Three Accounting Tips Your Business Must Follow

There are so many ways to operate a successful business, and nobody’s method is inherently better than anyone else’s. However, if you understand a few basic accounting best practices, your success will be a heck of a lot easier to achieve. To ensure your small business accountant mississauga operates as efficiently and effectively as possible, consider the following basic accounting tips.

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Journal entries can be a pain – we get it. But journal entries are also the backbone of your business. Without them, you wouldn’t have a good set of financial records – or any financial records at all. Fortunately, there are so many ways to make journal entries more palatable.

Familiarize yourself with the most common journal entries, especially those that get recorded every month, quarter, or year. Setting up recurring journal entries in your accounting system is also helpful. As you close out that period’s reports, you can simply approve the entry as-is or adjust the number before posting.

Here are a few common recurring journal entries:

Depreciation

Depreciation for book purposes is almost always recorded on a straight-line basis, meaning you will record the same amount of depreciation every single month. A basic depreciation expense journal entry would look like this:

Expenses

If you have recurring expenses each month, like for utilities, maintenance expenses, or internet access, you can also set a recurring journal entry for expenses. This is especially helpful if you follow the accrual method of accounting. In the accrual method of accounting, you record expenses as they are incurred, not when the bill is paid. A recurring expense for utilities might look like this:

Distributions

If your business is an S corporation, the company might be giving regular distributions to its shareholders. Like dividends in a C corporation, distributions in an S corporation are a share of the company’s earnings. When making cash distributions to S corporation shareholders, you would record the following entry:

 You should also be familiar with common, non-recurring journal entries, like asset purchases, fines, and inventory adjustments.

Take the time to record income and expenses right from the get-go. Doing so can save you time when reconciling reports at the end of the year, and it can make your tax preparer’s job that much easier come April 15th. A few things you can learn to perfect are:

Classifying income and expenses appropriately.

Be careful with where you record business transactions. It might even make sense to have more than one account for the same type of entry. For instance, it would make sense for you to record sales from your brick-and-mortar store in a different account from sales that originate online.

Having a detailed general ledger will help you when it’s time to run reports. Being able to select only specific items of income or expense can be helpful for decision-making purposes. For example, if you want to know how each of your locations is performing, you’ll want to be able to pull reports that only reflect activity from that location. Having duplicate accounts – one for each location – can be a lifesaver.

When in doubt, create a new account!

Including as much information as possible when booking an entry.

Most journal entry software allows you to make a note in the memo line that explains what the entry is all about. Even if you think you’ll remember what that entry was for, it’s likely that you won’t eight months from now. Help your future self by taking an extra 60 seconds to fill in that memo line.

Organize your receipts.

A shoebox full of receipts has never been a good solution, and in today’s paperless world, it shouldn’t even be an option. Have an organizational system in place for all receipts, both paper and electronic. Your system should be simple enough that anybody looking for a receipt – a staff accountant, a CFO, an auditor – will be able to find it.

An important part of managing a successful business is establishing good internal controls. Internal controls are operating procedures that help mitigate mistakes and fraud. A simple yet effective internal control for businesses of all sizes is the segregation of duties.

Segregation of duties requires you to divvy up certain work duties among multiple people to ensure no one person has the opportunity to conceal fraud or make a material mistake. Segregation of duties could be:

•       Having someone other than the bookkeeper reconcile accounts to the bank statement.
•       Having one person prepare company checks and another person approve/sign them.

It’s important – and wise – to hire trustworthy people, and it’s best if you hire employees who are excited to take ownership over their role. But even with the best employees, you must have a system of checks and balances in place to protect both them and the company.

Closing out your books each month is critically important. Not only does it ensure your financial reports are up to date, but it can also make the year-end close process that much easier. Fortunately, if you have a good month-end close process, the task can be done quickly and easily. A few things you’ll want to make sure you do at month-end close include:

•       Making journal entries and adjustments.
•       Reconciling accounts to external documents, like credit card statements, bank accounts, mortgage statements, etc.
•       Comparing results to prior periods and digging deeper into outliers.
•       Preparing and reviewing the financial statements and Chart of Accounts.

If you have an efficient and repeatable system in place, you can also rely on your software to run some of these checks for you. A good month-end close software should be able to:

•       Send you reminders.
•       Reconcile accounts.
•       Ensure the books are balanced.
•       Analyze changes and report variances.
•       Prepare preliminary reports.

While these are certainly not the only accounting tips to keep in mind, starting with these can help position your small or medium-sized business for success.

Insights provided from FloQast – an accounting software vendor