Bookkeeping Question

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Little Bill

Moderator
Staff member
Location
Tennessee NEC:2017
Occupation
Semi-Retired Electrician
I have a question about how to catagorize things for bookkeeping/tax purposes. Let's say you have a service truck and keep some inventory in it, or just have it either in a shop or home. Do you keep supplies separate from materials? For example, I would consider things like staples, wire nuts, plastic ties, electrical tape etc. as supplies. I consider things like breakers, wire, switches, receptacles, etc. as material. The problem I'm having is I have all my receipts from suppliers but I have a lot of both supplies and materials on the same receipt. It is sometimes hard to go back and look at the receipts and try to determine which is which.
Is there a need to keep these separate? My accountant seems to think I should? I just hate trying to go back and do this by trying to decipher receipts. I looked on a Schedule C and Part II line 22 just says supplies. What do you guys do for this, separate or both under one catagory?
 

Dennis Alwon

Moderator
Staff member
Location
Chapel Hill, NC
Occupation
Retired Electrical Contractor
I would not separate them. Generally at the end of the year you need to do an inventory of what you have unless you have a software program to do that. I do it for tax purpose but otherwise you would have to categories everything and it isn't worth it.
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
We separate supplies from inventory items as the billing invoices come in. For the most part the item codes and descriptions tell my bookeeper which they are. We go a step further and all billings from our suppliers are tagged to a job. Helps when someone forgets to write something down.
 

Little Bill

Moderator
Staff member
Location
Tennessee NEC:2017
Occupation
Semi-Retired Electrician
I would not separate them. Generally at the end of the year you need to do an inventory of what you have unless you have a software program to do that. I do it for tax purpose but otherwise you would have to categories everything and it isn't worth it.

So at the end of the year you do an inventory and group the supplies & materials together, or just total inventory? How do you count a box of staples or NM connectors that has been used out of, count the remaining?

We separate supplies from inventory items as the billing invoices come in. For the most part the item codes and descriptions tell my bookkeeper which they are. We go a step further and all billings from our suppliers are tagged to a job. Helps when someone forgets to write something down.

I don't have too many "specific" jobs, most are service calls. I don't give a customer a break down of items I use, just a general description of what I did and the grand total. I don't want to have to haggle every line item.:happyno:
Do you keep a separate list showing you what you used, separating supplies used and materials used?

I'm kind of upset with my accountant as I asked what/how I should do things when I started my business and he just said keep your checkbook register up to date with deposits and expenses, ie: income vs out go. Now he wants things broke down.:rant:
 

kwired

Electron manager
Location
NE Nebraska
Inventory items are tracked. They need entered into accounting system when purchased as well as when sold - otherwise you are not tracking them. Now there are items that appear and items that disappear - but that happens - especially if you are busy doing something besides watching inventory - that is the purpose of taking a physical inventory and making adjustments.

Unless you have a large stockpile of items like staples, wire nuts, screws, or other items you typically do not keep track of, they are just consumables and should be expesed as they are purchased and not run through inventory.

You can purchase materials including items you normally keep in inventory but instead expense them immediately for a job and not run them through inventory. Not itemizing the items is a first step to doing this - just a lump sum material expense for a job. When job is complete and there are leftovers you may choose to make entries to put these items into inventory. If not at end of year when physical inventory is taken you will make adjustments at that time to correct what is off.
 

jaylectricity

Senior Member
Location
Massachusetts
Occupation
licensed journeyman electrician
Keep them together. Keep the receipts. If the IRS questions those particular numbers, THEN you can go through your receipts and figure which is which. Don't do the work for them until you are actually required to. You may never have to and that's time you can't get back. Whether you're doing it yourself or paying an accountant, it's an unnecessary expense.
 

kwired

Electron manager
Location
NE Nebraska
Little Bill are you using an accounting program like Quickbooks, or are you doing it the old fashion way?

Accounting software makes it easy to keep track of these things. You can subcategorize to almost any level you want for your own purposes. For tax purposes many of these subcategories get added together.

Quickbooks (and probably others also) has default income and expense accounts that are named almost word for word like they are on tax forms. You can add others as you see necessary or make sub accounts of existing ones that are still totaled in the master account when creating most reports.
 

Little Bill

Moderator
Staff member
Location
Tennessee NEC:2017
Occupation
Semi-Retired Electrician
Little Bill are you using an accounting program like Quickbooks, or are you doing it the old fashion way?

Accounting software makes it easy to keep track of these things. You can subcategorize to almost any level you want for your own purposes. For tax purposes many of these subcategories get added together.

