Accounting for Sole Proprietors: Tax & Bookkeeping Tips

ruggedheron13 · 2014-02-21T19:31:33+00:00

unicom said: The liability for 2013 still stands, you just stop recording any prepayments for 2014. Got it, thanks. Quick follow-up though... what about utilit…

Charles Turner13 Member

29 messages
joined Jan 2013

#1161 · Mar 24, 2016

[QUOTE=Olivia Cruz86;57786705]I don't have that module...?[/QUOTE

I handle my outbound invoices to the EU using the VAT-Ir module within the IRA system.
The key is to enter the correct basis of liberation and the valid VAT ID; once you've done that, just head over to the aggregate return and you're all set.[/QUOTE]

Charles Turner13 Member

29 messages
joined Jan 2013

#1162 · Mar 24, 2016

graniterider10 said:Thanks 👍

I’ve actually heard something different—my understanding is that everyone, including corporations and small businesses, is required to settle their accounts.
The requirement to liquidate accounts is mandated by the Accounting Act, and even sole proprietors are subject to those same regulations.
Only those operating under the simplified tax regime are exempt from these obligations.

casualorca5 Active Member

106 messages
joined Jan 2019

#1163 · Mar 24, 2016

[QUOTE=Charles Turner13;57787015][QUOTE=Olivia Cruz86;57786705]I don't have that module...?[/QUOTE

I handle my sales invoices to the EU using the VAT-Ir module.
As long as you enter the basis of liberation and the correct VAT ID, you just go to the aggregate return and you're done.[/QUOTO

The real issue is how to actually draft the invoice.
If you lack that specific module, I guess Microsoft Office is your only option.👍[/QUOTE][/QUOTE]

Nicole Lee6 Regular

252 messages
joined Jun 2007

#1164 · Mar 25, 2016

When I’m handling invoices for services provided within the EU, I run everything through the Sales module. I've already gone ahead and set up all my specific keys for VAT exemptions—especially for those EU transactions and when dealing with third countries—so the VAT return and the aggregate reports just pull that data automatically. Now, if a client decides to make things difficult and demands an invoice shown entirely in USD—which happens quite a bit with my clients over in Canada, for instance—I don't let it mess up my books. I just take that same invoice, retype it into Excel, and send that version over to them. Meanwhile, I keep the original version from the Sales module recorded in USD, though I always make sure to include a note on the document stating the conversion rate used based on the daily Federal Reserve mid-market rate at the time of issuance.

cosmictinker24 Active Member

110 messages
joined Oct 2019

#1165 · Mar 29, 2016

Charles Turner13 said:I’ve actually heard something different—my understanding is that everyone, including corporations and small businesses, is required to settle their accounts.
The requirement to liquidate accounts is mandated by the Accounting Act, and even sole proprietors are subject to those same regulations.
Only those operating under the simplified tax regime are exempt from these obligations.

As far as I can gather, this applies to corporate income taxpayers! If anyone actually knows more about this...??

Olivia Cruz86 Active Member

114 messages
joined Nov 2014

#1166 · Mar 29, 2016

casualorca5;57787127 said:
Charles Turner13;57787015 said:
Olivia Cruz86 said:Wait, I don't even have that module installed...?

Okay, let me see if I've got this straight—you use the VAT-Ir thing (so the amount falls under the VAT exemption, using the basis of liberation for services provided within the EU), then the system automatically pulls everything into the aggregate report and the VAT forms)... but I still don't get how to actually generate the bill. Like, I'm billing in dollars, including tax, adding all those little legal disclaimers and whatnot—how does that actually look?? How much does it even differ from a "normal" domestic invoice?

Charles Turner13 Member

29 messages
joined Jan 2013

#1167 · Mar 29, 2016

cosmictinker24 said:As far as I can gather, this applies to corporate income taxpayers! If anyone actually knows more about this...??

Yeah, you're right.
I shouldn't be relying on hearsay; I really ought to just read the tax code myself. That was my mistake.

cosmictinker24 Active Member

110 messages
joined Oct 2019

#1168 · Mar 30, 2016

I could really use some guidance here, because I’m honestly at my wit's end with this pro forma invoice from back in 2007. It was issued to an individual, and looking at the books, a partial payment was recorded way back then. Now, the remaining balance has finally been settled—though technically his employer just garnished it through a legal seizure because he was drowning in debt for so long. I have no clue how to properly close out this payment. Do I clear the difference using the old 22% sales tax rate? Or how am I supposed to issue the actual invoice now that the tax rate has jumped to 25%? If I do that, there's going to be a discrepancy in the tax portion... it's enough to drive anyone insane!

