Bookkeeping Tips (part 4)

Setting Up and Posting to Ledgers

A completed ledger is really nothing more than a summary of revenues, expenditures, and whatever else you’re keeping track of (entered from your receipts according to category and date). Later, you use these summaries to answer specific financial questions about your business, such as whether you’re making a profit and, if so, how much.

Post receipts on a regular basis. On some regular basis — like every day, once a week, or at least once a month — you should transfer the amounts from your receipts for sales and purchases into your ledger. This is called posting. How often you do this depends on how many sales and expenditures your business makes, and how detailed you want your books to be.

Your posting schedule depends on your sales numbers. Generally speaking, the more sales you do, the more often you should post to your ledger. A retail store, for instance, that does hundreds of sales amounting to thousands of dollars every day should post daily. With that volume of sales, it’s important to see what’s happening every day and not to fall behind with the paperwork. To do this, the busy retailer should use a cash register that totals and posts the day’s sales to a computerized bookkeeping system at the push of a button.

A slower business, however, or one with just a few large transactions per month, such as a small website design shop, dog-sitting service, or swimming pool repair company, would probably be fine if it posted weekly or even monthly.

If possible, use accounting software. You can purchase an accounting software program that will generate its own ledgers as you enter your information (and then automatically generate the necessary financial reports from the same information). All but the tiniest new business are well advised to use an accounting software package to help keep their books. Micro-businesses can get by with personal finance software such as Quicken.

Bookkeeper

A bookkeeper also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the “daybooks.” The daybooks consist of purchase, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct daybook, suppliers ledger, customer ledger, and general ledger. The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

Bookkeeping Tips (part 3)

Basic Expense Accounts

Most businesses need to track the following expense accounts:

• payroll – this may include sub-accounts for a variety of deductions or additional expenses (wcb, insurance, etc) that are part of your payroll.
• Cost of goods sold – if you are a retailer, this is the cost of the items you bought for resale. If you are a manufacturer, this is the final cost of items that you completed making and sold to your clients (wholesale or retail).
• Office expenses – paper, pens, ink, postage, etc.
• Telephone
• Rent
• Bank Fees
• Utilities
• Insurance
• Advertising
• Automobile

Many businesses have nothing more than this. If your business is more complex, you might have items such as materials (if you manufacture something, including construction businesses), supplies (products consumed in making your items for sale, but that are not part of those items – in construction this includes such things as cleaning supplies for the sites, for other businesses this is often included in office supplies), security (alarm systems, etc.), interest expense, amortization, meals & entertainment, training, travel, storage, and more. Always consult with an expert if you are not sure.

Liability Accounts

Most businesses also have liabilities. These are the accounts payable to their suppliers and other creditors. Whenever a liability is entered, be sure to enter the opposing side of the entry to show where the money went (such as when a bill is entered, the one side of the entry is to accounts payable, and the other side is to the cost of whatever was bought). If you are entering loans, be sure to enter the bank account entry and the opposing entry against/to the loan.

Bookkeeping Tips (part 2)

• Use Quick Books. Inuit owns 80% of the small business accounting software market and for good reason. Their software is easy to learn and easy to use. Within a few hours after installing you can be producing your own professional financial statements. It is the software I use for my own accounting/tax business and also what I use to produce client Financial Statements and Payroll Reports.

• Avoid Cash. I can tell you the easiest way to get into hot water with the IRS is to pay for things with cash and then not have a receipt. For many of us we are in a habit of using cash from the time we were kids. For your own business though, you need to avoid cash.

• Deposit All Your Income. It is very tempting to withhold cash from your business receipts but I advise you do not. Instead be aggressive with your expenses. If you are in an industry where cash deals are common the IRS will look for evidence of cash deposits in your checking account. If they are absent you will have a lot of questions to answer.