how to do accounting for llc [Definitive Guide]

Last updated : Sept 15, 2022

Write a comment

as warren buffett says accounting is the language of business he and other savvy business owners use accounting to make investment decisions to grow the businesses they choose to invest in but interestingly enough many small businesses often neglect their accounting until tax time or don't do it at all 9 out of 10 small businesses that fail fail due to financial mismanagement of their company their financial mismanagement may result in their failure to make decisions to grow their business meet financial obligations like paying their employees or rent miss tax deductions that can save the money or fail to pay their taxes altogether look i get it as a cpa that studies and practices accounting i know accounting is not the most exciting thing in the world and it's probably not why you decided to go into business for yourself in the first place if you're watching this you probably have a good product or service that you're very passionate about and i'm sure your product will delight customers and beat the competition however eventually you will be faced with the reality of accounting and it's best that you're prepared for it now so you don't suffer the consequences later hi my name is sherman with life accounting a full service accounting firm that helps small businesses grow and manage their finances in this episode i'm going to simplify the accounting basics for small business owners by the end of this episode you will know the what why and how of accounting also if you're new to our channel then please subscribe so you don't miss out on future videos that can help your business grow and manage your finances also if you extract any value at all from this video then please help me out by hitting the like button below with that said let's begin what is accounting like really what does accounting really mean by definition accounting is the process of recording reporting interpreting and analyzing financial information these words recording reporting interpreting and analyzing are very important and i'm going to break down each component of this definition in just a moment here but first let's discuss why accounting is even important or a thing in the first place to understand why accounting is important it is best to look at a very simple example let's say you own a cleaning company we'll call it the house cleaning company let's say you charge 100 to clean one person's house and that includes vacuuming carpet cleaning window wiping and so on and at that time let's say you just started your business so you decide to do everything yourself in the beginning fast forward two years later and all of a sudden your business is booming your phones are ringing off the hooks your schedule is completely full for the week and you don't have time to do anything from sales customer service or even delivering the cleaning services and so on now you're stressed you don't know what to do logically this is a good problem to have your business is growing and perhaps you just need to hire some people to help you out at this point so you decide to do this and now you need to make some very tough decisions for one who do you hire first how much do you pay that person how can you ensure that there's enough work for that person to do and most importantly how much can you afford to spend to hire that person and how much can you afford to spend to keep expanding your business at the same time now there are a few things that will help you in making decisions like this such as knowing your profit margin knowing how much cash you have available and knowing your current financial obligations which includes debt payments and your expenses if these things are absent then you are unable to make informed decisions to grow and scale your business and if you make the wrong decisions it can be detrimental to your business for example what would happen if you hired someone but they did not have any projects to work on now you're wasting money on that person or what would happen if your customers don't pay you on time and you don't have enough cash to pay your vendors now you can't afford to operate your business or lastly what does it take to expand your business how much can you afford to spend in marketing or service improvements whatever you decide to do there will likely be financial implications in other words it will cost money and if you do not understand how money is currently flowing in and out of your business you risk making ill-advised decisions that can cause your business to fail you also risk tax consequences by missing business deductions that can save you money on your tax bill now you can save yourself from these financial headaches by having a reliable accounting system in place from the very beginning so let's discuss the accounting process that you need to deploy in order to accomplish this earlier we broke down the accounting process into four simple steps recording reporting interpreting and analyzing which are all very important so let's go over these steps the first part of the accounting process is to record all the transactions that occur in your business every time a transaction occurs you must record it now there are five major transaction types that you must know these five transaction types are revenue expenses assets liabilities and one of my favorites equity now it's important that you understand what these five transaction types are because it will determine how your reports are organized and influence how you interpret your business finance here's a very easy to understand breakdown revenue is what you make from selling your products or services it is the value customers pay in exchange for your products or services for example when a customer paid the cleaning company for its cleaning services their payment represents revenue now revenues also commonly referred to as sales expenses on the other hand are cost incurred to run your business in the cleaning example my expenses would be the cost to hire a contractor and the cleaning supplies used when those services are provided now let's move on to assets assets are resources that are owned by the company with a measurable future value for example if i owned an expensive cleaning device such as a carpet cleaner then this will be an asset in my business anything that you own that is used to generate future value is technically considered an asset now liabilities on the other hand are what the company owes to creditors for example if i took out a loan to pay for my expensive cleaning device then i would also have a liability to pay that loan back later in this scenario i would gain an asset the cleaning device and a liability the loan equity is the degree of ownership in your business your equity is the difference between your assets and your liabilities or in other words equity is the difference between what you own and what you owe now the most fundamental part of accounting is recording and categorizing each transaction that comes into your business into one of these categories now there are quick and easy ways to do this by syncing your business bank account to a bookkeeping system and classi

Thanks for your comment Wesley Ghera, have a nice day.
- Faustina Duff, Staff Member

hey guys Taylor Mathis here the quinoa girl marketing director and legal assistant at Kate law today I'm going to tell you guys how to set up bookkeeping for your LLC quick and easy and since I know you all love Kate log don't forget to like this video and comment if you found it helpful and be sure to subscribe to our channel because we upload new content every single week to help with your legal needs so a good bookkeeping system is a critical part of operating your LLC every serious business must maintain proper books and records and a good bookkeeping system can also prevent or discover theft and will keep everything for your LLC organized tracking the transfer of money is super important because then the owner knows who received money and if there is an an inconsistency that needs to be investigated or fixed one of the first things that members of your new Arizona LLC should do is consult with an experienced accountant to set up or to help set up the LLC's bookkeeping system the longer the LLC delays setting up it's bookkeeping system the more expensive and difficult the process will become so we use QuickBooks here at keet law there's a desktop version but we use the cloud version because then it's updated and saved every single day and if your LLC sets up its QuickBooks bookkeeping correctly in the beginning and enters all financial information into the system it will save management a ton of time and headache you can reduce the cost of the LLC's accountant or prepare the LLC tax returns so there it is an easy system and way to set up your books for your LLC don't forget to like this video and comment with any questions that you guys might have and of course subscribe to our channel as always for more helpful videos

Thanks Dianna your participation is very much appreciated
- Faustina Duff

About the author

Faustina Duff

I've studied arithmetic at Lakeland University in Plymouth and I am an expert in black psychology. I usually feel lonely. My previous job was radiologic technologist I held this position for 28 years, I love talking about snowmobiling and caving. Huge fan of Nikki Haley I practice ice skating and collect disneyana.