Bookkeeping and Receipts | Systems to Keep Yours Organized
written by Heather Jordan of Durst & Jordan
“Ok, I am starting a business. What do I do?” or “I have been doing this forever and I still don’t get it.” or “Will someone just do this for me?” or “I am so good at what I do, but this just isn’t for me.” These are phrases I hear from my clients ALL the time when it comes to their bookkeeping for their business.
Hi, I’m Heather Jordan, a Certified Public Accountant in Pace, Florida, and I specialize in small business management. My clients are ALL great at what they do: crafting paper goods, creating and assembling the perfect wedding, being a physician, fixing air conditioners, selling their products, etc, but the one thing in common among them is that they detest bookkeeping. It is the dreaded elephant in the room that keeps them up late at night stressing out over a box of receipts, piles of bank statements and check books.
Are you the person that waits until the end of year to worry about those pesky expenses and wonders “Just how much did I make?” By keeping track of your income and expenses, you won’t have bags under your eyes from being up late trying to make sense of your tax return and how much you owe. You will know this well in advance.
The good news for you and for them is that it doesn’t have to be that difficult. There are quite a few programs available to assist in putting your financial records together and keeping them straight.
When it comes to bookkeeping, you pretty much have two options:
(a) you can pay someone to do it, or (b) you can do it yourself.
Well technically, three options- you can completely ignore it and leave it as the elephant in the room. (however, let’s not go there as this is not really an option, unless you like bags under your eyes and a very large IRS bill.)
The first option is to hire someone as a bookkeeper for your business, preferably the same person you use as your accountant. For you, this is the most expensive option (other than ignoring it). It will take your accountant more time to figure out what you are doing, how you are doing it and where you are spending your money.
Honestly, what I would recommend is to learn how to do your bookkeeping, by buying a subscription to an accounting software and learning to do it yourself. This does take time, and you will not be good at it for quite a while. (Super discouraging, I know.) The good news about choosing this option is that practice makes perfect, and you will get better. I don’t expect my client’s files to be perfect- they aren’t accountants. I just need all of the information in the file so I can put it in the right place on the tax return.
By doing the bookkeeping yourself, you are saving thousands of dollars, and you have an idea of how much money you are making every time you check in to it. This second part might be the hardest concept to grasp, but once you do, you will have opened the doors to so many options for mitigating your tax liability and maximizing your profits.
In order to do this well, you must get all of the income and expenses down on paper, in excel or in an accounting software.
My preference, when it comes to accounting software for clients, is QuickBooks.
They currently offer two options: desktop and online. Most of my younger, tech savvy clients prefer the online version. The monthly cloud-based subscription costs roughly the same amount as the annual desktop subscription. To be honest, there are a hundred decent software options available and many may specialize in what you do specifically. This is great, but for me to use it to prepare your tax return or financials the software MUST have a bank reconciliation function.
What is a bank reconciliation function? This function allows you to compare what you have recorded as income and expenses against what your bank says you have received and spent. I have many clients that tell me, but “I go back through it each month, day, week, etc.” I promise you will miss something. While it might not be a big deal to you, every little bit matters to the IRS.
Ok, so by now, you may be thinking that you’re terrified of missing something, or have a fear of doing something wrong and creating a messy monster, right? If you choose QuickBooks they have a download feature that will sync with your bank account and credit card account, so that you don’t need to do anything manually. This saves so many clients hours of time!!! All you have to do is simply select the expense classification the charge should go to or where the payment should be credited.
So many clients find themselves overwhelmed with the task of starting that they just don’t do it. But I can promise you this, the more you work on it the better you become at it.
I recommend tackling your bookkeeping in this way to make it easiest for you:
Every week, update your books using the download function through QuickBooks and categorizing everything properly.
Every month, do your bank reconciliation; this is a quick match of what is in QuickBooks and what is listed on your bank statement. (QuickBooks has a feature that makes this step very simple.) Keep in mind that you must reconcile all of your bank accounts and credit card statements!
Once a quarter, run a profit and loss statement to see where you stand, to be familiar with where you can improve or compare your business to previous quarters to see how your business is growing
So, what about your receipts?
While I am all about putting together the most efficient method for accounting for your income, the IRS requires a more old school method. Unfortunately, the IRS requires you to not only prove you made the payment (through checks, debit card transactions, etc.) you also, have to prove what was purchased. Meaning you must have a receipt or some sort of breakdown of what was purchased, item-by-item. Most clients cringe when I tell them they must keep those receipts for SEVEN years. We all know those slick receipts will not last that long, especially here in the Florida heat. There are quite a few options for electronically saving your receipts: QuickBooks, Foreceipt, Receipt Hog, Shoeboxed, or even just scanning and saving them to the cloud.
Bottom line- you must keep them for seven years!
If you find yourself struggling trying to do this or that, call your accountant. Most of us offer one-on-one sessions to help get you on the right track. We want you to be successful, and there are no dumb questions.