Basic Bookkeeping for an S Corporation

The administration of basic bookkeeping tasks is vital to the success of any business, including those organized as a Subchapter S corporation. The shareholders in S corporations, also known as "members," receive a percentage of the company's profits relative to their ownership shares. Accountants must maintain accurate records of the company's transactions to determine if the S corporation made a profit, the amount of that profit and the amounts to be distributed to each member.

S corporations act as "pass-through" entities, as they pass along the business's profits and losses directly to the members. Since an S corporation protects business owners from personal liability, it is frequently a more favorable option than a basic partnership. S corporations that do not carry inventory can use the cash method of accounting, which records transactions as money changes hands, but those that do have inventory must use the accrual method, which records transactions when items are delivered.

An income statement displays the company's revenues and expenses. If revenues are higher than expenses, the S corporation makes a profit. If expenses exceed revenues, the company records a loss. The bookkeeping records must extract these amounts from the company's sales revenue data, expense reports, monthly bills and other relevant sources. Some companies create a simple income statement, which displays only the totals for revenues, expenses and profits or losses, while others break down each total into more detail to show the largest sources of revenues and the most costly expenses.

A major bookkeeping task for an S corporation is the creation of the company's balance sheet. The balance sheet shows the company's allocation of assets, liabilities and ownership equity. Assets can include cash, equipment, intellectual property and accounts receivable. Liabilities include loan debt, accrued taxes and accounts payable. If the total amount of assets exceeds total liabilities, the ownership equity is positive. Each member's portion in the ownership equity is in proportion to her shares in the corporation.

Because the S corporation passes its profits directly to its members, the members must record these amounts on their individual income taxes. This relieves the corporation's accountants of the tasks of recording payroll taxes for the ownership group. However, the company is still responsible for withholding and depositing payroll taxes for its employees. Accountants must record each employee's payroll information, including wages, Social Security, Medicare and income taxes, and distribute annual tax forms with this data to employees to file with their personal income taxes.