Essentially when operating your business you are getting the business, doing the business, and running the business.
One area that’s often neglected in the running of the business is keeping proper books and financial records.
Let’s take a look at some of the things you should be doing.
Which Accounting method should I use – cash or accrual basis?
There are two types of basic accounting methods – the cash basis or the accrual basis.
The accrual basis model accounts transactions when they occur and not when the cash moves in or out of a business. This perhaps is a more accurate reflection, but for simplicity a cash basis model maybe a better place to start.
The cash basis model records transactions when cash does move in or out of your business. For instance, you record a transaction when you get paid for making a sale. You make a record when you spend something. More specifically you record it on the day it happens and when it happens. Many businesses actually use this type of accounting method whether new or established.
What do I record in my books and financial records?
Generally speaking, the more detailed your records, the better. It’s important to keep track of all your incoming and outgoing money.
For incoming money record what you sold and how you sold it to. Track how much money you collected and when you actually received the money. You will also need to record any taxes that you collected.
Most of what you are recording here are transactions you made with your customers.
The outgoing money is a longer list. The taxes you paid, the employees’ salaries, any sort of business expense – office supplies, inventory, rent, and so on. This is also an area where you can cost yourself a lot of money if you don’t record the taxes properly. You can end up losing some of the Input Tax Credits (ITC) to which you are entitled.
It’s important to make note of every dollar that goes in and out. And don’t limit it to your day-to-day costs of doing business, but also monthly and longer term recurring expenses.
How should I record transactions?
How organized you are is going to affect the quality of your bookkeeping. There’s nothing worse than spending a large amount of time looking for missing or misfiled invoices or receipts after the fact, especially during tax season, or worse when you are in the middle of an audit by CRA.
Every day you should be recording every transaction and using the proper tools to do it.
For safety and to automate things better you might consider scanning paper receipts and putting them on a computer. All receipts should be accounted for, regardless of whether it’s for money you collected or for money you spent.
Don’t rely on a shoebox, an Excel spreadsheet or your bank statement for tracking things. Speak to your accountant if you haven’t already and get proper bookkeeping software. Or, better yet, outsource your bookkeeping to a firm of professional bookkeepers so you can devote your time to doing what you do best, and that is growing your business.
But, if you must do the bookkeeping yourself, then make sure you have right accounting software. It will save you time and provide you with accurate reporting that will help you manage your business better.
How do you keep track of your books and records? Have you found procedures that work best for you? We always appreciate your comments and feedback.
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