Bookkeeping Workbook For Dummies

Bookkeeping Articles

Organizing Bookkeeping Records for Your Business

Staying organized is critical to efficient and accurate bookkeeping. Organize your bookkeeping records by deciding what to keep, and how to find information quickly when you need it. Everything you do in your business generates paperwork that can easily become overwhelming if you don't keep it under control.

If you computerize your accounting you may not need to keep as much paper, but you still want a paper trail in case something happens to your computer records or you need the backup information for a transaction that is questioned at a later date.

Obviously, file cabinets are where you’ll store most of your records for the current year and the prior year. Older files you may store in boxes in a warehouse or store-room if you don’t have room in your file cabinets. How you set up the files can be critical to your ability to find something when you need it.

Bookkeeping storage methods

Many bookkeepers use four different methods to store accounting information:

• File folders: these are used for filing invoice, payment, and contract information about vendors; information about individual employees, such as payroll related forms and data; and information about individual customer accounts.

• Three-ring binders: Your Chart of Accounts, General Ledger, and Journals are usually kept in three-ring binders. Even if you do use a computerized accounting system, it’s a good idea to keep a copy of this for the month most recently closed and the current month in hard copy in case your computer system goes down and you need to quickly check information.

• Expandable files: These types of files are good for managing outstanding bills and vendor activity. You can get alphabetical expandable files for managing pending vendor invoices and purchase orders. You can use 30-day and 12-month expandable files for managing outstanding bills.

  As bills come in you can place them in the 12-month file for the month they are due. Then move the current month’s bills to the 30-day file by the day they are due. You may be able to avoid using these files if you are using a computerized bookkeeping system and set up the bill pay reminder system in your accounting program.

• Media for storing backup computer data: If you are keeping the books on computer, be certain you make at least one backup copy of all your data daily and store it in a safe place — a place where the data won’t be destroyed if there is a fire. A good alternative could be a small fire safe if your business does not have a built-in safe.

When to keep or discard paperwork

You’ll find it doesn’t take long to build up lots of paper and not have room to store it all. Luckily not everything has to be kept forever. Generally anything related to tax returns has to be kept for at least three years, but once you’re past three years the IRS can’t audit you unless it suspects fraud. So you can get rid of most of your paperwork once it is four years old.

Some exceptions include employees. Those records you must keep until the employee has left the employment of the company for at least three years. The statute of limitations for most actions that can be filed by an ex-employee is three years after they left.

In the fourth year, you will be able to get rid of most of your paperwork, but you may want to keep certain sensitive data longer. Any information about assets that are still held by the company should be kept. You also should keep any information about pending legal issues. Check with your attorney and your accountant before destroying old paperwork and be certain you are not tossing something that could be needed.

Bookkeeping Articles

A Bookkeeper's Key Functions for Paying Bills

After recording purchase transactions for a business, the bookkeeper takes primary responsibility for making sure that the bills are paid for both the inventory and the supplies purchased. Usually, you'll post the bills to Accounts Payable when they arrive, file them in the month or day to be paid, and pay them when they are due.

There are five key functions for paying the bills:

• Entering the bills into the accounting system

• Preparing the checks for paying the bills

• Signing the checks

• Sending out the payment to the vendors

• Reconciling the checking account

One person should not be responsible for all these tasks. In fact the person who enters the bills into the accounting system and prepares the checks should never be the one with the authority to sign the checks.

To be even more careful about cash control, it’s a good idea to have a third person review the checks against the bills due and actually send the signed checks out to the vendors. By separating these tasks, you minimize the risk that business funds will be misused.

A key function of Accounts Payable is to keep track of any discounts your company may be able to take. For example, sometimes a company will offer a 2 percent discount on a bill if paid within 10 days and expect payment in full between 10 days and 30 days. There could be a late penalty of 1.5 percent interest for payments received after 30 days. The Accounts Payable clerk should organize the bills to pay them in time to take advantage of the discount and save his company money.

Bookkeeping Articles

Key Basic Accounts for Balance Sheets and Income Statements

A bookkeeper tracks all the financial transactions of a business and is responsible for identifying the account in which each transaction should be recorded. Accounting provides the structure you must use to organize these transactions, as well as the procedures you must use to record, classify, and report information about your business.

In most cases, the accounting system will be set up with the help of an accountant to be sure the information generated by that system will be useable and meets the requirements of solid accounting principles.

A bookkeeping system is designed based on the data needed for the two key financial reports — the balance sheet and the income statement. The balance sheet gives you a snapshot of a business as of a particular date. The income statement gives you a summary of all transactions during a particular period of time, usually a month, a quarter, or a year.

The key balance sheet accounts include:

• Assets: Everything the business owns in order to operate successfully is considered an asset. This includes cash, buildings, land, tools, equipment, vehicles, and furniture. Each type of asset has a separate account. Another asset is the Accounts Receivable account (money due from customers who bought on credit).

• Inventory: Products on hand that the business plans to sell.

• Liabilities: All the money the company owes to others are considered liabilities. This includes unpaid bills (called Accounts Payable account), loans, and bonds. Each type of liability will have a separate account.

• Equity: All the money invested in the company by the owners or stock holders is considered equity. Each type of equity, and possibly each owner in a small business, will have a separate account.

The key income statement accounts include:

• Revenue: All the money a business receives in selling its products or services is called revenue or sales and tracked in these accounts.

• Cost of goods sold: All money the company must spend to buy or manufacture the goods or services it sells to customers is tracked in these accounts. An account called Purchases is used to track goods purchased.

• Expenses: All money that is spent to run the company that is not related specifically to a product or service being sold is tracked in expense accounts. For example, Office Supplies, Advertising, Salaries, and Wages are all types of expense accounts.