Back office core
The map: the entity, the bank, the books, payroll, bills, invoices, taxes and benefits, and the calendar that ties them together.
9 lessons73 min2 exercisesFree
What is a startup back office, and what does a founder actually have to do? This track answers it on the books of Northwind Traders, Inc., the one company every track in the course is taught on.
The 9 lessons
- What a back office is, and who does whatWhat does a startup back office do, and who does each part of it?
- The entity and its numbersHow do I get an EIN, and what registrations does a new startup need?
- Company money, kept apartWhy does a startup need a separate business bank account?
- The books, in one lessonWhat kind of accounting does a startup need: cash or accrual?
- People: employees and contractorsShould my first hire be an employee or a contractor, and what forms do I need?
- Money in and money outWhat are accounts payable and accounts receivable, and how does a startup run them?
- The founder's annual calendarWhat are a startup's tax and filing deadlines in its first year?
- Keeping the recordsHow long should a business keep its records and receipts?
- Set up your back office in a weekHow do I set up a startup's back office from scratch?
The words this track teaches
Each links to its glossary definition, with the authority behind it.
- General ledgerThe complete set of accounts, holding every posted entryConvention
- CloseThe process of finalizing a periodConvention
- Accounts payableWhat we owe vendors for bills already received
- Accounts receivableWhat customers owe us for invoices already issued
- CompilationAn engagement in which an accountant presents financial statements from management's information without obtaining or giving any assurance — no audit, no review — and says so in the report; an accountant who is not independent must disclose it
- Payroll service providerA firm that runs payroll under the employer's own EIN — paychecks, deposits, Forms 941, 940 and W-2. It isn't liable for the employer's employment taxes; the employer stays liable for every deposit it makes
- Professional employer organizationA firm that co-employs a client's staff and runs payroll, benefits and HR under its own EIN for a fee. Only a PEO the IRS has certified (a CPEO) is generally treated as the employer for employment tax on the wages it pays
- Segregation of dutiesSplitting authorization, recording, custody of assets and reconciliation across different people, so no one person can both commit and conceal an error or fraud — at minimum, preparer ≠ approver
- Fiscal yearThe twelve-month (or 52–53 week) reporting year an entity has chosen, which need not start in January
- C corporationA corporation taxed as a taxpayer in its own right: it files Form 1120 and pays 21% of its taxable income, and its shareholders are taxed again on what it pays them as dividends. Every corporation is a C corporation unless it elects S status
- Registered agentThe person or company, with an address in the state, that a corporation must keep to receive legal process and the state's notices. Delaware sends its annual report and franchise tax notices to the registered agent each December
- State annual reportThe yearly filing a corporation makes with its state of formation and each state where it is qualified — officers, directors, address, and in Delaware the figures the franchise tax is computed from. Names, fees and due dates vary by state
- Foreign qualificationRegistering a corporation formed in one state to do business in another — a Delaware corporation with its office or staff in California files there, appoints an agent there and files that state's annual report. "Foreign" means another state, not another country
- New-hire reportingThe employer's report of each new employee — name, address, SSN, start date and the employer's EIN — to the State Directory of New Hires where the employee works, within 20 days of hire or sooner if the state says so. It feeds child support enforcement
- SUTAThe state unemployment insurance tax an employer pays on each employee's wages up to a state wage base, at an experience-rated rate assigned by the state
- Sales tax nexusThe connection with a state that obliges a seller to collect its sales tax — physical presence, or economic nexus from sales into the state above a threshold (commonly $100,000) since South Dakota v. Wayfair (2018)
- Beneficial ownership information reportThe report of a company's beneficial owners to FinCEN under the Corporate Transparency Act. Since the March 2025 interim final rule and the final rule effective August 14, 2026, companies created in the United States and US persons are exempt; only entities formed under foreign law and registered to do business in a US state still report
- ComminglingRunning company and personal money through the same account or card, so the books can no longer show whose a transaction was. The fix is a separate business account and a recorded entry — a reimbursement, a loan from the founder or a contribution — for every crossing
- ReconciliationComparing our record to an external party's
- Audit trailThe immutable record of every state change
- EvidenceDocumentation supporting a recorded amount
- EquityThe residual interest in the assets that remains after deducting liabilities (FASB CON 8 ¶E61)
