The process of bookkeeping is gut-wrenching. With bookkeeping as annoying as it is, there is every reason to keep our books tidy. As well as working on the customer and sales funnel, you must remember that time is also of the essence. So, how do you juggle a million business needs with bookkeeping?
Needless to say, bookkeeping is an absolute must. It is imperative for the growth of your business and you must start taking it seriously, if you don’t already. But what if there was a way you could keep up-to-date with your accounts with minimal effort? We have some great news for you!
The following tips are lifesavers when wading through the tides of bookkeeping:
A chart of account: A well-compiled list of transaction categories is the most useful way to maintaining a defined chart of account. The five basic categories of transactions are assets, equities, expenses, income, and liabilities. Each transaction category is a ledger with a unique identifier – called the Account Code. A good chart of account is great, when bookkeeping, to guide the categorisation of transactions. For instance, ‘Revenue’ is a great transaction category for recording sales to different customers.
A fine line between credit and debit: The notion of balancing is a key concept in accounting. Debit and credit are two arms of every transaction. The debit account should always be equal to the credit account at the end of the financial period. An increase in an expense or asset is a debit – whilst credit is the increase in a liability or income account. Recording transactions is made easier by accounting software which sorts credit and debit discrepancies. With Microsoft Excel, you must record both transactions. Failure to do so means a great deal of trouble when looking for missing coin!
Both invoices and receipts need electronic safekeeping: Rental rates fluctuate, whilst digital spaces keep dwindling. Physical documents accumulate dust and are displeasing to the eyes. Besides, space is wasted in the office when storing physical documents . Documents that do not require signatures may not necessarily require hard copies. Meanwhile, most documents are prone to fading over time. It is for such reasons that it is essential to start switching to digital formats. When retrieving information, life is made so much easier by digital documentation. Popular cloud storage solutions include Google and Dropbox. These solutions also make room for lower storage requirements.
Brush up your basic accounting knowledge: If you do not understand the basics of accounting, doing business may be difficult. Luckily, you needn’t spend a fortune to learn the tools, as there are several online courses available at minimal cost. And the certificate itself is of little importance compared to the knowledge to be gained.
Business and personal finances are distinct: Never mix business finances with personal finances. Think of your business as a separate person: know that it is inconsiderate to ask a friend to fund your trip. Some great tips to help you:
- Start paying yourself a salary
- Record every payment that goes into the business
- Set up a business bank account immediately
Link transactions to your chart of account: Unfortunately, just recording transactions may be insufficient. You must prepare financial statements, which involves a linkage of transactions. As a form of categorisation, the chart of account helps to categorise transactions, such as the following:
- Salaries, allowances, and bonuses – salaries of employees
- Telephone and internet expenses – payment to Divitel for business telephone subscription
- Revenue – sales receipts from customers
- Medical expenses and insurance – surgical insurance
Although there are no strict rules and regulations regarding the classification of accounts, this should be sensible. An example of one silly mistake is categorising expense as revenue.
Monthly reconciliation of bank statements: One of the most important documents to keep is bank statements. Not only are these the basis for everything else, they are also the only business record you can trust. You will only notice a difference between your bank statements and accounting records if you create a monthly record of transactions. For example, if your bank statement reflects $2,000 when you should have cash of $7,500. You must fish out the discrepancies – a process known as ‘bank reconciliation’. Nevertheless, there may be valid differences. Sometimes, the bank takes a longer time to affect a cheque receipt of monthly sales. Without valid reason though, you must investigate. Regular causes of discrepancies are fraud and inaccuracy of accounting records. Simple bank reconciliation procedures are one of the arms of bookkeeping. Keep the soft copies of your bank statements. Banks typically charge between $30 and $40 per month for dated bank statements.
Record relevant transaction details: Although bookkeeping is of the essence. For each transaction, you must know what to record. Some important things to note during each transaction:
- Transaction date
- Payer or payee
- A unique identifier
- Transaction purpose
Should you decide to analyse your accounts, these details may be useful in the future.
Slow, steady, and deliberate: Do not underestimate the power of electronic records! They can save you a lot of time, allowing you to be more productive in other business aspects. If you prefer to outsource, electronic records are a must for professional firms. For personal bookkeepers, taking 20 minutes a day is a necessary evil to get your bookkeeping game on. You will also have less work to do if you own an e-commerce website. By integrating the website with the accounting software, you will have more time on your hands to care for the business.
Software and apps are the new black: Technology definitely makes life easier, and we don’t give it enough credit for this.. Certain apps and software make the art of bookkeeping a walk in the park, including WaveApp and CamScanner.
Without a doubt, bookkeeping can be a thorn in the side. But business growth depends on well-organised bookkeeping techniques, with investments and loans easier to secure with good bookkeeping practice.
To find out more about your tax situation please contact Cantor Accounting on (02) 9411 1134.