Top Ten Bookkeeping Tips
Managing your company’s finances can be challenging. Whether you are an entrepreneur just starting out or a seasoned business professional looking for ways to improve your business processes, here are ten bookkeeping tips to help you.
Leave personal expenses out of your business
Sometimes owners don’t know where their business ends and personal life begins. Given the number of hats that they typically wear, it’s hard not blend work with home-life. But when it comes to the income and expense in your company, keeping them separate is key. If you are a newly-formed business, establish a company bank account and corporate credit card as soon as possible for you to make deposits and pay bills that are associated with your company. Keeping personal expenses out of your business will not only make your recordkeeping easier, it can also prevent problems with taxing authorities.
Hold onto your petty cash receipts
Be sure to monitor your petty cash and obtain receipts when cash is spent. Even though petty cash is a small balance, they are susceptible to theft since they are cash. Be sure to account for each transaction with documentation and reconcile your petty cash at least once a month. If petty cash transactions occur frequently in your business, reconciliation may need to be done weekly, even daily. This will help you to catch mistakes and may deter theft.
Make it a habit to pay bills by check or credit card
Avoid the urge to pay bills in cash. In addition to receipts and invoices, paying bills by check or credit card gives you a second form of documentation and helps you to track where your funds are going. By paying bills in cash, you run the risk of expenses not being recorded in your accounting records, which can cost you money as it may be a missed deduction.
Simplify your chart of accounts
Your chart of accounts is used to categorize your company’s financial transactions. It is a means to group similar transactions together. An effective chart of accounts can help you to quickly pick out unusual or large changes in accounts that you may not have expected.
Most bookkeeping software includes a set of predetermined accounts. Consider using these as a base and adding only those that you need. Consider keeping your list simple, which allows you to quickly see the financial health of your company. A few best practices include;
- Adding too many accounts can complicate your recordkeeping and make your reporting less effective. Be sure to add only the accounts that you need and have value.
- Resist the urge to set an account up for each vendor. Rather, consider setting up by function.
- Check your account classifications. When setting up a new account in your chart of accounts, be sure to pick the right classification, which is either as an asset, liability, equity, income, and expense. Errors in account classification can impact your bottom line if you have expense accounts showing up in the wrong place on your books and records.
Automate your recordkeeping
Using bookkeeping software, such as Quickbooks, Xero, and Peachtree, can help you easily keep track of your income and expenses. By entering transactions and paying bills through a software program, it will automatically record this activity into your accounting records. This eliminates the need to keep manual records or spreadsheets, both of which take your time and may be prone to errors.
Review and reconcile
On a monthly basis, take the time to review your financial position. Make sure your bank and credit card accounts are reconciled. If you invoice customers, review your accounts receivable by looking for discrepancies, unposted credits, and finally what’s still due to you. Go through your expenses – perhaps there are ways you can easily cut back and save a little money.
It’s all about the documentation – organized documentation
Every payment that is made should be supported by documentation, such as an invoice or receipt. When paying bills by check, it is recommended that you attach part of the check remittance advice or a copy of the check to the invoice. You should also mark the invoice “paid” in order to show that it is no longer due. This can help to avoid duplicate payments.
Paid and open invoices are often filed alphabetically, making them easier to find should you need to refer back to an invoice or a receipt. Proper documentation also supports the deductions that you might take on your tax return. If you are tech-savvy, you can also invest in a scanner and digitize your invoices and receipts. Just be sure that they are organized in a way that you can find them easily.
Use time tracking software to monitor and record your employees’ hours.
If you have employees, consider use time-tracking software. Many programs on the market are cloud-based, allowing your employees to clock in and out using a smart phone or computer. Time tracking software automates a portion of your payroll process and can help eliminate clerical hours. It can also save you money as clocking in and out can give a more accurate picture of the hours worked, as opposed to a manual card. Some software packages integrate with bookkeeping software, making your payroll process even more efficient.
Monitor your accounts receivable
Staying on top of your accounts receivable will help the cash flow of your business. Customer who pay late can drag a business down, making it difficult to pay bills. By monitoring your accounts receivable, you can address slow-paying customers before they become collection problems. In some cases, you may need to work out a payment arrangement.
If you need professional bookkeeping help – get it
For some people, bookkeeping is just not something that they want to do. Rather than procrastinate, consider using an outside bookkeeping firm. Keeping your records up-to-date is essential to running your business. Using an outside firm that specializes in bookkeeping will free up time for you, but will also ensure that your records are up-to-date.
If you’d prefer to handle the bookkeeping in-house, consider using an accounting software package. Engage the help of a bookkeeper or accountant to assist you with both the setup and training. Knowing how to use your accounting software properly will help you to record your invoices and deposit, pay bills, and classify your expenses correctly.
Running a business is an exciting, but demanding opportunity. As an owner, you are responsible for ensuring that your financial records are complete and accurate. If you need help keeping your records up-to-date, the specialists at Valley Business Centre offer quality bookkeeping and payroll services.
