Like it or not, managing your books is an integral part of being a business owner. And if you’re like most entrepreneurs, you’re probably worried about making accounting mistakes that could hurt your business in the long run. So what’s a business owner to do? I’ve got a solution: Learn the steps for foolproof accounting books and how to use them to review your books between visits with your accountant.
Steps to Infallible Books
Mastering the art of bookkeeping takes time, patience, and a few steps. If you want your accounting records to be accurate and reliable, check out these seven essential steps to follow between records with your accountant. Infallible accounting books, here we come!
1. Learn the basics
For infallible accounting books, you have to go back to basics. Well, accounting basics, that is.
For accurate and foolproof books, get to know the basics of bookkeeping before jumping into recording business transactions. If you are new to the world of accounting, refresh yourself:
Your accountant should also be able to help you understand basic accounting concepts so you can manage your books between recordings.
If you’re an experienced entrepreneur or have a good grasp of Accounting 101, you probably don’t need a refresher. But, it never hurts to research and deepen your accounting knowledge.
2. Record every transaction
The next one may seem obvious, but as a busy business owner, it can easily escape you: record each and all transaction in your books.
Forgetting to record a transaction in the ledger can lead to a host of issues, including inaccurate reports and totals. So to make sure your books are in tip top shape, record every transaction in a timely manner.
Try to record transactions regularly, like once a week or once a month. Now I know it can be hard to stick to a strict schedule when you already have so much to do. But, try to stick to a schedule as much as possible. This way you can keep your books up to date and accurate. Not to mention, it can save you from completely forgetting to record a transaction.
If necessary, find unique ways to remind yourself to record transactions. Set an alarm, mark your calendar, and more. Do whatever you need to do to make sure you post transactions as soon as possible.
3. Use accounting software
There are several ways to record transactions in your books. My best recommendation? Use accounting software in conjunction with an accountant. This way, you can avoid time-consuming tasks, manuals, and errors.
Accounting software can be the best of both worlds for business owners and their accountants. Find affordable accounting software to get organized, and you’ll spend less time trying to decipher your books. Your accountant will love you for it too.
Plus, accounting software can do some of the heavy lifting for you, like calculating totals and creating reports. Not to mention that it can also automate certain tasks, such as converting quotes into invoices and sending payment reminders.
While accounting software can mitigate miscalculations, using software in conjunction with a tax professional can make them even more accurate. If you opt for accounting software, find a solution that offers easy reporting and access so you can quickly pull reports for your accountant.
4. Keep documents
A big part of business bookkeeping is making sure you record transactions in a timely manner. and keep documents to back up your records. Therefore, my next step of document preservation.
So you might be wondering, What documents should I have on hand? Some documents you should keep for your records include:
- Business bank statements
- Payroll records
Of course, the above list is not exhaustive. Keep the documents you would need in the event of an audit. Not sure which documents to save or not to save? When in doubt, store any records that can back up your recorded transactions. Tip: Your accounting software should have a feature to store your documents on your journal entries or bank transactions. You’ll never have to search for flying pieces of paper again.
5. Check entries
Another important step in making the accounting books infallible is to double-check the entries, especially if you do the accounting by hand.
Double-checking (or even triple-checking) your entries can prevent you from making accounting errors. And in turn, that could keep you from dealing with accounting issues for years (which no business owner wants to deal with).
Before you finalize anything on your books, double-check to make sure the amounts and accounts involved are correct. Do the same before closing your books at the end of a period and at the end of the year as well. After all, it never hurts to double, triple or even quadruple the check. Of course, your accountant will also check your books. But ultimately it starts with you to provide the right day-to-day information.
6. Keep Personal Transactions Separate
Peanut butter and jelly? Go together. Personal and business funds? It’s true – they do not do go together. To keep your books error-free, keep your business and personal income and expenses separate.
Separate your personal and professional funds to:
- Avoid confusion
- Keep records clear
- Simplify claiming deductions
- Track funds that belong to you and your business
Mixing funds can make records confusing and disorganized. And that can cause a ton of confusion at tax time. To avoid an accounting disaster, consider opening a separate bank account for businesses.
Keep in mind that you may have no choice but to open a separate account. Some business structures require owners to open a separate business account. And if you operate under a DBA name, you may also need a separate account.
7. Beware of red flags
Do you want impeccable accounting books? If so, you need to know what red flags to look out for when recording trades and reviewing your books.
Keep your eyes peeled for:
- Accounting errors
- Transposition errors
- Data entry
- Changes in trends (eg cash flow)
- Numbers that seem too good to be true
- Unusual abnormalities
The more you pay attention to warnings that something is wrong, the better off your books will be. So my friends, stay on the lookout for accounting errors and changes in your books (eg, spending spikes). And, take all the necessary steps you need to get your books in shape (ahem, #1 – #7).