Business Article - Bookkeeping and Record Keeping
For business owners, proper bookkeeping can be very important to keeping a business afloat. Without it, there are risks of wasting money, being low on cash, and not being able to properly fund an expansion if the need arises. When the time comes around to devise or revise a business’s bookkeeping routine, one must consider that the main purpose of good bookkeeping is to aid in the management of a business and, also, to be able to let tax agencies properly check on business activity. If the bookkeeping of a business can achieve this criterion it should be simple to maintain and evaluate.
These guidelines, in general, will outline what the business owner must take consideration of and they will provide ideas on how to maintain business books in a more orderly fashion. Before any decisions are made regarding bookkeeping, it is important to check with a business accountant or a tax preparer since the bookkeeping needs can vary with each unique business.
Lots of small businesses often choose to use increasingly popular software to aid them in keeping track of several aspects of the business. There are many resources that have been provided in this article to help the business owner institute the more popular computer automation. The need for bookkeeping software can only be determined by the business owner. If it can save the business time or money and frees the owner up so that they may concentrate more on running the business then it may be advantageous to attain. The business owners see it this way often, but business owners must be careful to not fall into the theoretical trap of setting up the computer bookkeeping. This is wasting time that could potentially be more effectively handled by using paper. Any paper bookkeeping documents mentioned in this article can be easily obtained from the majority of stationary stores.
There are many bookkeeping functions that are best delegated to a business accountant. While essential to achieve and maintain thorough knowledge of the business dealings by reviewing the businesses books often, a business accountant or retained bookkeeper allows the business owner to free up time to concentrate more on expansion of the business. A bookkeeping task for a business owner that could take up even a small amount of hours in a week could be better delegated to another individual if it is determined that time used by the business owner could be much better spent dealing with other business issues.
Revenues and Expenses
The business should use a Ledger or a Journal of Revenue and Expense to track the amount of money that is coming in and going out of a business. It is also important to document where this money is going or where this money is coming in from.A ledger can be used in recording every occurring business transaction twice. This is based upon the premise that every transaction is made up of two halves and each an effect upon the business. For example: the business sells an item; the business books then show a lowered inventory, or a credit, and, in turn, a debit. If double-entry accounting is used by the business, a computer program may be preferred or even a bookkeeper could be used to keep the business ledger clear and up to par. If anyone else is allowed to keep the business books, it is important that those books be reviewed regularly. A few of the programs that are able to do double-entry bookkeeping are programs such as the following: Quick books from Intuit, Peachtree Accounting from Peachtree Software, and M.Y.O.B from Teleware.
A Journal of Revenue and Expense is commonly used by many small businesses. It is single-entry accounting or the recording of receipts and expenses only. Double entry type accounting involves the use of a ledger and it necessitates that every activity must be recorded in the form of a debit or a credit on the business books. It was previously believed that any businesses should be required to use this method referred to as double-entry, but now the method of single entry is used by the majority of small business owners. Single-entry accounting is easily kept either on paper or on a computer. Many popular programs are able to perform this single-entry accounting and they include: Microsoft Money designed by Microsoft, and Quicken designed by Intuit; these are only a few but there are several others that are available and easy to use.
The business accountant can advise the business owner on what types of record keeping would be most appropriate for the business. It is also wise to consult with a tax advisor to determine whether the business should be using cash or an accrual-based type of bookkeeping system.
Inventory Records
Staying ahead of any business inventory records enables the business owner in preventing pilferage. Always keep all inventory holdings down to a minimum and make sure to track any buying trends, slumps, and other things relevant to business income.If the business sells a large amount of lower priced items the business owner may choose to convert to a computer system so that they may easily track inventory. A business owner can even tie their computer system into their sales by having an inventory system such as POS (point of sale). If more expensive items are sold by the business it may be easier to track the inventory on paper.
The highly important inventory information that the business is required to retain is: the date item was purchased, the stock numbers) of any item that was purchased, the final purchase price of the item, the date the item was sold, and the item’s sale price.
Cash Expenditures
Any cash spent in the business should always have to be accounted for if the need is to record all business expenses in a given year. Here are at least two separate ways to do this: The business owner may write himself/herself checks that are reimbursable or the business owner can keep a record of all petty cash transactions.If the reimbursable check is the chosen method, simply record all cash receipts for any purchases/expenses. They can be totaled weekly, biweekly and even monthly. This, of course depends on the actual volume of the expenses. It would be smart to total a magnitude of expenses weekly versus monthly to lessen the amount of paperwork that would have to be completed in one sitting. It is necessary to log the category of each expense. This is for later tax purposes. The business owner can write themselves a check as reimbursement for the declared total. The business owner can record this in the check register as “cash reimbursable” so that they may later be able to differentiate this entry from any taxable income. Alternatively, business owners could keep a record of petty cash by making out a check for “petty cash” and logging each expense that is paid out of the petty cash.
Accounts Receivable
If the business’s products and services are paid at the time of the delivery, the business owner will not require the use of a tracking system for accounts receivable. However, if the business provides products or services that people will pay for on a later day, the business’s accounts receivable records can keep a close eye on what is due to the business. Business owners can monitor the accounts receivable records by keeping a copy of any and all of the invoices that have been sent out or they can do this by keeping a detailed record of accounts receivable. In either case, the information that is needed to be captured includes: date of the invoice, the invoice number, the total invoice amount, any terms, the date payment was made, the amount of the payment, and any name or names of the person or entity that is being billed.Many programs are readily available to aid the business owner in generating invoices, tracking hours, and recording the expenses that are incurred for every customer. These software programs can potentially save precious hours for the business owner and can create much more professional-looking invoices. The main point here is that if it saves the business time or money it is a valuable tool in helping the business owner.
Accounts Payable
The debts that are owed by a company are called accounts payable. These debts are generally owed for services and goods. It is always a good idea to keep a close eye on what the business owes so that good credit can be established with proper payment. Accounts payable also enables the business owner to keep a hold on their money for as long as it is possible.Business owners who have very few items in accounts payable may choose to use file folders that are date labelled to help keep accurate tracking. Some smaller firms simply pay their bills twice a month and keep the company bills in a folder labelled for the purpose. Larger businesses sometimes choose to use the accounts payable paper forms that can be organized by each creditor. Regardless of the type of system a business owner chooses, it should always include this following information which is relevant to accounts payable: the invoice date, the invoice number, the total invoice amount, any terms, the date payment was made, the total amount of payment, and any balance due (if it is applicable), and all clients names and their addresses.