Charles Turner13 Member

29 messages
joined Jan 2013

#1169 · Apr 1, 2016

cosmictinker24 said:I could really use some guidance here, because I’m honestly at my wit's end with this pro forma invoice from back in 2007. It was issued to an individual, and looking at the books, a partial payment was recorded way back then. Now, the remaining balance has finally been settled—though technically his employer just garnished it through a legal seizure because he was drowning in debt for so long. I have no clue how to properly close out this payment. Do I clear the difference using the old 22% sales tax rate? Or how am I supposed to issue the actual invoice now that the tax rate has jumped to 25%? If I do that, there's going to be a discrepancy in the tax portion... it's enough to drive anyone insane!

Well, invoices are supposed to be issued based on when the business transaction actually occurs. If the goods or services under that pro forma were delivered back in 2007, then the invoice should have been issued in that same year with the 22% sales tax rate applicable at that time. You simply close it out now based on that final payment amount.

cosmictinker24 Active Member

110 messages
joined Oct 2019

#1170 · Apr 1, 2016

Charles Turner13 said:Well, invoices are supposed to be issued based on when the business transaction actually occurs. If the goods or services under that pro forma were delivered back in 2007, then the invoice should have been issued in that same year with the 22% sales tax rate applicable at that time. You simply close it out now based on that final payment amount.

Yeah, unfortunately, all we ever did was issue a pro forma...
The actual invoice was never generated back in 2007... that's the whole headache right there. Now that the difference against that old pro forma has been paid, I'm just sitting here staring at the books, not knowing how the hell to close this out properly....

Charles Turner13 Member

29 messages
joined Jan 2013

#1171 · Apr 1, 2016

cosmictinker24 said:Yeah, unfortunately, all we ever did was issue a pro forma...
The actual invoice was never generated back in 2007... that's the whole headache right there. Now that the difference against that old pro forma has been paid, I'm just sitting here staring at the books, not knowing how the hell to close this out properly....

Can't you just generate the invoice yourself?
It seems a bit strange to someone like me that an enforcement action would be triggered by nothing more than a pro forma; honestly, I’d assume the original invoice just went missing somewhere.
If I were in your shoes, I'd simply create an invoice dated back to 2007 and use that to reconcile the payment.

Keith Martinez5 Active Member

167 messages
joined Mar 2014

#1172 · Apr 2, 2016

So, I’m still wrestling with this whole petty cash issue—we actually touched on this a little while back. Is it actually legal to use the cash sitting in the register—not just today's sales, but the actual float/reserve kept in the drawer—to pay off cash invoices? Last year, I handled things that way, but then some accountants told me, "No way, you can't do that." They insisted we have to deposit the full amount first and then just issue a formal check or withdrawal to cover those expenses. To be honest, it feels like nothing more than a way for the bank to squeeze us for extra fees since they charge commissions on those specific types of withdrawals... it doesn't seem to follow any real logic. I'd love some advice here—has anyone dealt with this before, and if so, how does it look if an auditor comes knocking? Vera Wang mentioned that she uses the register cash for stuff like this, so I'd really appreciate hearing what the rest of you think..

amberbadger17 Active Member

190 messages
joined May 2012

#1173 · Apr 3, 2016

...I also work as a Vera Wang. Honestly? I’d go as far as to say there isn’t even an issue here. Comparing cash expenditures to account balances is totally transparent—and perfectly legal. As long as there aren't any outstanding debts on the credit cards, we're golden.

Keith Martinez5 Active Member

167 messages
joined Mar 2014

#1174 · Apr 4, 2016

amberbadger17 said:...I also work as a Vera Wang. Honestly? I’d go as far as to say there isn’t even an issue here. Comparing cash expenditures to account balances is totally transparent—and perfectly legal. As long as there aren't any outstanding debts on the credit cards, we're golden.

Thanks for the input! That's a huge help. I think I'll stick to this method moving forward because, honestly, I don't see the harm in it either. It's just strange because my local accountants here—who are older and definitely have years of experience under their belts—seem to interpret things differently. Since I'm not a pro and I'm really just keeping books for myself, I love being able to run these things by you guys...

amberbadger17 Active Member

190 messages
joined May 2012

#1175 · Apr 4, 2016

So, I’ve been chatting with a few colleagues who have been grinding away in accounting firms for years now. When I asked them about how to handle petty cash, they were dead set on the idea that everything has to go through the main ledger—basically, just bumping up the payroll slips to cover those cash receipts. Honestly? It feels totally half-baked to me. I think they’re mixing up the rules for a major corporation with how a small sole proprietorship works. In the US, a small business owner isn't stuck running a formal cash register system like a massive retail chain would. Fiscalization is its own beast entirely, and since the tax code allows for paying cash invoices directly out of daily revenue, that's exactly what I'm going to keep doing.

