Cosmetology Bookkeeping Methods

While bookkeeping may seem like a tedious task, the law requires it and it can help you with strategic planning for the future of your salon. The IRS has rules as to which accounting method you must adhere to for your business. As long as you follow the reporting guidelines, you can choose different bookkeeping methods in which to record your information.

When you establish your cosmetology business, the IRS requires you to choose either the cash or the accrual accounting method. Using the cash method, you must report income in the same year you receive it and expenses in the same year you pay them. If you sell salon products, you must use the accrual method and report the expected income and expenses from your product sales in the year you ordered the products rather than the actual year they sold or the expenses were paid.

One way to keep track of your financial records is with a paper bookkeeping journal. Using the cash method of accounting, record each salon service under the date you received payment. With the accrual method of accounting, record revenue using the date your salon provided the service or received a product order for resale. If you employ stylists, record the payroll and the accompanying taxes, and if you rent booths, document all rent payments received for each stylist. Check your state laws to find out which salon services and products you must collect tax for and record this as well.

Computerized spreadsheets are also an effective bookkeeping method. Use multiple spreadsheets to get the clearest financial picture of your salon. For example, create a monthly spreadsheet to record services broken down by type, such as haircuts, blowouts, colors, highlights, manicures, and anything else your salon may offer. Use another spreadsheet for products sold, including shampoo, conditioner, hairspray, nail polish, and any other products you sell. Use these spreadsheets to determine which products and services sell best, which have low sales and where to focus your marketing efforts.

Software can be a great asset for your salon. You can buy a basic bookkeeping program or a sophisticated one designed particularly for the cosmetology industry with extra functions to help you succeed. Some have the capability to construct balance sheets and income statements and come with an electronic appointment book, a client list and a credit card payment processing function. In some cases, you can even use your smartphone to access the program.