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Bookkeeping and Accounting
Bookkeeping is the systematic process of recording, organizing, and maintaining a business’s day-to-day financial transactions and records, including sales, purchases, receipts, and payments.
Accounting is the comprehensive discipline of recording, classifying, analyzing, interpreting, and communicating financial information to report a business’s financial status, ensure compliance with regulations, and inform business decisions.
Businesses of all sizes should maintain proper books to keep operations running smoothly.
Keeping track of every money inflow and outflow ensures you know if customers are late on payments or if vendors are paid too quickly.
Even if an LLC is disregarded for federal tax purposes, the company still needs to track its income, expenses, assets, and liabilities to report them properly.
Non-resident alien owned disregarded entities have specific reporting obligations. They must file Form 5472 to report certain transactions with foreign related parties, which requires maintaining detailed accounting records.
Even if disregarded federally, many states require separate compliance for LLCs, including potential state tax filings that necessitate proper bookkeeping.
Maintaining separate and complete financial records helps preserve the liability protection of the LLC structure by showing it’s operated as a legitimate, separate business entity.
In the event of an IRS audit, having organized and accurate financial records is critical to substantiate reported income and expenses.
There are two accounting methods: cash and accrual. Cash tends to be simpler and is often sufficient for small businesses.
Accounting software can automate many tasks, but a small business may be fine with a well-designed Excel or Google Sheet for accounting purposes.
Disclaimer: All content here is for general informational purposes only and not intended as legal, tax, or financial advice. Always consult a qualified professional before taking any action. Use at your own risk; the author assumes no liability.