SolveYourProblem
Article Series: Accounting
Home & Small Business Accounting
How
To Keep Records Of Your Entire Business?
When it comes to handling cash, whether you're
talking about the cash register, deposits into your checking
accounts, or petty cash withdrawals, you can see that a lot
of paper changes hands. In order to properly control the movement
of cash into and out of your business, careful documentation
is key. And don't forget about organization; you need to be
able to find that documentation if questions about cash flow
arise later.
Monitoring cash flow isn't the only reason you need to keep
loads of paperwork. In order to do your taxes and write off
business expenses, you have to have receipts for expenses.
You also need details about the money you paid to employees
and taxes collected for your employees in order to file the
proper reports with government entities. Setting up a good
filing system and knowing what to keep and for how long to
keep it is very important for any small businessperson.
To get started setting up your filing system, you need some
supplies, specifically:
Filing
cabinets: This one's pretty self-explanatory - it's
hard to have a filing system with nothing to keep the files
in!
File
folders: Use these to set up separate files for each
of your vendors, employees, and customers who buy on store
credit as well as files for backup information on each of your
transactions. Many bookkeepers file transaction information
by the date the transaction was added to their journal. If
the transaction relates to a customer, vendor, or employee,
they add a duplicate copy of the transaction to the individual
files as well.
Even if you have a computerized accounting system, you need
to file paperwork related to the transactions you enter into
your computer system. You should still maintain employee, vendor,
and customer files in hard copy just in case something goes
wrong, like if your computer system crashes and you need the
originals to restore the data. Of course, you should avoid
that type of crisis at all costs and back up your computerized
accounting system's data regularly. Daily backups are best;
one weekly is the longest you should ever go without a backup.
Three-ring
binders: These binders are great for things like
your Chart of Accounts, your General Ledger, and your system
of journals because you'll be adding to these documents regularly
and the binders make it easy to add additional pages. Be sure
to number the pages as you add them to the binder, so you can
quickly spot a missing page. How many binders you need depends
on how many financial transactions you have each accounting
period. You can keep everything in one binder, or you may want
to set up a binder for the Chart of Accounts and General Ledger
and then a separate binder for each of your active journals.
It's your decision based on what makes your job easier.
Expandable
files: These are the best way to keep track of
current vendor activity and any bills that may be due. If you're
using a computerized accounting system, you likely don't need
the expandable files because your accounting system can remind
you when bills are due (as long as you added the information
to the system when the bill arrived).
Alphabetical
file: Use this file to track all your outstanding
purchase orders by vendor. After you fill the order, you can
file all details about that order in the vendor's individual
file in case questions about the order arise later.
A
12-month file: Use this file to keep track of bills that
you need to pay. Simply place the bill in the slot for the
month that it's due. Many companies also use a 30-day expandable
file. At the beginning of the month, the bills are placed in
the 30-day expandable file based on the dates that they need
to be paid. This approach provides a quick and organized visual
reminder for bills that are due.
Blank
computer disks or other storage media: Use these to
backup your computerized system on a weekly or, better yet,
daily basis. Keep the backup discs in a fire safe or some place
that won't be affected if the business is destroyed by a fire.
(A fire safe is a must for any business; it's the best way
to keep critical financial data safe.)
What do you keep and for how long?
As you can probably imagine, the pile of paperwork you need
to hold on to can get very large very quickly. As they see
their files getting thicker and thicker, most business people
wonder what they can toss, what they really need to keep, and
how long they need to keep it.
Generally, you
should keep most transaction-related paperwork for as long
as the tax man can come and audit your books. For
most types of audits, that's three years after you file your
return. But if you failed to file taxes or filed taxes fraudulently,
you may be questioned by the IRS at any time because there's
no statute of limitations in these cases.
The tax man isn't the only reason to keep records around longer
than one year. You may need proof-of-purchase information for
your insurance company if an asset is lost, stolen, or destroyed
by fire or other accident. Also, you need to hang on to information
regarding any business loan until it's paid off, just in case
the bank questions how much you paid. After the loan's paid
off, be sure to keep proof-of-payment indefinitely in case
a question about the loan ever arises.
Information about real estate and other asset holdings also
should be kept around for as long as you hold the asset and
for at least three years after the asset is sold. And it's
necessary to keep information about employees for at least
three years after the employee leaves. (If any legal action
arises regarding that employee's job tenure after the employee
leaves, the statute of limitations for legal action is at most
three years.)
Keep the current year's files easily accessible in a designated
filing area and keep the most recent past year's files in accessible
filing cabinets if you have room. Box up records when they
hit the two-year-old mark, and put them in storage. Be sure
to date your boxed records with information about what they
are, when they were put into storage, and when it's okay to
destroy them. So many people forget that detail about when
it's safe to destroy the boxes, so they just pile up until
total desperation sets in and there's no more room. Then someone
must take the time to sort through the boxes and figure out
what needs to be kept and what can be destroyed, and that's
not a fun job. # # # # # SolveYourProblem.com : 2007
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