- DividendA distribution of earnings to shareholders, declared by the board — a liability from the declaration date and a reduction of retained earnings, never an expense
- Accrual basisRecognizing revenue when earned and expense when incurred, regardless of when cash moves
- Cash basisRecognizing revenue and expense only when cash moves. Not GAAP for any entity — it is a special purpose framework (AICPA AU-C 800), and for tax a method IRS Pub. 538 and IRC §448 limit by entity type and gross receiptsConvention
- TransactionA business event — a payment, a sale, a purchaseConvention
- Journal entryA balanced set of debit and credit lines posted to the GLConvention
- Double-entryRecording every transaction as equal debits and credits, so the ledger proves itselfConvention
- Chart of accountsThe account structureConvention
- Deferred revenueConsideration received, or unconditionally due, before the goods or services are transferred — a liability until the performance obligation is satisfied. ASC 606 calls it a contract liability
- Worker classificationDeciding whether a worker is an employee or an independent contractor — federally by the common-law control test (behavioral, financial and relationship facts), in some states by the stricter ABC test. It decides who withholds and pays employment taxes
- ABC testA state test presuming a worker is an employee unless the hiring entity proves all three: (A) free from its control, (B) work outside the usual course of its business, and (C) customarily engaged in an independent trade — California (AB 5), Massachusetts, and New Jersey for unemployment
- Form W-4The form a new employee gives the employer to set federal income tax withholding — filing status, the two-jobs checkbox, credits, other income, deductions and extra withholding. Kept by the employer, not sent to the IRS unless it asks. A state with an income tax may use its own certificate, such as California's DE 4
- Form I-9The Department of Homeland Security form proving a new hire may work in the US. The employee completes Section 1 by the first day of work; the employer examines documents and completes Section 2 within three business days. Kept on file, never filed with the government
- Form W-9The IRS form a US payee gives a payer to certify its name, tax classification and taxpayer identification number — collected before the first payment, because it drives 1099 reporting and backup withholding
- Form 1099-NECThe IRS information return for nonemployee compensation paid to a contractor in the course of business — required at $600 a year for payments through 2025 and $2,000 from 2026 (indexed from 2027), due to the recipient and the IRS by January 31
- Backup withholdingFederal income tax a payer must withhold at 24% from reportable payments — contractor fees, interest, dividends, card settlements — when the payee has not given a correct TIN or the IRS has notified the payer to withhold. Deposited and reported on Form 945
- Payroll liabilitiesWhat an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxesConvention
- InvoiceA claim on a customerConvention
- BillA claim against us
- Payment termsThe agreed timing of payment and any early-payment discount — Net 30, Net 30 EOM, 2/10 net 30, due on receipt; the due date that aging is measured fromConvention
- AgingGrouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+
- Payment runA batch of payments released togetherConvention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
- Monthly schedule depositorAn employer whose lookback-period tax was $50,000 or less, and every employer in its first year: the federal income tax withheld and both halves of FICA on a month's paydays are deposited by the 15th of the next month
- Form 941The quarterly return of wages paid, federal income tax withheld and both halves of Social Security and Medicare tax, reconciled to the quarter's deposits. Due April 30, July 31, October 31 and January 31 — ten days later if every deposit was on time
- Form W-2The year-end statement of an employee's wages and withholding — boxes 1, 3 and 5 for income tax, Social Security and Medicare wages — furnished to the employee and filed with the SSA by January 31, with no automatic extension
- Form 940The employer's annual FUTA return, due January 31 of the next year — February 10 if every FUTA deposit was on time — with Schedule A for wages paid in a credit-reduction state
- Form 1120The federal income tax return of a domestic C corporation, filed every year whether or not it has taxable income — due the 15th day of the 4th month after year end, April 15 for a calendar year, with tax at 21% of taxable income under IRC §11(b)
- Form 7004The IRS application for an automatic extension of time to file business income tax returns — six months for Forms 1120, 1120-S and 1065 — filed by the original due date. It extends the time to file, not the time to pay
- Corporate estimated taxThe four installments a corporation pays toward the current year's income tax when it expects $500 or more — on the 15th day of the 4th, 6th, 9th and 12th months of its tax year, each 25% of the required annual payment, through EFTPS. Underpayment is figured on Form 2220; Form 1120-W is historical
- PeriodA fiscal reporting window