Basic Bookkeeping Strategies: Part 3
Posting transactions. But I’m not an accountant
Don’t allow yourself to become intimidated by the bookkeeping process. It can be easier than you think. Understanding the basics of accounting will help you to feel more comfortable with processing your transactions. If you remember in part 1, I gave you the basic categories of classifying your bookkeeping data; assets, liabilities, expenses and income. Go through each of your entries and determine which category to post your transaction to. The majority of your items will be posted as expenses. Simply put, all items paid for with cash, which you do not have ownership of, will be classified as an expense. Items purchased that represent ownership will be classified as an asset. Items purchased on credit, will have an offsetting entry to a liability account. Money received for payment of goods and services will be posted to an income account. These entries are generally posted into some sort of register, such as the check register or bank account register. From there, all the entries will be placed in their proper statements. Still confused? If you’re using software, refer to the tutorial section. It will give you more details on how to post the transaction. Although most software will claim that you don’t’ need to know accounting in order to use it, I prefer to know a little bookkeeping theory, to help make sense of what you’re doing. As an alternative, you might want to consider signing up for a basic bookkeeping training or software course. Even if you decide to outsource your bookkeeping, it’s still best to have a basic understating in order to discuss the status of your books with others.
Basic Bookkeeping Strategies: Part 2
Deciding how and when to track your transactions can be a task within itself. Typically this decision is made before hand, but I’ve know quite a few business owners to make spur of the moment judgments about how to manage their data. The best approach, of course, would be to create a system and adhere to it. But what is that system, and how do you determine what it should be?
How do I track this stuff? Manual, software or online.
Most businesses prefer to have ownership of their financial data, meaning they maintain full access at their own location. This method would require the purchase of expensive software, knowledge of its use, and maintenance of the system. At least two individuals would be needed to fully operate this system, one to manage the input of data and the other to manage its function. Or perhaps only one overworked individual is needed to manage everything (smile). However, this scene is changing with the convergence of virtual businesses. Most realize the cost savings of having someone manage their files for them completely remote (via the internet). Company data is delivered by fax, email or courier, and updated at the location of the service provider, or the files are managed through remote access, directly linking computers through the internet. The industry is favoring the latter because it’s cost effective. Savings on the cost of office space, employee wages, training, and system maintenance, all contribute to the popularity of the virtual process. At this point can you imagine anyone still using manual spreadsheets? Let’s hope not.
Basic Bookkeeping Strategies: Part 1
Bookkeeping involves the systematic process by which you gather and record financial data. This may appear very simple, but actually it can become a very complex process. The setup and management of your files will be determined by the level of expertise of the individual(s) involved. My goal through the next three articles is to share some of the basic steps in creating an effective system of bookkeeping.
Organize your data-why can’t I use the shoebox method?
The days of the shoe box method are long gone. With current technology trends, there really is no excuse for today’s business person to be disorganized. Simply put, your first responsibility is to make sure that all items are properly categorized. For example the major components of a business’s finances are assets, liabilities, revenue, and expenses. Keeping it very basic, I’ll explain each category:
Assets = what you own
Liabilities = what you owe
Revenue = what you’ve earned (income)
Expenses=what you’ve paid
Congratulations! You have just passed accounting 101.
Now in knowing this basic information, an effective bookkeeping system will make sure that all transactions are properly recorded in its appropriate category. Depending upon what type of system you use, before you begin entering any data; separate all your items into categories. You can use the above list as a guide. Most likely your source documents will consist of receipts, bank statements, check stubs, & invoices. This will save you time in advance to entering your data.
5 COMMON BOOKKEEPING BLUNDERS TO STAY AWAY FROM
No one likes to deal with errors, but we must. My approach is to acknowledge the error, find a solution, and document to prevent future mistakes. But let’s face it, most like to play the “blame game”, where we get stuck in the cycle of the error itself. So, this article will deal with 5 of the most popular bookkeeping blunders you should watch out for.
Blunder #1 – Stop mixing personal and business expenses in the same checking account. I think this one speaks for itself. As much as we would like to argue to the contrary, that vacation you took to Brazil was not a business trip.
Blunder #2 – Do not post date checks. Don’t write that check if you don’t have the money. Rubber money does not bode well with banks and vendors.
Blunder #3- Don’t pay your bills late if you can help it. Try to keep a good credit standing. If you’re in a cash crunch, call your vendors and work out an alternative plan. They will be more apt to work with you as long as you keep the lines of communication open. Trust me, they will appreciate your honesty. In this case SILENCE IS NOT GOLDEN!
Blunder #4- Everyone is not an independent contractor. Educate yourself on the difference between independent contractors versus employees. You could save yourself a lot of time and heartache during tax season.
AND THE BIGGEST MISTAKE OF ALL…………………………….
Blunder #5- CASH TRANSACTIONS. If at all possible, please don’t make any cash transactions in your business account. This is an accounting nightmare, because generally you will not keep the receipt or properly categorize the transaction. All transactions should be made by credit card, check, money order or other method. Documentation is a must, and it’s hard to trace cash transactions without the proper receipts.
Partnering for your success!
Jacqueline E. Ford
Financial Strategist
10 WAYS TO ORGANIZE YOUR BOOKS
I’ve decided to help make your life easier. You might ask how? Let me tell you. Having managed the books for several small businesses, I’ve come across some interesting situations in which clients presented their data to me. Everyone has their own technique, but I noticed the biggest challenge across the board was consistency. So I ask you, what are the best methods for organizing your data? Below, I’ve hi-lighted 10 of the most popular methods to present complete and organized documents for bookkeeping.
- Create an operations manual which clearly states your method of file maintenance. Make sure that all key personnel have a copy.
- Keep a receipt for everything. Every transaction should have a corresponding document. That includes all transactions no matter what the originating source is (i.e. purchase orders, credit card receipts, bank deposit slips, etc.)
- Make sure that all documentation is properly labeled. All customer and vendor files should have complete contact information. The dollar amount of the transaction should be clearly stated on documents.
- Use a tickler file. You know the kind that has the sections either separated by date or letter of the alphabet. This helps to control the flow of papers daily.
- File, file, file. Don’t forget to properly file away all your documents. How often you do this, depends on the amount of activity you produce. Get into the habit of doing this at least weekly.
- File retention. Every industry has standards for what files to maintain and for how long. Check with your industry’s reporting requirements.
- Have a checks and balances system in place. Important transactions like writing checks or depositing funds should always be reviewed by a senior person of the company before completing.
- Important items like checks, deposit slips, signature stamps, should always be kept under lock and key. No more than 2 people should have complete access to these items.
- Color code your filing system. I’ve found this one to be really effective. It makes it easier to find items based on categories. For instance customer files could be green (for money), vendor files could be red (for payments). You get the picture.
- Use integrative software along with your major software for bookkeeping. For instance, there are plenty of file management packages for handling customers, employees, and the like. These packages help with setting up categories, creating profiles, and are generally compatible with spreadsheet and word processing programs like MS Office.
There we have it. Keep focused and stay organized.
Partnering for your success!
Jacqueline E. Ford
Financial Strategist