Bookkeeping involves dealing with a lot of numbers, which is why it is advised to establish routine checks for your accounting books to avoid anomalies. All businesses try to achieve a proper bookkeeping system because it increases the accuracy and efficiency of accounting records and helps companies grow.
According to a survey, small business owners almost spend more than 120 days dealing with their bookkeeping and administrative tasks. To save your time, we have listed some of the routine checks to follow that can help you avoid monetary penalties from regulatory institutes.
Bookkeeping Best Practices
It is important to note that your practices may differ depending on the size of the organization and the scale at which you operate. While we have listed some of the generic bookkeeping tasks, we suggest consulting with a CPA while maintaining your accounting books, and considering hiring a third party CPA as your bookkeeper.
You can get the following benefits while consulting with a CPA:
- Regulatory Compliant: since a CPA is well-versed with the IRS rules, he/she can help you to maintain your accounting books in compliant with the laws.
- Saves Money: with the help of a CPA, you can follow the right direction of maintaining all the cash outflows that may result in tax credits and deductions.
- Saves Time: small business owners spend hours keeping a check on these records, and a CPA can save you time to improve efficiency in the system.
- Focus on Your Business: The biggest benefit in hiring a CPA to handle your bookkeeping is time to conduct and grow your business, and with ongoing reporting you’ll have a clear picture without ever having to worry about your books.
In the coming section, we have listed some of the general bookkeeping practices to maintain:
Maintain Up-to-Date Financial Records
While this may seem very generic, but making updating your financial data on daily basis needs to be your top priority to avoid any legal consequences.
In 2016, the US Securities and Exchange Commission (SEC) penalized sportswear retailer Under Armour $9 million for hiding its practice of forwarding revenues from future quarters to the current quarter in order to claim boosted sales.
The serious legal and financial consequences faced by Under Armour can be attributed to its failure to update financial data in a timely and accurate manner and disclose its sales practices. This emphasizes the significance of storing and routinely updating financial data.
In addition to legal consequences, updated financial records can help you with the following areas:
- You can determine trends in financial data that can help you allocate your resources efficiently.
- You may avoid the last-minute hustle to compile all the necessary information during tax filing.
- You can optimize your operations. For instance, if a product of your company is not selling well you might downsize that product line.
Make Daily Deposits
Daily deposits guarantee accuracy and accountability. Financial records can be kept organized and updated with the help of daily deposits.
It is simpler to detect any discrepancies or irregularities in the financial records by regularly depositing money.
Not only does it assist with accountability, but it also aids in accurately reporting your taxes. For instance, if you intend to file your tax returns for a particular period, you must properly account for all deposits. Misclassifying deposits into an incorrect time period could lead to the submission of inaccurate income information to the IRS.
Furthermore, if the IRS detects some anomaly in your income, you may need to face the following penalties:
- A 20% of the understated tax.
- Civil fraud penalty.
- Criminal penalty.
If you have any unpaid bills then clear them on a regular basis before you end up with a pile of bills to pay and unheard regulations to face.
Record Every Single Transaction Accurately
Due to the inaccurate recording of supplier rebates and discounts, the British retailer Tesco was involved in a scandal over its accounting procedures. Not only the company faced monetary penalties, but the reputation of the company was damaged as well.
However, this serves as a popular example to learn from! Recoding your transaction in an accurate way can save you from huge accounting errors.
Moreover, if you are unsure about how to record transactions accurately, we’d suggest consulting a CPA.
To maintain the data of all the financial reports and records, transactions inside a business must be meticulously recorded. You need to keep track of every transaction that takes place in your business’s bank account.
This covers all monetary transactions, including deposits, withdrawals, invoices, and transfers. Also, having a physical or digital record of your transactions might be beneficial for tax preparation and an audit.
When it comes to expenses, make sure you log and file all receipts!
Categorize Your Transactions
Every transaction must be properly documented and classified. The activity helps you quickly identify and correct any errors, and helps you prevent manipulation in the accounts due to a misplaced entry.
You need to confirm all entries get recorded in the correct balance sheet and income accounts. Balance sheet items will include assets, liabilities like inventory or cash, and loans or accounts payable.
Income statement items will include revenue, expenses, and any gains. If you are not sure about how to correctly categorize items in different accounts, then you can consult our CPA.
If you end up doing something unlawful on your own, then you might get into trouble like many other companies in the past.
For instance, Wells Fargo, a financial services provider, was involved in the fraudulent activity because of the insufficient classification of transactions in Wells Fargo’s financial records.
Companies must classify their transactions depending on their origin and purpose in order to prevent financial errors.
Record Accounts Payable Invoices
Every bookkeeper should be aware that one of their primary duties is daily account payable invoice recording. Maintaining daily accounts payable records can help a company in the following ways:
- Verification of all invoices being received and paid on time.
- An efficient way to measure what you owe to the suppliers.
- Gives managers a proper picture of the cash flows of the company.
If you don’t follow proper procedures, then you might find yourself in a great deal of trouble. For instance, Enron declared bankruptcy after its significant accounting scandal was revealed. The business has been hiding its mounting debts and losses behind a complex web of dishonest accounting techniques.
Delaying the recording of its accounts payable invoices was one of Enron’s main strategies for hiding its financial issues. The business ultimately collapsed as a result, and numerous Enron officials were charged with various crimes.
Record Accounts Receivable
You can keep track of who owes you money and how much by reviewing accounts receivable items like unpaid invoices on a daily basis. This information is essential for managing your cash flow and ensuring that your business is running smoothly.
Moreover, this data can be used to contact clients who have not paid on time, send them reminders, and take any necessary steps to recover the debt.
Make Your Payroll Regulatory Compliant
Daily payroll recording is a crucial component of bookkeeping since it enables companies to monitor employee remuneration and related costs.
The number of hours that each employee works must always be precisely recorded. This guarantees that everyone is paid the correct amount for their labor.
You must always keep a copy of the most current payroll for each employee on hand so you may refer to refer it for legal processes if necessary.
While updating the payroll with all the information may seem routine, it can have serious legal consequences if you miss out on the important information
For example, even categorizing employee have impacts on your taxes. The more information you have, the better it is for the company records!
Conclusion
Are you feeling overwhelmed by the complex bookkeeping laws and regulations that govern your business? Don’t worry, our team of expert CPAs can help!
With over 20 years of experience and hundreds of satisfied clients, we have the knowledge and skills to help you keep your books in order.
Don’t just take our word for it – we have over 100 five-star reviews on Google from happy customers who have seen the benefits of working with us.
From accurate and timely financial reporting to personalized support and guidance, we’re committed to helping you achieve your business goals.
