Six Bookkeeping Tips!
By Denise Loter-Koch
No matter the size of a business, bookkeeping is essential to growth and success. Proper bookkeeping allows a business to monitor its financial health. Below is a list of six tips designed to help businesses avoid costly mistakes.
1. Create a Practical Chart of Accounts
Creating the chart of accounts is one of the first steps in developing a business accounting system. Essentially, the chart of accounts allows a company to categorize funds that are received, retained, invested, or paid. Determining how detailed to make the chart of accounts is often problematic for businesses. Excessive detail will require data entry training for staff or outsourced bookkeepers. On the other hand, a generic chart of accounts does not provide sufficient data to thoroughly examine the financial state of the company. Ideally it should be user friendly and convey important information about the business.
2. Reconcile Bank Statements
Reconciling a bank statement allows business owners to easily spot differences between the bank statement and the account holder’s records. Examples of these differences include unexpected or erroneous bank fees, duplicate checks being cashed, and incorrect posting of transactions. Embezzlement is a more serious issue that is prevented by accurately reconciling bank statements. By comparing these two records, companies verify that funds intended for the bank are reported.
3. Properly Classify Employees
Properly classifying workers as employees and non-employees can be challenging. Freelance workers, contractors, or consultants need to file paperwork with the IRS. This paperwork is dependent upon the worker’s classification as an employee. Appropriate classification is essential in order to avoid misfiling paperwork and risking significant ramification from the IRS for both the worker and the business.
4. Maintain Daily Records
Updating records daily will result in precisely balanced accounts. These records allow one to see available funds and verify that there is sufficient capital to cover business expenses. Record updates are not time consuming; in fact, they take only a few minutes each day and will save the bookkeeper many hours at month’s end. The most effective way to maintain daily records is by using a consistent system. This will allow the process to be streamlined and will reduce the risk of oversight or error.
5. Maintain an Audit Trail
Maintaining a trail of business transactions is crucial to passing an audit. The most effective way to document transactions is to create an electronic copy of all business receipts and invoices by scanning them into a computer. This information should be backed-up on a hard-drive to ensure the documents are available if the company is audited. Furthermore, having a copy of financial records reduces the chances a company will be audited at all.
6. Outsource Bookkeeping
Hiring a bookkeeping professional will save business owners time and angst. Professional bookkeepers are experts in their field and can streamline the business accounting process. Though business owners often insist on keeping their companies books, their lack of expertise can result in improperly recorded data and wasted time and money. Books can be completed accurately and in a timely fashion by a bookkeeping professional and is the best long-run option for businesses.