If you operate your small business as a limited liability
company, you may already know that setting up Microsoft's
Small Business Accounting software can be sort of
confusing. Fortunately, you can use four easy tips to
assure that your new accounting software works as it should.
Tip #1: Pretend the LLC Is Something Else (for Accounting)
A limited liability company, for tax return preparation and
bookkeeping purposes, always gets treated as something else.
An LLC with a single owner, or member, is treated as a sole
proprietorship if the LLC operates an active trade or
business, for example. And a limited liability company with
multiple owners, or members, is treated as a partnership.
(Note: The owners of a limited liability company are called
members.)
Limited liability companies may also elect for tax return
preparation purposes to be treated as regular corporations
(called C corporations) or as Subchapter S corporations.
And all this suggests a first tip for setting up
Microsoft's accounting software for your limited liability
company. When you run the installation wizard, do not tell
the software you're setting up a limited liability company.
Rather, tell the installation software that you're setting
up for the type of taxpayer the LLC will be treated as.
Correctly identifying the sort of taxpayer your LLC is
means the accounting software gets setup in a way that
works for your tax accounting.
Tip #2: Account for Single-member LLCs Inside the Parent LLC
A common asset protection technique is to have a parent LLC
or a parent corporation own child LLCs and then have each
child LLC own a chunk of the business. A retail chain with
multiple locations, for example, might use a separate LLC
for each outlet.
This sort of parent-child LLC structure makes legal sense.
But for accounting purposes--and this is the tip--you don't
want to put the different LLCs into separate accounting
datafiles. Rather, you want to track each child LLC's
accounts, income and deductions inside its parent's
accounting datafile.
This combination means that for tax accounting purposes,
and as is appropriate, the parent and the children combine
their income and deductions within a single Microsoft Small
Business Accounting data file.
Tip #3: Use the Chart of Accounts to Identify LLC Assets
and Debts
One other wrinkle should be mentioned related to combining
LLC accounting records, however: Because each limited
liability company is a different legal entity, you should
use different accounts to track the assets owned by and
liabilities owed by the separate limited liability
companies.
Each LLC should have its own separate bank account, for
example. Each LLC should track its own accounts receivable,
furniture and fixtures using specific-to-that-LLC asset
accounts. And each LLC should use track its debts with
specific-to-that-LLC liability accounts.
Tip #4: Customize Forms for Each LLC as Necessary
As just mentioned, you can and should combine the parent
LLC and the child LLC transactions within a single
accounting datafile. However, you still want to recognize
and visually highlight the separate legal identity of the
parent LLC and of any child LLCs.
Within Microsoft Small Business Accounting, the easiest
method of maintaining this separate identity is through
customized forms for each entity. If an LLC invoices
customers or clients, for example, that LLC should have its
own customized invoice or statement form that uses that
LLC's name. If an LLC issues purchase orders, that LLC
should have its own custom purchase order that (again) uses
the LLC's name. Obviously, if an LLC has its own bank
account, that bank account will have its own check forms
with the LLC name.
Note: Within Small Business Accounting, the form windows
provide options for customizing the form.
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Stephen L. Nelson, CPA, is a tax accountant in Seattle,
Washington, the author of QuickBooks for Dummies, and the
editor of the http://www.scorporationsexplained.com and
http://www.fasteasyincorporationkits.com web sites.
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