Archives for January 2012

Chart of Accounts – The Backbone – Part I

Ha!  Chart of accounts is just an accountant’s thing — not important to me as a business owner.  Think again.  The “Chart of Accounts” or some simply call it categories, is the structure for your bookkeeping.  Think of it as the framing of a house — you wouldn’t try laying bricks, placing windows, etc. without a house being framed.  Sloppy chart of accounts equals sloppy financial records.

Here are some tips for a workable chart of accounts.

1.  Look at the IRS forms that you will be reporting, i.e. a schedule C for sole proprietors and single member LLCs.  This will give you an idea of the categories that are necessary.  The difference between the entities is all in the “equity.”  Income and expenses are the same, so a schedule C is a good place for everyone to look.

2.  Think of what categories YOU want for keeping up with certain aspects of your business.

3.  Use a numbering system for your chart of accounts.  This is good habit building if you’re doing it by hand, but best practice if you are using a computer program.  With a numbering system you’ll be able to print your financial statements with income and expenses in alphabetical order, and in general, things will be easier to find.  And you’ll be consistent with the rest of the accounting world.  Leave space when numbering so that you’ll be able to add if needed.

4.  Most important — KEEP IT SIMPLE.  You need a nice balance.  If you make the chart of accounts too detailed, you will lose interest in categorizing items.  A too detailed chart can also become confusing.  There are other ways to keep up with details rather than making a new category in your chart of accounts.

5.  Don’t over-think it.  Nothing is set in stone.  You should have two goals in sight with your bookkeeping system: Know how your business is doing and be able to accurately report to the IRS.

6.  Always have a category called “Ask my accountant.”

Accounting 101

When I went from Philosophy to Accounting, I thought I would find certainty and truth.  Alas, in accounting I found one absolute TRUTH (now keep in mind, my research isn’t exhaustive).  Luca Pacioli, an Italian mathematician, first published this equation in 1494, and it’s been THE method of accountants and bookkeepers ever since.

Another way of saying this is:  everything you own less everything you owe is what you’re worth.  When you list your assets, liabilities and equity together on paper, it’s usually called a “balance sheet”.  It’s a snapshot of your business just as if you had snapped a picture.  It tells nothing of the past, nothing of the activities, and nothing of the future.  A snapshot.  Obviously, if you want to know how your business is doing (and the IRS has a big interest in this little tidbit), you’re going to need something else.

The second part of Luca’s clever little idea:  Income and Expenses.  These aren’t like snapshots — they’re more like a video.  They record a period of time — a day, a month, a year.  Income less expenses equals your profit or loss, and this is called an Income Statement.  Profit or loss then fits into equity on the balance sheet.  And in a good and perfect world, Debits = Credits.

Other than a brief accounting lesson, the point of this is that when people set up their accounting on a computer (and ALL computer accounting programs are based on this method whether they let you know or not) without an understanding of this, strange and scary things happen.  I have clients bring in an income statement to me off of their Quickbooks program.  I say, “where’s the balance sheet?”  They say, “Oh, it’s so messed up that I can’t make heads or tails of it.”  What they don’t understand is that is all fits together.  You can’t trust the income statement if the balance sheet is screwed up.

Now this isn’t to say that you can’t by “hand” keep up with your income and expenses, and have a quite good summary of your business.  It can easily be done.   And I suggest that business owners begin that way.  It never hurts to understand your business.

Texture Tuesday

As if I don’t have enough on my plate, I’m also participating in Kim Klassen’s Texture Tuesday.  The theme for this Tuesday is the word “open”.  Here’s my result.

I started with a stack of my old logic books — some things you just can’t let go.  Took a photograph with my macro lens.  And I do love my macro lens!  I’ve added Kim Klassen’s textures “Serendipity” and “Shades of November”.   Cropped the photo a bit, and there you have it.

 

Fly Tribe Blog Hop

Our Fly Tribe from Kelly Rae Robert’s Flying Lessons e-course is getting creative again.  We’re doing a blog hop about our “word” for 2012.

Here I blogged about starting again this year with Ali Edwards’ One Little word project.  ORGANIZE is so, SO my word this year.  Hey, I had the pre-class assignment up before January first.

In the class, January’s assignment is a 9 pocket page defining our word, it’s various forms and focusing on intentions for 2012.  Last year in this class I struggled with the supplies.  This year I have scrapbook paper, stamps, fonts and best of all — some of my own art to include.  Above is my mermaid from our last blog hop shrunk smaller than I thought was possible.

Yes, I want to do so many things.  The only way to do even half of all the things I want to do is to be organized.  “Whip into shape” — isn’t that a great synonym!  That’s my plan — I’m going to whip my life into shape; not organize a closet — although they could use it.

“With this word, I invite into my life…” — a powerful thing when we intend.  Order, structure and accomplishment are good things.  But calm is a big thing for me, and with my word, that is exactly what I am inviting into my life in 2012.  I don’t want to spend the year resembling the woman above in my little pen sketch I did for my financial blog.  I have spent too much of my life in that frazzled state, and I am excited and looking forward to organizing!
I hope you visit the other members of our Fly Tribe’s blogs.  All these “words” are adding up to a lot of creativity in 2012.  Here’s the list with links to them all.  And a special thank you to Rae Payne for creating our Fly Tribe Word Hop badge.  Enjoy, and be inspired.

Fly Tribe Get-Together

What an exciting day!  Yesterday in Louisville, I met four fellow classmates from Kelly Rae Roberts e-course “Flying Lessons.”  And what a treat!  Kathleen Conrad, Kelley Miller, Kelly Hoernig and Deborah Eaton were all an absolute delight to meet.  We talked for hours (and I do mean HOURS) about art, life and our journeys.

And if this wasn’t exciting enough, the gifts I received took the experience over the top.

 This beautiful tag came fromKelly Hoernig, and she answered all my questions about her process.

A gorgeous pendant with my word (can you believe it — MY word for 2012!) on it came from Kathleen Conrad.  Of course, I had a ton of questions about her process of using resin which she patiently explained.  A unique reminder to be “organized” in 2012.

Kelley Miller’s work has been a favorite of mine since the beginning of the class, and now I have my own original.

I have been truly blessed by all of the caring souls from this class, and to have been able to meet four of them in person was a memorable experience.  Can’t wait to do it again, and much thanks to these four beautiful souls.