Before you start setting up your accounts, you need to make one more decision. You need to pick a tax year. As a business, you can operate on a 12-month basis that is different from the calendar year, which begins in January and ends in December. If you think it makes business sense, you may want to operate under a different 12-month period. For example, many colleges operate from September 1 to August 31 because this time period is a better match to their actual operations. This kind of setup is called operating on a fiscal year basis. However, a partnership’s tax year must match the tax year of its partners, which is generally a calendar year if the partners are individuals.

Whatever you choose to do, your accounting system should match this decision. Otherwise you will have to keep two sets of books. Just as you do when choosing the cash or accrual basis for your business, you set up your tax year when you file your first tax return for the business.

Once you have made the important decisions discussed in this chapter, you are ready to determine what key accounts you want to track. The first stop is the chart of accounts, which is described in the next chapter.