Bookkeeping is an important aspect of your business whether it is for tax purposes or to track your business expenses. If your bookkeeping isn’t correct, it will impact your business in one way or another it will not give you a complete picture of your business finances figures or you can be penalized for tax inaccuracies by IRS. But these bookkeeping tips can help you understand the basics and will help you avoid bookkeeping inaccuracies.
Bookkeeping mistakes cost the IRS over $1.3B in fines alone in 2021. But with these bookkeeping Tips, you don't need to be a finance or accountant expert to escape penalties.
You can keep accurate records by using these straightforward bookkeeping tips, but you should always pay attention to expert advice. To make choices that will aid in the success of your business, accurate records are required.
10 Foolproof Bookkeeping Tips
1. Have separate accounts for business and personal transaction
Initially, when you start your business it may seem convenient to you to use your personal bank account for business transactions, or sometimes you buy something with your business credit card. But after some time when you start accounting or bookkeeping, it is difficult to separate personal and business expenses and will cause you harm in protecting your liability as a corporate the phenomenon referred to as piercing the corporate veil.
You should establish a business savings account in addition to a business checking account to save money for unexpectedly occurring large expenditures. Make sure to clarify the conditions of your account to prevent the chance of unforeseen fees since business accounts frequently work under slightly different rules from personal ones, such as with different fees and different requirements for minimal amounts and transaction totals.
2. Keep your receipts
It may sound initially a boring task and create a mess. But the receipts serve as evidence to help you categorize your expenses and act as evidence for the deduction.
The IRS required you to have receipts of all the expenses you claim as deductions worth $75 dollars greater for six years.
There are many software’s that can allow you to scan, add and organize receipts and some even help to attach that to a transaction. Here are some tools I can suggest you give you bookkeeping tips.
- QuickBooks Online
- Wave Accounting
- Smart Receipts
- Genius Scan
- Clear Scan
- Fitfin Budget App
The ideal one for you is one having OCR and AI-powered that can help you record and categorize expenses from receipts directly which is the most valued bookkeeping idea.
3. Record Cash payments correctly
Accounting for cash purchases is crucial for precise bookkeeping, in addition to preserving your records. For you and your company, inaccurate accounting of monetary transactions poses a serious danger. The IRS will fine you if you have absent transactions or incorrectly classified transactions during an investigation.
Your cash purchases don't have to be challenging to account for. The majority of accounting software also lets you keep track of money's arrivals and departures. To avoid problems in the future, make sure you know how to monitor currency in the software you're using and keep track of those activities.
4. Lean to read your financial statement, especially your income statement and balance sheet
The income statement accounts for all the expenses and income for a particular period mainly one financial year. It mentions the sum of all income and expenses for that period it will give your an idea of your major spending and your profit.
The balance sheet shows company assets and liabilities to date. It will help you gain insights like inventory, and receivables, and use this to support decision-making. The best bookkeeping tips here will be to use it for finding out if you will be able to meet your financial obligation.
5. Pay attention to these trends
Understanding seasonality can help you distribute resources and make choices about staffing levels and other budgetary items. Seasonality can rise and decline throughout the year.
Changes in your company's cycles - Companies go through life cycles, and it's important to know where your company is in this cycle if you're expanding and want to take advantage of chances.
Debt service responsibilities are crucial for keeping your solvency and reputation.
Cost inflation or budget excess Without careful consideration, you might overlook the early warning indications that your costs are increasing in ways that need to be rectified, which could result in long-term losses that will be much more difficult to recover. In particular, regular orders
6. Always remember the Tax deadline
Tax deadline violations may result in time-consuming investigations, fees, and fines. Additionally, the pressure of completing everything at the last minute can cause you to lose focus while handling your taxes.
Setting notes is one of the most fundamental accounting guidelines. To give yourself enough time to organize your paperwork, choose days about a month in preparation. A good suggestion is to maintain money put away to pay your tax obligations in addition to the reminders.
7. Automate the Process Where Possible
There is various accounting software that helps you compile transactions and generate reports. Automating bookkeeping tasks tends to provide a more accurate picture of what’s happening in your business because financial statements are almost always up to date.
Automate things like:
- Recurring invoices
- Payroll direct deposit
- Emailing reports
- Bill reminders
- Bank reconciliation
QuickBooks Online has a built automation option, but separate software can be added to tools like Xero to help things run even more smoothly.
8. Pay Attention to Accounts Receivable
Access to liquidity and constant cash flow is a major problem for many businesses the best bookkeeping tip we can give is constantly look after Accounts Payable
Add due dates to invoices and there is an option in my accounting software to send reminders to customers for unpaid invoices so you get timely payment and never fall short of cash on important deadlines.
9. Delegate Bookkeeping tasks
Knowing which of your bookkeeping duties should be assigned to someone else is crucial. The main duties are as follows:
- Sending clients' invoices
- Keeping track of client payments collected
- Depositing client funds
- The recording received vendor bills
- Generating notes to pay suppliers
- Keeping track of credit card expenses
- Reconciling bank and credit card purchases with statements
- Closing the accounts
- Generating weekly financial reports
- Review each of the duties and identify any areas where you can assign them to internal staff members or a hired bookkeeper. Set up a system of checks to make sure no job is forgotten or overlooked, and decide how frequently they should be completed.
In "CFO-level meetings, bookkeeping services like Bookkeeping Pro services provide an update on the tasks given to them, any outstanding Accounts Payable or Accounts Receivable, and other financial analysis and decision-making.
10. Off-loading and outsourcing responsibilities to professionals
Along with opting for advanced featured accounting software hiring a professional for bookkeeping tasks is another key aspect of a successful bookkeeping system. You can’t do your bookkeeping g yourself it takes time and there is various aspect like payroll and even some journal entries so the best bookkeeping tips list is incomplete without giving you the advice to hire a professional bookkeeper.
Here are some advantages of outsourcing hiring a professional bookkeeper
- Avoid tax audit
- Avoid tax penalty
- Saves time and money
- Ensures completion of all statutory and regulatory obligations without fines and penalties
- Keeps accounts updated