Updated for 2010, this guide covers how to estimate, warranties and quantity discounts, an estimate form, design and engineering fees, service and installation hourly rates, a letter footage chart, and ...
Consistently record business and personal items to save accounting headaches.
By Judi Smith
By far, the most difficult part of small-business accounting is the draw account. If you are a sole proprietor or a partnership, income is what the business earns, not what you take from the business. Self-employment draw (take-home pay) is reportable to no one, so why track it? For this reason, many small, single-owner operations overlook this aspect of accounting.
A draw account balances double-entry journals, in which credit must balance debit. If you simply hand your checkbook to an accountant to prepare your income taxes, you may not need to do this, but, under that simplified system, don’t pay for items with the wrong checkbook and overlook pursuant reimbursement.
Partnerships require a written record of who receives what and a recordkeeping method. And, year-end accounting must reflect these figures in the individual capital accounts (showing who owns how much of the business).
During our short-lived partnership with our former son-in-law and our (still current) daughter, our complex partnership agreement divided the income three ways: Each partner was paid an hourly wage ($6 per hour); half the remaining income (if any) was awarded on a point system (one point per year of active participation), and the remainder was split by invested capital.
This arrangement monetarily rewarded all three aspects of ownership: labor expended, capital invested and longevity in the business operation. The partner who worked the most, received remuneration for his/her efforts, and whoever re-invested income also received increased income in return.
A good accountant will tell a single owner (or a married couple who files jointly) to keep separate checking and credit-card accounts. Write checks from the business to yourself (this is your take-home pay). Pay business bills on the business accounts, and personal bills on the personal accounts.
Even though this is sound advice, I don’t follow it. We handle our draw account internally. Items bought personally for business use (such as “Smurf” cups or tissues bought on the grocery run) become an investment and appear as a negative on the draw account. We purchase personal items on business accounts or business items when doing personal shopping if it’s more convenient. We don’t spend extra time (for us or the sales clerk) running two different receipts at the grocery store. We simply notate the receipt and enter the draw (or investment).