S Corp Bookkeeping: Everything You Need to Know
S corp bookkeeping is an important part of running your corporation and maintaining your special S corp tax election.3 min read
S corp bookkeeping is an important part of running your corporation and maintaining your special S corp tax election. You will need to keep accurate records of your business transactions so that you can fulfill your annual reporting requirements. In most cases, hiring a professional bookkeeper is the best way to maintain your corporation's financial records.
S Corporation Basic Bookkeeping
Regardless of the size of your S corporation, you must keep track of your business transactions. S corporations are subject to both state and federal tax reporting requirements, which is why maintaining accurate records is of such importance. In addition to making it easier to comply with reporting requirements, accurate S corp bookkeeping can make it easier for lenders to decide if they should provide your company with credit. A good rule of thumb is to update your corporation's books at least once a month. Updating your books more frequently may be necessary depending on the volume of business transactions your business conducts.
One of your S corporation's primary bookkeeping responsibilities will be tracking revenue. S corporations can generate revenue in several ways:
- Selling services or goods
- Rental fees
- Income from investments and interests
- Selling company assets
When accounting for revenue, the best idea is organizing the revenue into categories. Separating your revenue in this way will improve your marketing and will help you prevent shortfalls in your budget.
In addition to accounting for revenue, you will also need to keep track of your company's expenses. S corporation expenses can include regular bills that you must pay to keep your company operational and the costs of complying with legal requirements. Common examples of S corp expenses include:
- Vendor payments
- Company payroll
- Interest on loans
If you use accounting software for your bookkeeping, you'll find your expenses and revenue on a profit or loss statement. An important fact to remember about S corp bookkeeping is that you should track liabilities and assets separately from expenses and revenue. Make sure that you record an asset's value as soon as you acquire the asset. You can calculate the value of an asset by adding the fees needed to secure the asset to the actual purchase price.
You also need to record a liability's initial price. Payments toward a debt will adjust your liabilities. Make sure to adjust for depreciation expenses when determining the continued value of an asset.
S corporation shareholders need to record their basis in the company. Generally, the basis of a shareholder is how much they have contributed to the company in exchange for an ownership percentage. A shareholder's basis will increase or decrease based on whether the corporation has realized a profit or loss. At the end of the year, shareholders will receive a K-1 statement that includes everything that could affect their basis.
Tips for Effective Bookkeeping
Bookkeeping is an important part of running a corporation. At least once a year, corporations must hold a meeting of their board of directors, and the financial information provided to the Board will be based on the continued bookkeeping of the corporation. Effective bookkeeping can also help a corporation's managers evaluate the business's performance and determine what changes, if any, they should make. Every corporation has different accounting needs, so it's important to create a bookkeeping system that matches your company.
Whatever bookkeeping system you choose, there are some basic bookkeeping tips that you should keep in mind. For example, you should make sure that you're collecting all documents that result from a business transaction. Depending on the size of your business, you may need to document sales collectively instead of individually.
You should also make sure that you are regularly recording transactions in your corporate ledger. The more transactions you conduct, the more frequently you will need to update your ledger. Using the double-entry accounting method, which means you post every transaction in two separate accounts, is recommended.
Periodically, you need to generate financial statements for your corporation. You can create an income statement, for instance, with a summary of all your temporary accounts. Your balance sheet should show the totals of all of your S corporation's permanent accounts:
- Shareholder's equity
If you need help with S corp bookkeeping, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.