What You NEED to Know About Business Recordkeeping
The first thing to understand if you’re going to do your own business recordkeeping is the difference between recordkeeping and accounting. If you’re unfamiliar with these practices, you’d be forgiven for thinking they’re the same thing. Many seasoned business people would struggle to put the distinction between them into words. Before you look into how business recordkeeping works, it’s important to know what recordkeeping is.
Recordkeeping is the process of recording daily transactions and organizing financial documents. Accounting uses the data gleaned from bookkeeping records to make sense of a company’s finances and progress. Simply put, a bookkeeper tracks finances and an accountant analyzes them.
Sounds easy, right? Bookkeeping is definitely less daunting when you know it doesn’t require the same math ability as accountancy. Business recordkeeping can be easy, as long as you’re organized. It might seem like something you can handle yourself or something you’d rather outsource but either way, you should understand how it works.
When recordkeeping, there are three main things you need to do:
1. Keep track of your finances
When bookkeeping for your small business, you can break down your finances into four categories: profits, expenses, inventory cycle, and liabilities. Profits can be divided into cash or credit sales, depending on whether the customer pays you at the time of purchase or when you send them a bill. Expenses can be divided into recurring or non-recurring expenses; non-recurring expenses are usually one-off unexpected payments, whereas recurring expenses cover items such as bills. If your business sells a product, your inventory cycle should catalogue product purchases and sales, allowing you to see how much inventory you have at all times. Liabilities are separate to expenses and should be organized accordingly. Liabilities are outstanding balances your company owes, as opposed to expenses that are incurred by the running of the business (such as buying inventory and paying employees).
2. Organize your accounts
Having properly organized accounts will make accounting easier and allow you to quickly and easily look over your finances at any time. If you are unsure how to organize your accounts and won’t be handling the accounting yourself, talking to your accountant about what they need from you as the company’s bookkeeper will help you to do your job properly.
A general rule to follow when organizing your books is to divide things into the following categories; assets, liabilities, income, expenses, and equity. These categories will cover what the company owns and owes, as well as all the money going in and out of the business. By dividing your books like this, you and your accountant will be able to find the appropriate documents in record time.
3. Regularly reconcile your books
How often you close and reconcile your books is a decision you will need to make with your accountant. An accounting period can be a month, a quarter, or a year, depending on what works best for your organization. When each accounting period ends, you will need to complete a series of bookkeeping tasks before the next period begins.
These tasks include reconciling, which means checking that the company’s bank and credit card statements match your books. A lot of these tasks are about making sure you can account for every cent that has gone in and out of the company. By doing these tasks regularly, you will be calm and prepared when it’s time to file your taxes.
Recordkeeping is simply the organization of your company’s finances. The key to great business recordkeeping is regular, thorough analysis of your books. Recordkeeping shows you what’s happening in your company, so a good way to know if you’re doing things right is to ask yourself this- “Can I track every cent of the company’s money right now?” When the answer is “yes”, your books will be a great asset to you, your accountant, and the future of your business.