The short answer – YES! While it may be painful for some, reconciling your bank account each month is an absolute must for every business. These may seem like a tedious task that we’d be more than happy to put off to another time, reconciling your business bank account each month gives you not only a powerful tool to run your business, it also helps you catch problems and keep you from bouncing a check.
What is a bank reconciliation?
A bank reconciliation involves comparing what happened in your bank account with what you have recorded in your books and records. Once they are completed, the balance in your books should reconcile to what cleared on your bank statement. Bank reconciliations can often be done within your bookkeeping software, on paper, or you may have a bookkeeping service prepare this for you each month.
How do you prepare a bank reconciliation?
To complete a bank reconciliation, you’ll perform the following steps:
- First, you’ll compare what has cleared on your bank statement against what you have recorded in your books. This step requires you to check off those items in your books that have cleared.
Your bank statement may have interest income or service fees that you will need to record on your books. You will then check off as well since they cleared your account.
- Next, you’ll review those items that you didn’t check off. If you made a deposit on the last day of the month, it may not have cleared until the next month. These are known as deposits in transit. When you reconcile your bank statement in the following month, you should expect to see these items clear your account.
Checks that were written in the month, but have not yet cleared are considered outstanding.
In this step, you’ll want to review deposits in transit and outstanding checks for anything that is old and hasn’t cleared. If it’s a deposit in transit, it could be a duplicate entry or perhaps the deposit was not made. Old outstanding checks could indicate that a check you mailed was lost or perhaps it should be voided.
So how does this all fit together?
• The last step involves comparing your reconciled bank statement balance with the cash balance on your books. A simple bank reconciliation may look something like this:
A bank reconciliation will typically start with the bank statement balance. Deposits that were made in the month that haven’t cleared will be added to the bank statement balance, whereas checks that were issued but haven’t cleared will be subtracted. This will yield the Reconciled Bank Balance.
The next step is to start with the cash balance on your books and add any income and deduct any charges that have not been recorded.
Once both steps have been completed.
A successful bank reconciliation will show no difference between your reconciled bank balance and your reconciled book balance.
If they aren’t the same, you have some additional work to do. A few suggestions to resolve the differences include reviewing what you’ve checked off as clearing the bank statement, verify that there aren’t any other charges or credits that have been reflected on your bank statement that are not on your books, and double check the items that are showing up as deposits in transit or outstanding checks. Continue this process until you find the difference.
Top 4 Reasons to Reconcile Your Bank Account Every Month
Reconciling your bank accounts each month can serve as a valuable tool for you to monitor your business.
By comparing your bank statement with your records, you can catch errors made. Missing transactions, transposition errors, or adding an extra number by accident can cause the cash balance on your books to be too high or too low. A big mistake can be a problem, especially since you may be issuing checks when you may not have as much money in your account as you think. This can prevent the embarrassment of receiving a phone call from a vendor because your check was returned due to insufficient funds.
There is something about looking at all of the fees that you pay in one place that tends to points our minds in the direction of – do we really need to pay for that each month? You may question the need for all of the monthly subscriptions coming out of your account. Perhaps you weren’t even aware that you were being charged. Reconciling your bank account each month is critical – if you allow too many months to go by, you may not be able to request a refund. It may also be an opportunity to speak with your banking representative to see if there are options for lowering bank service charges or transaction fees.
Checks Not Cleared
Typically, checks that are issued will clear within a few weeks. When a check hasn’t cleared on two of your bank statements, there may be something wrong. Perhaps it was lost in the mail or the vendor just forgot to deposit it. Either way, this could spell trouble for your business, especially if you purchase goods on credit. This gives you the opportunity to check in with your vendor. You may find that they changed their mailing address or very behind in their own bookkeeping. Being proactive in this front can save you a lot of headache as you may be on credit-hold and not even know it.
Reconciling your bank account can help you to catch transactions that you didn’t authorize or have been altered. Your bank account may have been used to pay someone else’s bills online or perhaps a check amount was changed by an employee or vendor. Fraudulent transactions can add up over time and cost you a lot of money if they aren’t caught early.
If you have an in-house bookkeeper handle deposits, paying bills, and recording transactions, a best practice would be to have someone else reconcile your bank account if possible. In a small business, an owner may reconcile the accounts or you may choose to engage a bookkeeping service. While this may cost you a little money each month, it can potentially save you thousands of dollars if errors or fraudulent transactions are taking place.
What Should You Do?
Reconcile your bank account every month. If you don’t have the time or if you’d just like the comfort of another set of eyes looking at your records each month, consider hiring a bookkeeping firm to take on this function. For almost 20 years, the team at Valley Business Centre has delivered high-quality bookkeeping and payroll services. Serving clients in Whistler, Squamish, the Sea to the Sky corridor, BC, and beyond, our bookkeeping specialists have consistently delivered accurate and reliable bookkeeping and payroll services that can give you peace of mind.