Quickbooks (and probably others also) has default income and expense accounts that are named almost word for word like they are on tax forms. You can add others as you see necessary or make sub accounts of existing ones that are still totaled in the master account when creating most reports.

My accountant must be old fashion because he had me do it that way. I think I'm going to make some spread sheets or try an old version of Quicken that I have. That is if I can get it to load on Windows 7, it is very old.
 

kwired

Electron manager
Location
NE Nebraska
My accountant must be old fashion because he had me do it that way. I think I'm going to make some spread sheets or try an old version of Quicken that I have. That is if I can get it to load on Windows 7, it is very old.

Quickbooks is only like $200 and will save you much more than that in time you save just because you are using it vs. spreadsheets or hand written accounting.

Quicken is not as business oriented as Quickbooks - it is intended to track personal finances and not business accounting.
 

CopperTone

Senior Member
Location
MetroWest, MA
My accountant must be old fashion because he had me do it that way. I think I'm going to make some spread sheets or try an old version of Quicken that I have. That is if I can get it to load on Windows 7, it is very old.

the real question is - "how can you not afford to use quickbooks?" at least.

what you do every day in quickbooks just makes it that much easier for the accountant at the end of the year. if your accountant doesn't at least use QB - dump em and get a new accountant.


You have to have an accountant if you are running a business. You can do your daily books but they need to do the taxes and give some advice.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
Supplies are taxed as part of your business expenses for sales tax puposes, while parts are taxed differently because you sell them as parts.

It is probably best to keep them seperate.

For income tax purposes, I don't think it matters much. the IRS just wants to know how much you took in and what your expenses were.
 

kwired

Electron manager
Location
NE Nebraska
Supplies are taxed as part of your business expenses for sales tax puposes, while parts are taxed differently because you sell them as parts.

It is probably best to keep them seperate.

For income tax purposes, I don't think it matters much. the IRS just wants to know how much you took in and what your expenses were.

Correct, but cost of inventory is not an expense until it is sold. Purchases of inventory are purchases of assets and not an expense.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
I have a question about how to catagorize things for bookkeeping/tax purposes. Let's say you have a service truck and keep some inventory in it, or just have it either in a shop or home. Do you keep supplies separate from materials? For example, I would consider things like staples, wire nuts, plastic ties, electrical tape etc. as supplies. I consider things like breakers, wire, switches, receptacles, etc. as material. The problem I'm having is I have all my receipts from suppliers but I have a lot of both supplies and materials on the same receipt. It is sometimes hard to go back and look at the receipts and try to determine which is which.
Is there a need to keep these separate? My accountant seems to think I should? I just hate trying to go back and do this by trying to decipher receipts. I looked on a Schedule C and Part II line 22 just says supplies. What do you guys do for this, separate or both under one catagory?

i had a rather wordy reply on how my paperless bookkeeping is set up, and how it works.
then i killed chrome by mistake. oops. went to close a tab, and closed the whole browser.

here's the short version. for me, as a sole proprietor, quickbooks is way more than i need,
and gives me many opportunities to make myself nuts. without employees, it's not necessary.

here is what i use for a sole proprietorship, doing mostly service truck work:

neatworks
invoices2go on the ipad and iphone
squareup on the ipad and iphone.

everything is paperless, synched on the cloud, and geolocated.

what's all that mean in the real world?

doing my business taxes monday evening took 50 minutes,
with my wife entering the values into turbotax, and me querying
the neatworks database to get the numbers she wanted in the order
she asked for them.

my current net taxable income for this fiscal year to date is $16,211.
my AR is $5,334 currently.

and year to date includes the $46 fill up of diesel on the work van
half an hour ago. every receipt, check, and financial transaction is
inputted. there is no "todo" basket, and no lost receipts.

now, if you saw the first year of my business, come tax time,
and six months of receipts not entered into quickbooks, i thought
jill was going to have a heart attack, AFTER she beat me to death
with a tire iron.

if you want details of how i have it set up, let me know.
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
I have QB Enterprise. Way overkill for the most part but when I want to know what work I did for whomsoever, 10 or 12 years ago it only takes seconds, when everything is clicking. Tax time? The accountant gets a back up made for them and we continue.

