10 Bookkeeping Facts and Tidbits

It is tax season, and business owners often file extensions, as they have oops moments with their books. Bookkeeping can be a dreaded task and not one of the most glamorous parts of the job.

It is important to recognize the pitfalls that can ensnare you and avoid the financial headaches that come with bookkeeping mismanagement.

Here are the ten common bookkeeping tricks the trade business owners can make when approaching their company’s finances:

1. Save Business Receipts under $75. 

While not mandatory, it's still important to keep records of purchases under $75 for business audits. Store receipts in a folder, take a picture and attach it to the relevant entry. This will also help with tax preparation.

2. Reimbursable Expenses – Track Them!

Track your reimbursable expenses to avoid losing money and tax deductions. Use expense-tracking apps to make it easy. Track expenses as soon as you accrue them to avoid overlooking them. It's important to save both reimbursable expenses and receipts as they allow you to maintain a paper trail and track your business's financial health.

3. Classifying Employees is a must. 

In today's world, the number of independent contractors, consultants, and freelancers is increasing rapidly. However, it can be hard to differentiate between employees and contractors. It is essential not to overlook this distinction, as misclassifying can result in severe repercussions such as tax penalties and lawsuits.

4. Communicate – Communicate – Communicate! 

Good communication is essential for effective bookkeeping, whether you hire a part-time bookkeeper or outsource the work. Such minimizes errors and ensures everyone is on the same page. Common mistakes include not reporting bonuses and failing to provide receipts or inform the bookkeeper of purchases. Keep communication open with your bookkeeper to ensure accurate financial records.

5. You mean I must reconcile?

Reconciling your bank statements with your books is essential for financial accuracy. It helps you track your available funds and identify bank errors early on. However, it can be complicated, so hiring an experienced bookkeeper is recommended.

6. Go to Old School with Paper Backup.

A paperless office is a liability during audits. Tax authorities like the IRS require a well-organized paper trail with visible documentation and backups. Digital apps may make day-to-day operations easier, but it's crucial to keep hard copies of financial records for at least seven years.

7. Sales Tax - Know What To Collect or Deduct.

eCommerce has made sales tax a challenging issue for small businesses. In the past, businesses often forgot to deduct sales tax, causing complications at tax time. Recently, federal law changes have made sales tax collection even more complex. To avoid legal issues and limit tax liability, stay up to date with the latest rule changes and ensure that you, the business owner, and the bookkeeper are familiar with them.

8. Petty Cash Awareness. 

Businesses using petty cash should have a dedicated custodian to manage their process and approve purchases. Clear policies and receipts for every purchase should be in place to ensure accountability and tax documentation. The fund should be replenished by check when exhausted. Not having a policy, custodian, or receipts can cause bookkeeping problems and tax issues.

9. Keep an Organized Chart of Accounts.

Maintaining a clear and organized chart of accounts is critical for the smooth functioning of your business. It's crucial to avoid the common mistake of creating duplicate categories or failing to enter expenses into the appropriate category. To prevent this from happening, use general bookkeeping guidelines for standard categorizations and create as few new categories as possible. However, if you find your books are disorganized, don't fret! A professional bookkeeper can provide you with the help you need to tidy them up and ensure that your chart of accounts is lean and clean. By doing so, you can stay on top of your finances and make informed decisions for the growth and success of your business.

10. Trying to do it yourself. 

Many entrepreneurs dislike managing their books but still insist on doing it themselves. However, competent, and professional bookkeepers possess the necessary skills to complete the job quickly and efficiently, and they possess the expertise to detect subtle errors that might otherwise go unnoticed. As professionals, they are also familiar with tax changes that could impact your day-to-day financial practices. In the long run, having a second pair of eyes on your financial records is highly advantageous and can save you both time and money.

If you have a question about your bookkeeping practices or are looking to improve your financial record keeping, connect with us – Click Here!

Suggestion Tip: Store your tax documents using Dropbox. Click Here for more information.