a breeze within your business. Bookkeeping software will automate a lot of the tedious tasks of documenting and reporting expenses, invoicing, paying employees, generating reports, and avoiding many of those costly bookkeeping mistakes.

These are a few of the most reputable bookkeeping software tools:

  1. QuickBooks Online: Popular for its robust features. It offers invoicing, expense tracking, payroll, and tax preparation, with strong integration options.
  2. Xero: Known for its user-friendly interface. Xero provides comprehensive accounting features, bank reconciliation, and excellent mobile functionality, ideal for businesses needing flexibility.
  3. FreshBooks: Best for service-based businesses. It excels in invoicing, expense tracking, and time management, with a simple interface that’s easy for non-accountants to use.

Take some time to identify your business needs. Compare the features of these bookkeeping software. Some even offer free trials so you can see how they work.

Ultimately, find something that you will enjoy setting up, as bookkeeping software can be the key to unlocking rapid business growth. And also take some time to explore our bookkeeping services in Phoenix, as we’d love to help you with this.

How do I prepare for tax season?

When we fail to prepare, we prepare to fail… and you don’t want to fail in the eyes of the IRS because that’s a problem not easily solved.

If there’s any part of business operations that should almost always be outsourced to professionals or an internal hire, it’s TAXES. Why? Because all the complexities of the tax code make it difficult for business owners to find hidden deductions and save on their taxes. Speak to a Tax Accountant here.

But if you’re determined to do it on your own, then here’s a few tips:

To prepare for tax season effectively, start by maintaining comprehensive records throughout the year. This includes keeping all business-related financial documents such as receipts, invoices, payroll records, and bank statements.

Use a reliable accounting software to regularly update and review your financial transactions; this will simplify compiling your financial information when tax season arrives.

Ensure you understand the specific tax obligations for your business in Arizona, including income tax, sales tax, and any industry-specific taxes. Regularly set aside money for tax payments to avoid cash flow issues.

Also, keep detailed records of expenses that could qualify for deductions, like office supplies, travel expenses, and business-related purchases. Staying organized with these records will make it easier to maximize deductions and credits. 

How do I ensure my payroll is compliant with tax regulations?

Payroll accuracy is critical to avoid penalties and maintain employee trust. To ensure that payroll is processed correctly and complies with Arizona tax regulations, small business owners should:

Register with the Arizona Department of Revenue

Obtain an Employer Identification Number (EIN) from the IRS to register for payroll tax.

Keep detailed records

Maintain records of employee wages, tax withholdings, payroll transactions, earnings, hours worked, tax deductions, and other relevant payroll information for at least four years.

Use payroll software

You may consider choosing software that can handle complex calculations and tax deductions, and regularly update it to comply with regulations.

Train a payroll team

Make this a job role or task to ensure the payroll team uses the software effectively.

Follow best practices

Maintain accurate employee records, classify employees correctly, stay updated on labor laws and tax regulations, set a consistent payroll schedule, implement strong data security measures, double-check all calculations, and conduct regular payroll audits.

What’s the best way to forecast and budget for the future?

Wouldn’t you like to know where your business will be in a month, in a quarter, in a year, and three years from now? If you knew this information, don’t you think you could manage your resources and employees better?

That’s what business forecasting achieves. And we do this through financial reports.

Here’s what goes into forecasting your businesses future:

  1. Understand Your Historical Data: Review your past financial data to understand trends, seasonality, and growth rates. This includes sales, expenses, and cash flow patterns.
  2. Identify Fixed and Variable Costs: Clearly distinguish between fixed costs (like rent and salaries) and variable costs (like materials and marketing expenses). This helps in predicting future costs more accurately.
  3. Create Revenue Projections: Use historical sales data and market analysis to forecast future revenues. Consider current clients, economic conditions, industry trends, and your business's growth plans.
  4. Set Clear Goals and Objectives: Define what you want to achieve financially within specific timeframes. This might include revenue targets, profit margins, or cost reduction goals.
  5. Prepare for Different Scenarios: Develop best-case, worst-case, and most likely financial scenarios to help you prepare for various business conditions. This approach allows you to adapt more quickly to unexpected changes.
  6. Utilize Budgeting Software: Leverage technology by using budgeting and forecasting software. These tools can provide real-time data analysis, scenario modeling, and can integrate with your existing accounting software.
  7. Monitor Regularly and Adjust: A budget shouldn’t be static. Regularly review your budget and forecasts compared to actual performance. Adjust your budget as necessary to reflect new information and business conditions.

If you're new to financial planning, then it is helpful to get a financial professional to look over your business and tailor solutions specific to your forecasting and planning needs.

In addition to tax accounting and bookkeeping services in Phoenix, 4 Corners also offers Business Consulting. We will get to know your business in-and-out, find industry leaders to learn from, and design a growth plan with you that will achieve your goals, with respect to the resources you have.

Once again, if you don’t find an answer to your question in this article on top accounting questions…

We want to help you get your finances organized so your business can achieve what it’s capable of.

Book a free consultation with us here

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