In many situations, you can use a simple checkbook program like Quicken for your limited liability company’s accounting system. Quicken will rather neatly let you count deposits into a bank account as income and count checks written on or withdraws from a bank account as expenses.
With this transaction-level detail, Quicken will then let you easily produce a profit-and-loss statement. And for many one-owner LLC tax returns, a simple profit-and-loss statement is really all that is required.
However, let me make a handful of additional points about this idea of using of a checkbook program like Quicken for your LLC’s accounting system:
Accounting for an LLC treated as a partnership:
If an LLC is treated as a partnership for income tax purposes–and this typically occurs when an LLC is owned by more than one person–the LLC will need to prepare and include a balance sheet with its tax return if the business revenue exceeds $250,000 or if the business assets exceed $650,000. An LLC balance sheet doesn’t have to be that much work to create. Such a balance sheet simply lists the LLC’s assets and liabilities. But, unfortunately, checkbook programs like Quicken really don’t do a very good job at generating balance sheets–especially complex balance sheets that show items like inventory and fixed assets.
Accounting for an LLC treated as a sole proprietorship:
If you’re doing accounting or bookkeeping for a single-member or one-owner LLC, Quicken often is an imminently practical accounting solution. One owner limited liability companies typically will be treated as sole proprietorships for tax accounting purposes. That’s convenient because the sole proprietorship status does not force its owner to file a separate tax return. Instead, the sole proprietorship business simply includes a one or two page Schedule C profit-and-loss statement form inside the business owner’s individual 1040 tax return. As mentioned earlier, because Quicken does a great job at producing a simple profit-and-loss statement, often a sole proprietorship LLC can easily get away with a checkbook program like Quicken.
Note: If your business buys and resells inventory you can still get away with a checkbook program like Quicken. However, you need to be clever about your inventory accounting. What you need to do for your sole proprietorship is this: set up a purchases account that you use to track the inventory you purchase. Next, be sure to annually do a physical count of your inventory on a last day of the tax year. Finally, you will need to fill out a special little schedule on a second page of the schedule C form to use your purchases and end-of-year inventory balance information to calculate your cost of goods sold deduction.
Accounting for an LLC treated as an S or C corporation:
If you’re trying to use Quicken to do the accounting for an LLC that’s treated as an S corporation or a C corporation, again you may be able to get away with using Quicken for your accounting–but you should know a couple of things:
First, as noted in previous paragraphs, Quicken does not do a good job at producing balance sheets. And balance sheets will be a required component of a corporation tax return if the business revenue or assets exceed $250,000.
Second, by definition, an LLC treated as an S corporation or a C corporation will have employee payroll–even if the only employee is an LLC member working in the business. Because Quicken doesn’t provide any clean way to process payroll for your employees, an LLC operating as a corporation often shouldn’t use Quicken.
And let me close with one final comment: In any situation that I can think of, using a tool like Quicken as your accounting system will be much better solution than a shoebox option. By the way, using Microsoft Excel is really just another version of the shoebox method of accounting. Excel is a great spreadsheet program. But Excel is not a good accounting platform.