One of the biggest responsibilities in operating your business involves maintaining accurate financial records. As a business owner, you want to know how your business is doing financially and especially you want to know that the revenues you generate are making your business profitable. Keeping track of your finances is extremely important for the success of your business. Here are some tips for maintaining efficient bookkeeping records.
Decide which accounting system, accrual or cash, that’s right for your business
There are two types of accounting systems you can use for your particular business accounting requirements: accrual and cash.
So what’s the difference between using an accrual system and using a cash system.
When you use an accrual system, you record your income and expense transactions when they occur before the date when you receive payment for products or services and before you pay for your expenses.
When you use a cash system, your record your income when it is received and your record expenses when you pay them.
Always maintain your transaction records on a daily basis
You may not want to do this every day but it only takes a few minutes and saves a lot of headaches from trying to figure out what your receipts are for and what was the purpose for such items as lunch meetings. Doing this keeps your finances up to date and your records will be accurate which is important for tracking the financial situation of your business.
Use a backup system for your electronic files
You’ve heard your accountant tell you do this. You’ve heard your colleagues tell you to do this. After inputting transactions on your Excel spreadsheet or computer accounting software, do a back up on a USB drive or external hard drive to ensure none of the data is lost in the event something goes wrong with your computer and you can’t use it. It only takes a few minutes if you do this every day. Your back-up system will always have an up-to-date file on the financial status of your business.
Use separate accounts for your business and your personal finances
Your accountant may have told you every time you consult with him about an income tax matter or when you just want to ask him a question about accounting. Never mix you’re your business finances with your personal finances. Always have separate bank accounts for business and your personal finances. Always have separate credit cards for your business and personal expenses. This makes it easier to keep track of income and expenses for your business and maintain accurate records for the financial status of your business. This saves time of having to figure out which transactions are for business or for personal finances and prevents confusion.
Record cheques and keep vendor invoices and sales receipts
Doing this will help you get reconciliations done more efficiently and make it easier to review cheque payments and monitor your expenses. Match cheques, vendor invoices and sales receipts with transactions on your bank statements in chronological order.
Reconcile your records with your bank statements every month
Always do reconciliations of your bank statement and credit card statement after you have recorded all your transactions for the current month to ensure that they have been recorded accurately. This ensures your records are accurate and helps you find and resolve any discrepancies immediately before you record any transactions for the next month. Never leave this task to do until the end of the year because going back to check for any errors will be much more difficult, confusing and frustrating.
Use accounting software
When you record transactions in accounting software, you can generate reports whenever you want to so you can monitor the financial status of your business, summarize financial activities, prepare documentation for your accountant for income tax preparation, and always have financial records accessible when you need them.
Hire a bookkeeper
When you don’t like doing your bookkeeping or just don’t have enough time in your day to take care of your bookkeeping records, hire a certified bookkeeper who has the skills and knowledge to do your bookkeeping efficiently and find and resolve any discrepancies or errors.