QB is not all a Bed of Roses. It takes an effort.
 

kwired

Electron manager
Location
NE Nebraska
i had a rather wordy reply on how my paperless bookkeeping is set up, and how it works.
then i killed chrome by mistake. oops. went to close a tab, and closed the whole browser.

here's the short version. for me, as a sole proprietor, quickbooks is way more than i need,
and gives me many opportunities to make myself nuts. without employees, it's not necessary.

here is what i use for a sole proprietorship, doing mostly service truck work:

neatworks
invoices2go on the ipad and iphone
squareup on the ipad and iphone.

everything is paperless, synched on the cloud, and geolocated.

what's all that mean in the real world?

doing my business taxes monday evening took 50 minutes,
with my wife entering the values into turbotax, and me querying
the neatworks database to get the numbers she wanted in the order
she asked for them.

my current net taxable income for this fiscal year to date is $16,211.
my AR is $5,334 currently.

and year to date includes the $46 fill up of diesel on the work van
half an hour ago. every receipt, check, and financial transaction is
inputted. there is no "todo" basket, and no lost receipts.

now, if you saw the first year of my business, come tax time,
and six months of receipts not entered into quickbooks, i thought
jill was going to have a heart attack, AFTER she beat me to death
with a tire iron.

if you want details of how i have it set up, let me know.

I have QB Enterprise. Way overkill for the most part but when I want to know what work I did for whomsoever, 10 or 12 years ago it only takes seconds, when everything is clicking. Tax time? The accountant gets a back up made for them and we continue.

QB is not all a Bed of Roses. It takes an effort.

Whatever you use takes an effort. Even if you have something you can take with you like the mentioned neatworks- you have to make the effort to enter stuff - if you say "I can do that later" enough times you can still end up with of 6 months of data that is not entered, and it will still be a big chore to enter it. Software like Quickbooks is not hard to use. If you get behind with making entries it is still not hard - just seems overwhelming when you decide to catch up. - Am still in the process of finishing last years things that were missed - not fun, but I would have put off entering a lot of that stuff no matter what I was using as it was not the programs fault I did not do it.
 

LEO2854

Esteemed Member
Location
Ma
I have a question about how to catagorize things for bookkeeping/tax purposes. Let's say you have a service truck and keep some inventory in it, or just have it either in a shop or home. Do you keep supplies separate from materials? For example, I would consider things like staples, wire nuts, plastic ties, electrical tape etc. as supplies. I consider things like breakers, wire, switches, receptacles, etc. as material. The problem I'm having is I have all my receipts from suppliers but I have a lot of both supplies and materials on the same receipt. It is sometimes hard to go back and look at the receipts and try to determine which is which.
Is there a need to keep these separate? My accountant seems to think I should? I just hate trying to go back and do this by trying to decipher receipts. I looked on a Schedule C and Part II line 22 just says supplies. What do you guys do for this, separate or both under one catagory?

TAXES...:cry::cry::slaphead:

Each job i do gets a folder with the paid invoice and all the receipts.

Add up all the receipts and what is left over is your taxable income after other expenses.

Do the math on each folder so when it is tax time you will have all the answers right there.


What stock you have left over does not matter unless you get audited
 

kwired

Electron manager
Location
NE Nebraska
What stock you have left over does not matter unless you get audited

And if you keep track of inventory and make adjustments when there are leftovers or even shortcomings you are still OK. That is why you physically count inventory and make adjustments peroidically. If you have much of an inventory at all, it is almost impossible to have an accurate figure representing exactly what you have. Even after doing a physical count you will probably make some mistakes and be off by some amount.

For retail stores inventory is a lot bigger deal. They also never know exactly what they have. There is goods that are received damaged, there is goods that get damaged while in the store, there is theft, sometimes there is extra goods that somehow show up, there is clerks that make mistakes and something goes out the door with no transaction.... The main thing is that you make an effort to be fairly accurate.

I worked in grocery store in high school and college. We did monthly inventory while store was open for business. Tell me that inventory did not have some inaccuracies if customers were purchasing items as it is being counted. Inventory was normally scheduled to take place at a time when business was normally slow, so that would minimize these inaccuracies some, but nothing was ever totally accurate. We also threw away damaged goods all the time with no recording of any loss.
 

MarkyMarkNC

Senior Member
Location
Raleigh NC
What advantage do you get from tracking inventory? Neither the IRS nor GAAP require service companies to do so. Buy material - enter it into cost of goods sold - done.
 

kwired

Electron manager
Location
NE Nebraska
What advantage do you get from tracking inventory? Neither the IRS nor GAAP require service companies to do so. Buy material - enter it into cost of goods sold - done.

I suppose you don't have to track individual inventory items, but do need to keep track of the value of your inventory. Inventory is not an expense, it is a current asset. You expense inventory items as they are sold with a cost of goods sold account.

Buying inventory at the end of the year for the purpose of writing it off will not work it is not an expense. All you are doing is converting cash into inventory assets. It is like moving cash from one bank account to another. You still have same assets when done.
 
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