Accounting Tips: The Importance of Following Proper Bookkeeping Practices

Whether your books are kept through computer software, on paper or through an accountant, proper accounting practices are essential for the operation of your business and its survival. Without them, you leave your business susceptible to both legal and cash flow problems. Below are some quick bookkeeping practices that will help the small business owner get a better understanding of how they work and how to implement them.

Keep All Receipts

You should back up all business sales through some type of record which contains the date, amount and other pertinent information about the purchase. These records are used to create transaction summaries. Your method for keeping your receipts can range from holding them in a cigar case to a more sophisticated computer system. When it comes to a computer system, you will want to go with one that is more practical for your needs. For instance, if you only handle a few jobs, you can get away with a more ‘bare-bones’ approach for your filing system. However, if your small business has extensive sales and expenditures, you will need a more comprehensive receipt filing system.

Financial Reports

Key pieces of your business financial information are brought together through financial reports which make them important. For instance, although your income ledger will educate you on how much money your business brought in for the year, you won’t be able to determine if you made a profit unless you measure your income against your total business expenses. Still, even having this information won’t tell you if your credit paying customers are paying quick enough to ensure your business has adequate cash flow to pay your bills on time. This is where financial reports come in. They combine information from your ledgers and craft this information in a way that allows you to see the big picture of your small business. The main accounting reports you will have to create on a regular basis are a profit and loss forecast, a cash flow analysis and a balance sheet.

Inventory

Inventory records should be maintained to help prevent misplaced or stolen merchandise, track business trends and keep inventory holdings to the bare minimum. Stock numbers, dates sold, dates purchased, purchase prices and sale prices are important inventory record information.

Employees

Even if you hire just one employee, you now become responsible for the filing of pay forms and payroll taxes. Employee forms like the I-9 (Employment Eligibility Verification) and W-4 (Withholding Allowance Certification) should be maintained by the employer. As an employer, you should also be maintaining records on unemployment, withholding, employer matching and worker’s compensation.