Accounting for Sole Proprietors: Tax & Bookkeeping Tips

ruggedheron13 said:I could really use some help here... does anyone know the proper way to close out an Unrecoverable Error...

So, I was thinking about this little scenario... A small business owner goes in, pays cash for some retail goods, then decides they don't need everything and brings part of it back for a refund. It’s one of those little accounting puzzles that makes you pause for a second... How should I handle the entry? Should I record the return as a negative amount against the original purchase, or just treat it as a separate cash receipt... I'm weighing my options here...

So, I’ve got this situation with a cashless account, and we actually received an approval for the invoice. The difference was settled via a standard bank transfer, but now there's still this outstanding amount sitting there—the part we originally got the green light for. How should I handle the bookkeeping on this one? Should I be recording the accounts payable in the red, or mark it as a payment in kind, or just straight up as a wire transfer... I'm a bit stuck... Thanks.

Brenda Chase3 said:1. The vendor should have issued either a credit memo or a formal reversal for that specific amount. You can close it out by running the AP entry into a negative balance. Then, at year-end, when you're explaining discrepancies between your sales tax summaries and the actual deposits hitting your Chase account, you'll just provide the statement showing that the funds were a refund for overpayment rather than new revenue.

2. Handle the credit memo by running the AP entry into a negative. Personally, I usually settle these through a bank transfer since that's how the money actually moved. Essentially, you'll end up with a positive balance on, say, $33, a negative credit memo of $6.75, and once you offset them both, it reflects the actual payment made through your business checking account $27.

ruggedheron13 said:Regarding Part 2... I was thinking about how we actually close out an approval and handle that specific portion of the bill once it's been cleared. Whether we settle it with cash on hand or just run it through a business checking account... it’s always one of those little logistical hurdles. For instance, if I'm sitting here looking at an invoice right now... $33 And then there’s that whole business with getting approval for the account... everything just seems to be hanging in the balance right now... $6.75I'll just settle the remaining balance via wire transfer... I'm logging the $100.00 payment through the business checking account, and then we'll just wait on the IRS to approve the deficit... $6.75 I’ll just handle the payroll through QuickBooks... It leaves me with that one remaining expense for wages via QuickBooks... $27I’m thinking about tweaking the layout... maybe so that the option for PayPal pops up right away during checkout... just to make things smoother... $27So, regarding the remaining balance on the account... I was thinking, would it be best to just book that as an in-kind credit for the exact same amount? It seems like the cleanest way to handle it all... if that makes sense...

Brenda Chase3 said:Personally, I run everything through the bank because at the end of the day, your summary report will show exactly $80.00 as a bank transfer.
Essentially, $33 total expenditure via bank transfer -$6.75 expenditure via bank transfer = $80.00 in bank transfers; that's what you'll see reflected in your $27 summary.

ruggedheron13 said:Wait, so the gross amount won't actually show up in my summary? It'll just show $27?

Robin Cook4 said:So, the invoice was paid based on the deposit today. Can I go ahead and claim that sales tax deduction against the down payment receipt on the actual day it cleared?

Brandon Jackson4 said:Hoping for a quick response here.
I run my own business and I'm registered for sales tax.

When I get invoices without any sales tax—like a bank fee, for example—do those still go into the purchase ledger, or do I only record invoices that actually include sales tax?

Or take postage costs, for instance... there's no sales tax on those.

Really hoping to hear back soon. Thanks.

Brandon Jackson4 said:Hoping for a quick response here.
I run my own business and I'm registered for sales tax.

When I get invoices without any sales tax—like a bank fee, for example—do those still go into the purchase ledger, or do I only record invoices that actually include sales tax?

Or take postage costs, for instance... there's no sales tax on those.

Really hoping to hear back soon. Thanks.

cosmictinker24 said:Quick question for you all, if you don't mind?
We had an error where a payment was sent to a foreign client twice... they actually went ahead and returned the extra funds to us.
Does this still need to be formally booked in the ledger, and if so, what's the best way to handle it?

Thanks.

Ryan Rogers4;55494295 said:I don't even bother bookkeeping those things; I just attach them to my income tax return along with an explanation clarifying why the deposits hitting my bank account don't match the revenue reported by KPMG, noting it was just a refund for an erroneous payment.

Okay, thanks... speaking of that explanation when filing—can I include interest payments received into my bank account there?
I'm talking about late fees (basically forced debt collection)...
See, since we run a law firm handling collections for clients, whenever we recover those costs, we end up receiving interest on top of the principal amount.

cosmictinker24;55494503 said:

Ryan Rogers4 said:Personally, I don't bother booking those kinds of things. Instead, I just attach it as a supporting document to the income tax return—along with an explanation for the discrepancy between the bank statements and the USA totals—noting that it was just a refund for an erroneous payment.

In that explanation to the IRS, you basically list everything that isn't in the KPMG report but did land in your bank account. That way, you prove why the bank statements don't match the revenue in the KPMG files—basically showing why certain deposits aren't reflected in the official books.

Ryan Rogers4;55494731 said:

cosmictinker24 said:When you're explaining things to the IRS, you're basically throwing everything at them that isn't showing up in the KPMG records just to prove why the bank statements don't match the incoming revenue—you know, why certain deposits aren't reflected in the KPMG files.

So, I get it.
I'm not recording this interest anywhere, so I suppose it needs to be part of the explanation... I mean, there has to be some kind of paper trail, right?
The person in this role before me... she didn't record the interest, and she didn't bother explaining those deposits to the FBI either. It seems a bit sketchy to me, honestly, because at the end of the day, the bank activity has to reconcile with the actual receipts.

cosmictinker24;55495177 said:

Ryan Rogers4 said:In that explanation to the IRS, you basically list everything that isn't in the KPMG report but did land in your bank account. That way, you prove why the bank statements don't match the revenue in the KPMG files—basically showing why certain deposits aren't reflected in the official books.