Keeping accurate and up-to-date financial records is one of the most important things you can do as a business owner. Proper bookkeeping gives you key insights into your company’s health and helps you make informed decisions. Whether you manage the books yourself or work with an accountant, here are 10 key guidelines to follow:
Have a Dedicated Bookkeeping System
The first step is using designated accounting software or spreadsheets. This allows you to:
- Log all transactions in one place
- Track cash flow, profits, losses
- Identify issues quickly
Popular tools like QuickBooks make the process very simple. The key is picking one system and using it consistently.
You should also establish a chart of accounts – a list of all accounts you need like sales, payroll, supplies, etc. This keeps things organized into categories that are easy to monitor.
Record All Transactions Promptly
As you conduct business, log every expense receipt, invoice, vendor payment, and customer payment into your books without delay. This includes:
- Purchases – Any items, inventory, or services bought for the business
- Sales – Money received from customers
- Account deposits/transfers – Cash put into business accounts
- Bills/rents/taxes/fees – Operating or regulatory expenses
- Payroll – Employee salaries and wages
- Loans – Money borrowed for business purposes
Tracking these transactions in real-time prevents gaps in records that can lead to problems later on. It also provides an accurate picture of what money is coming in and going out.
Reconcile Accounts Frequently
Every month, reconcile or compare your recorded transactions with bank and credit card statements. Identify any discrepancies between:
- What your accounting records show
- What your bank/CC accounts show
Catching issues early when the trail is fresh makes discrepancies much easier to fix. Allowing discrepancies to pile up causes headaches at tax time and audits.
Follow Standard Accounting Guidelines
While recording transactions, apply standard accounting principles like GAAP or IFRS. Using established guidelines ensures consistency in how you:
- Recognize revenues and expenses
- Categorize asset and liability accounts
- Treat credit and debit account balances
Consistency enables accurate financial reporting and statement analysis by third parties.
Perform Regular Internal Audits
Conduct self-audits every quarter. Review processes like:
- Transaction logging
- Expense documentation
- Bank reconciliation
- Payroll preparation
- Inventory management
Verify you comply with standard company procedures and policies. This double checks for errors and deters fraud by employees.
Closely Track Inventory
For product-based businesses, diligently document:
- Inventory purchases from vendors
- Units added to your stock
- Units removed from your stock and sold
Compare your recorded inventory quantities to periodic physical inventory counts done in the warehouse. Keeping perpetual inventory records updated prevents unpleasant surprises like running out of stock.
Monitor Cash Flow Patterns
Project future cash inflows and outflows. Track current cash flow habits to identify:
- Seasonal dips and spikes
- Changes in timelines for customer payments
- Slow collections on issued invoices
This helps forecast cash flow needs so you can avoid crunches.
Backup Records Regularly
Maintain recent digital backups of accounting data, store hard copies securely offsite. This protects your books in case of:
- Hardware failures/data corruption
- Theft or embezzlement
- Natural disasters like fires
- Accidental human error
Stay Current on Evolving Accounting Standards
As regulations change, read updates to financial reporting rules and attend continuing education classes. For instance, standards like ASC 606 and IFRS 15 impact revenue recognition.
Keeping updated ensures full legal compliance and avoidance of penalties. Tax fines for errors are very steep.
Consult a Certified Accountant When Unsure
If faced with complex transactions or accounting questions, seek expert CPA guidance. Specialists will ensure:
- Correct treatment of confusing journal entries
- Adherence to newest regulations
- Tax filing optimization
Don’t risk mistakes on critical processes. Leverage pros as needed.
Staying on top of your finances does not need to be difficult or scary. By putting these fundamental bookkeeping best practices in place, you can confidently keep records that provide key insights into making your business thrive.
Conclusion
Proper bookkeeping may seem tedious but is critically important. By diligently tracking every business transaction, reconciling accounts, following accounting guidelines, performing audits, monitoring cash flow, and backing up your records, you gain crucial visibility that helps drive informed decisions.
FAQs
You should reconcile all business accounts at least monthly. Identify any discrepancies with your bookkeeping records and resolve them promptly.
Log every expense, sale, supplier and customer payment, payroll transaction, inventory movement, loans, taxes, fees etc on a daily basis. Capture everything.
For small businesses, QuickBooks Online is likely the easiest and most user-friendly option. It streamlines recording transactions, reconciling, reporting and more.
Consider hiring a bookkeeping professional or accountant if you struggle with keeping timely, compliant records. They can also review your books and flag issues.