For small business owners, organizing accounting documents can be a major task. Sometimes leaving owners with no options and hopefully a good financial start so they may be able to pay someone to handle your accounting needs or scrupulously record all of your accounting operations. If not, you will need to utilize a catch-up bookkeeping service or take efforts to clean up your accounting records.
When to Clean Up Your Books, and Why
There are numerous benefits to maintaining tidy accounting records each month. To name a few:
Making sure financials are current
Making wise company judgments will be impossible if you don’t know where you stand with respect to your cash accounts, accounts payable, and accounts receivable. Clean bookkeeping eliminates the need to follow down clients who are 90 days past due on payments or project your cash flow status for the upcoming week.
You won’t have to bother about manually keeping track of spending either. You may automate that and more with the aid of a virtual bookkeeper.
It’s never too early to prepare for tax season
Even accountants hate tax season, yet paying taxes is a need to keep your company in compliance with tax laws. You might not include certain income or deductions on your tax returns if your records are not accurate. An inaccurate tax return or a higher tax expense than necessary could result from this error.
You’ll need a neat set of books if your organization demands a set of reviewed or audited financial statements. Accounting professionals may want to see receipts for spending and income during a financial review or audit. They could carry out additional accounting tasks to evaluate the company’s level of financial controls.
Despite the fact that the majority of small business owners won’t require annual financial assessments, these analyses can add support for funding alternatives. Before granting finance, the majority of banks and other commercial lenders demand a financial analysis.
Having a set of financials that have been reviewed by an accountant can be very beneficial in addressing any difficulties if the IRS decides to audit your business tax return.
What Kind of Records Should You Have?
Any transaction involving a buy, sell, or other financial change needs to be properly recorded. A lease, for example, as well as a receipt, an invoice, and bank statements are examples of documentation.
Warning Signs That Your Books Need to Be Cleaned Up
There are a number of signs that an accounting clean-up might be necessary. It’s time to take action to clean up accounting records if you see any of these indicators.
Financial Statement Inconsistencies
Ideally, you check the correctness of your monthly financial accounts. You can check your bank statements against your cash account and credit lines, perform a balance sheet health check, and review your income statement.
It’s time to review your books for errors if you find odd variations or changes in your cash or credit card balance.
Inventory Levels that Are Incongruent
You must account for whatever inventory your business has in your general ledger. Companies frequently verify their inventory physically and compare the results to their accounting records. If you observe variations, there might be a problem. Inventory theft or incorrectly recorded sales in the ledger could both have occurred.
Spending excessively on business expenses
Occasionally, business expenses could seem excessive. If you are aware of your monthly spending yet they appear to be unusually high on your income statement, it’s possible that a transaction was double- or incorrectly-booked.
Incorrect reports for accounts payable or receivable
Checking your outstanding accounts payable and accounts receivable for small business reports is a significant element of the accounting process. If you haven’t precisely recorded a collection, payment, sale, or outlay, these reports can be off. It will ultimately result in missing revenue or expenses in your accounts.
Undervalued or Overvalued Assets
If a company holds fixed assets, it must track its depreciation each month. The corporation must make new entries if it sells or buys additional assets. You should make a note if the asset value on your balance sheets looks to be off.
Unreported Retained Earnings
The balance sheet’s key component is retained earnings. They are made up of all past profits and losses in addition to any current-year revenue or loss.
This sum should correspond to the net profit and retained profits balance on your balance sheet if you compare the income statements for all time periods that your business has been operating. If it doesn’t, something is wrong.
Hiring someone to assist you with your accounting procedures entails charges, but the investment is well worth it. It allows you to make better business decisions with reliable information, saves time, and gives you peace of mind.
What is bookkeeping?
Bookkeeping is the practice of recording, storing, retrieving, keeping, and analyzing the financial records of a company. Common bookkeeping services include recording receipts, paying suppliers, monitoring accounts receivable, providing financial reports, billing services provided to clients, and so much more.
What is the difference between a bookkeeper and an accountant?
This is not the same as an accountant preparing to file your taxes once a year. A bookkeeper records all of your financial decisions and can provide interpretation and analysis of the data to give business owners a better look at the ins and outs of their finances. This can relieve stress by giving an owner a crystal-clear view of where money is being made or being spent.
Therefore, they can make the best business decisions based on the outcomes.
Bookkeeping is a tracked record of all business expenses and sales your business conducts, while accounting is a one-time look at what that data means for your business. A bookkeeper can’t be an accountant without proper certification.
Now, some might think that bookkeeping is accounting’s slightly easier-to-handle relative. This is not the case. The price of being so in-tuned with a business to know each of their financial details is both taxing and arduous, but that is why it is so important. A business owner can gain back precious time and resources by being able to hand this type of tracking to a professional.
Your books are the life of your business; don’t make a rash decision based on wanting to avoid the financial duties. Hiring a freelance bookkeeper brings peace of mind, while you stick to what you know: running your business.