Keith Martinez5 Active Member

167 messages
joined Mar 2014

#1176 · Apr 4, 2016

amberbadger17 said:So, I’ve been chatting with a few colleagues who have been grinding away in accounting firms for years now. When I asked them about how to handle petty cash, they were dead set on the idea that everything has to go through the main ledger—basically, just bumping up the payroll slips to cover those cash receipts. Honestly? It feels totally half-baked to me. I think they’re mixing up the rules for a major corporation with how a small sole proprietorship works. In the US, a small business owner isn't stuck running a formal cash register system like a massive retail chain would. Fiscalization is its own beast entirely, and since the tax code allows for paying cash invoices directly out of daily revenue, that's exactly what I'm going to keep doing.

Exactly! That is precisely what they tell me too—that the "only correct way" is to deposit the cash and then immediately withdraw it under the guise of material expenses. Now, look, I agree that you don't necessarily need to run a full-blown petty cash fund, but the regulations state you are still required to maintain a record of daily sales—though, in my mind, that should just be an integrated part of the accounting software, much like any other standard report. So, here's my question: what is the actual, practical difference between a sales journal and a petty cash ledger?

Nicole Lee6 Regular

252 messages
joined Jun 2007

#1177 · Apr 4, 2016

Keith Martinez5 said:So, I’m still wrestling with this whole petty cash issue—we actually touched on this a little while back. Is it actually legal to use the cash sitting in the register—not just today's sales, but the actual float/reserve kept in the drawer—to pay off cash invoices? Last year, I handled things that way, but then some accountants told me, "No way, you can't do that." They insisted we have to deposit the full amount first and then just issue a formal check or withdrawal to cover those expenses. To be honest, it feels like nothing more than a way for the bank to squeeze us for extra fees since they charge commissions on those specific types of withdrawals... it doesn't seem to follow any real logic. I'd love some advice here—has anyone dealt with this before, and if so, how does it look if an auditor comes knocking? Vera Wang mentioned that she uses the register cash for stuff like this, so I'd really appreciate hearing what the rest of you think..

Keith Martinez5 said:Exactly! That is precisely what they tell me too—that the "only correct way" is to deposit the cash and then immediately withdraw it under the guise of material expenses. Now, look, I agree that you don't necessarily need to run a full-blown petty cash fund, but the regulations state you are still required to maintain a record of daily sales—though, in my mind, that should just be an integrated part of the accounting software, much like any other standard report. So, here's my question: what is the actual, practical difference between a sales journal and a petty cash ledger?

Here I am. 😬

In my view, the daily takings should be pulled out at the end of each shift. That "register drawer" should only hold the starting float, while all the actual cash revenue gets moved from that drawer into a separate petty cash fund. From there, I pull the cash out to pay off those various business expense invoices issued under the company name. When we had an audit regarding our fiscal compliance, I actually asked if this workflow was acceptable. They told me that as long as the daily receipts are kept together in one register, it’s perfectly fine—provided that the petty cash is kept in a physically separate location from the main register. 🤷

Nicole Lee6 Regular

252 messages
joined Jun 2007

#1178 · Apr 4, 2016

Keith Martinez5 said:Exactly! That is precisely what they tell me too—that the "only correct way" is to deposit the cash and then immediately withdraw it under the guise of material expenses. Now, look, I agree that you don't necessarily need to run a full-blown petty cash fund, but the regulations state you are still required to maintain a record of daily sales—though, in my mind, that should just be an integrated part of the accounting software, much like any other standard report. So, here's my question: what is the actual, practical difference between a sales journal and a petty cash ledger?

The difference is pretty straightforward: you only record cash receipts in the revenue ledger, whereas the cash drawer log tracks both the inflows and the outflows.

Keith Martinez5 Active Member

167 messages
joined Mar 2014

#1179 · Apr 6, 2016

Nicole Lee6 said:Here I am. 😬

In my view, the daily takings should be pulled out at the end of each shift. That "register drawer" should only hold the starting float, while all the actual cash revenue gets moved from that drawer into a separate petty cash fund. From there, I pull the cash out to pay off those various business expense invoices issued under the company name. When we had an audit regarding our fiscal compliance, I actually asked if this workflow was acceptable. They told me that as long as the daily receipts are kept together in one register, it’s perfectly fine—provided that the petty cash is kept in a physically separate location from the main register. 🤷

Honestly, Nicole Lee6, you're a genius. That is exactly how I used to run things before those "old school" accountants messed with my head. You keep two separate funds: you don't touch the money from today's sales sitting in the till, but that secondary cash up to the petty cash limit? That's yours to work with. Now, I've just made a massive mess for myself because I spent all this time doing constant deposits and withdrawals and shuffling numbers around for no reason. I'm going right back to the old way!

Robin Cook4 Active Member

70 messages
joined May 2012

#1180 · Apr 7, 2016

Quick question—if I run a fast food joint and I'm set up for sales tax, can I write off the full amount on a scooter for food delivery? Like, claim the whole tax back and just log it as an expense?

Accounting for Sole Proprietors: Tax & Bookkeeping Tips

🔗 Similar threads