Page 16 - Starting Business

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
The business checkbook is explained next. The other Before you reconcile your monthly bank statement,
items are illustrated later under Recordkeeping System check your own figures. Begin with the balance shown in
Example. your checkbook at the end of the previous month. To this
The system you use to record business transac­ balance, add the total cash deposited during the month
and subtract the total cash disbursements.
TIP tions will be more effective if you follow good re­ After checking your figures, the result should agree with
cordkeeping practices. For example, record ex­ your checkbook balance at the end of the month. If the re-
penses when they occur, and identify the source of sult does not agree, you may have made an error in re-
recorded receipts. Generally, it is best to record transac­ cording a check or deposit. You can find the error by do-
tions on a daily basis. ing the following.

Business checkbook. One of the first things you should 1. Adding the amounts on your check stubs and com-
do when you start a business is open a business checking paring that total with the total in the “amount of check”
account. You should keep your business account sepa- column in your check disbursements journal. If the to-
rate from your personal checking account. tals do not agree, check the individual amounts to see
The business checkbook is your basic source of infor- if an error was made in your check stub record or in
mation for recording your business expenses. You should the related entry in your check disbursements journal.
deposit all daily receipts in your business checking ac- 2. Adding the deposit amounts in your checkbook. Com-
count. You should check your account for errors by recon- pare that total with the monthly total in your cash re-
ciling it. See Reconciling the checking account, later. ceipt book, if you have one. If the totals do not agree,
Consider using a checkbook that allows enough space check the individual amounts to find any errors.
to identify the source of deposits as business income, per-
sonal funds, or loans. You should also note on the deposit If your checkbook and journal entries still disagree,
slip the source of the deposit and keep copies of all slips. then refigure the running balance in your checkbook to
You should make all payments by check to document make sure additions and subtractions are correct.
business expenses. Write checks payable to yourself only When your checkbook balance agrees with the balance
when making withdrawals from your business for personal figured from the journal entries, you may begin reconciling
use. Avoid writing checks payable to cash. If you must your checkbook with the bank statement. Many banks
write a check for cash to pay a business expense, include print a reconciliation worksheet on the back of the state-
the receipt for the cash payment in your records. If you ment.
cannot get a receipt for a cash payment, you should make To reconcile your account, follow these steps.
an adequate explanation in your records at the time of 1. Compare the deposits listed on the bank statement
payment. with the deposits shown in your checkbook. Note all
Use the business account for business purposes differences in the dollar amounts.
TIP only. Indicate the source of deposits and the type 2. Compare each canceled check, including both check
of expense in the checkbook. number and dollar amount, with the entry in your
checkbook. Note all differences in the dollar amounts.
Reconciling the checking account. When you re- Mark the check number in the checkbook as having
ceive your bank statement, make sure the statement, your cleared the bank. After accounting for all checks re-
checkbook, and your books agree. The statement balance turned by the bank, those not marked in your check-
may not agree with the balance in your checkbook and book are your outstanding checks.
books if the statement:
Includes bank charges you did not enter in your books 3. Prepare a bank reconciliation. One is illustrated later
under Recordkeeping System Example.
and subtract from your checkbook balance, or
Does not include deposits made after the statement 4. Update your checkbook and journals for items shown
on the reconciliation as not recorded (such as service
date or checks that did not clear your account before charges) or recorded incorrectly.
the statement date.
By reconciling your checking account, you will: At this point, the adjusted bank statement balance should
equal your adjusted checkbook balance. If you still have
Verify how much money you have in the account, differences, check the previous steps to find the errors.
Make sure that your checkbook and books reflect all Bookkeeping System
bank charges and the correct balance in the checking
account, and You must decide whether to use a single-entry or a dou-
Correct any errors in your bank statement, checkbook, ble-entry bookkeeping system. The single-entry system of
and books. bookkeeping is the simplest to maintain, but it may not be
suitable for everyone. You may find the double-entry sys-
You should reconcile your checking account tem better because it has built-in checks and balances to
TIP each month. assure accuracy and control.

Page 14 Publication 583 (January 2015)