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If you are an owner of a bakery, you should aim to have an accurate accounting system in place. You can read more here on why an accounting system is right for you. The income and the expenses that your business is making should be recorded accurately so that you will have a bigger chance for expansion. Setting up and recording your transactions is easy when you get in touch with experienced bookkeepers in Los Angeles. 

Bookkeepers are responsible for recording your bakeshop’s income, expenses, transactions, and more. These experts reconcile with the financial account of the bakeshop on a monthly or yearly basis. They are also able to help you during tax season by preparing your financial reports.

Most of today’s bookkeepers use financial software to help your bakery business. Since the dawn of technology, software can make your life a whole lot easier. In some cases, you need to enter your account payables, receivables, receipts, invoice, and more, and the software will be able to generate the reports that you need. The bookkeepers’ job is to ensure that the records don’t have discrepancies, and the transactions are accurate.

Two Accounting Methods for Bakeries

If you are into the baking business, the IRS may recognize either of the two accounting methods. They are the accrual and cash basis methods. You can choose either of the two and record them on a computer. The main difference is how you can report your income and expenses to the authorities and investors.

Showing the Money

When you use the cash basis method in accounting, you record the transaction only when you get paid. You don’t file your expenses until you don’t pay them. The IRS is specific when it comes to cash basis procedures, and they stated that they consider the money as “received” once it’s sitting in your bank account. You can use this money without any restrictions.

An example is when you are selling donuts and cakes, a customer pays you with cash. You can record this transaction right away as your income. This is the same thing when it comes to checks, even if you don’t convert them to cash right away. If you have cookie deliveries, you also need to record the check that you’ve written as an expense because you spent money on it.

If your bakery secures a contract upon completion of a dinosaur-themed cake, you will record your revenues upon the delivery of the goods. During this project, you need to record the things you’ve spent on, such as flour, sugar, eggs, cream, and other ingredients. If you choose the cash basis method, your company may incur a lot of losses while getting more significant gains in the next month.

Drawbacks with the Cash Basis Process

At first, many bakery owners may consider a cash basis as an excellent way of tracking their expenses. The entire process is straightforward, simple, and easy. However, an experienced Los Angeles bookkeeping company may recommend something better. There are still disadvantages that you need to consider.

This is because the method of cash basis may not accurately represent the health of your business. You may have customers who ordered baked cookies for a catering service. The terms of sale are 30 days, and you will not be able to count on them until you have the check on your hands. This isn’t very easy when it comes to tracking your Inventory, which your bakery needs every day.

Looking at the Big Picture

When you choose the accrual method, your bakery will record the transactions, such as the income and expenses that you have incurred or earned regardless if the money is in your hands or not. If one of your customers decides to order some cheese rolls and you send a bill to him, you will be able to recognize that bill as an income when you have made the delivery.

Accrual accounting requires you to record every sale that you have made that will result in an income even if the bill is paid after two months. You can know more about the accrual basis here: https://www.accountingtools.com/articles/2017/5/7/accrual-basis. This is the same thing when your bakery receives a supply of sugar, flour, and eggs. You will record them as expenses immediately, even if you release the check a month after the delivery.

The main idea that the accrual basis gives you is that you will be able to match your income in a given year with the expenses that you have incurred. You will get a full picture of where your business is going, and you can tell whether your bakery’s finances are performing well.

Then there’s the IRS for the Inventory

The IRS does not explicitly require every bakery to use the accrual method or any others. As long as you can present them with accurate financial reports, they will leave you alone. However, if you want long-term success in the baking business, you need to consider the accrual method.

The reason for choosing the accrual over the cash basis is that you have Inventory to consider. When you have a supplier that writes an invoice for spices, milk, flour, vanilla, chocolate, butter, eggs, and more, you can record them and keep track of them even if you don’t immediately write the check.

You will be able to track your inventories real-time and track your bakery’s financial condition. You should consider consulting accounting and bookkeeping professionals when you need help with setting up your books.

What a Bookkeeping Service is Like

Most of the bookkeeping services are about maintaining your financial processes and developing an automatic process that makes recording transactions easier. The first one may involve an accounting software specialist that will create books for your company involving your computer. This person is an expert in creating data files that are tailored to your bakery’s needs. The reports that you will be able to generate are the ones that are specific for your business.

The next person that can help with your bakery is the bookkeeper. His duties involved tracking all the accounts payables and receivables and document them into the data file. This may sound simple, but they need to determine and record each transaction accurately. A customer who orders a dozen cupcakes for next week is someone you should create an invoice to, and the utility bills are payables that you need to pay on their due dates.

If you have an expert bookkeeper, he will handle bank deposits, manage your employees’ payroll, and help you navigate the ever-changing world of tax sales. He will be able to record quarterly tax withholding and reconcile your bank statements so you won’t have problems with the IRS.

Another expert that can help you is an auditor. When you want to get a business loan to build another bakery outside of Los Angeles, you need an auditor to make sure that the books are all correct and accurate. The bookkeeper is responsible for planning the budget for next year, and the auditor will be able to manage and ensure that the tasks are completed accordingly.

A Final Word

Now that you know what kind of accounting process is available for your bakery, the next step is to get a professional bookkeeper and accountant that can set up all of these things for you. They can help you immensely with the financial transactions, make sure that your business is in good shape, and give you advice if you plan to make significant decisions such as building another branch for your bakery. They will also provide you with peace of mind when it’s tax time.

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