Just because you’re not a CPA, doesn’t mean you can’t maintain and record your company’s financial activity efficiently. While a CPA is ideal, not everyone has access or the financial means to contract their own CPA. The five tips below will help non-CPAs achieve necessary independence and learn more about monitoring their financial activities. These tips are not meant to be all inclusive and a CPA or accounting professional should be consulted before taking any major financial action.
- Invest in a reputable accounting software package. Long gone are the days of boxes of paper receipts and invoices. Keeping accounting records electronically has become the norm. You can easily keep track of all necessary accounting records using any popular accounting software package. QuickBooks and Quicken are fairly common, but there are other reputable programs available. There are CPA review courses online to help CPAs understand the processes used. Failing to keep accurate accounting records can lead to audits by tax authorities, failed businesses and being declined for bank loans.
- Capture everything. Every receipt, invoice, purchase order, credit card receipt and check should be captured digitally. Anything that resulted in a financial transaction should be recorded in your accounting software package. Many of these packages allow you to scan and organize your digital receipts. If you don’t record this data, your financial records will not be accurate, which could result in owing additional tax, being audited or even having to suspend or close your business.
- Three financial statements you need.There are three financial statements you need to be able to produce on a regular basis that will help monitor your situation. Failure to have a history of these forms could impact your ability to accurately gauge how well, or poorly, your business is doing. Most banks want to see this information as well before they agree to extend a loan.
- Profit-Loss Statement. A historical record that shows revenues, expenses and net income over a specific period of time (monthly is most common). Simply put, this statement tells you whether you are making or losing money.
- Balance Sheet. A quick look at your financial health, the balance sheet provides a summary of your assets, liabilities and net worth.
- Cash Flow Statement. Measures the cash flow over a specific period of time. Similar to a personal checkbook, the cash flow statement can identify accounts receivable issues.
- Establish internal controls. As a preventative measure, it’s important to setup an internal control system early on. While you may be handling your books directly, you should have safety measures in place to assist in the detection of fraud, should you hand off accounting recordkeeping responsibilities in the future.
- Know the record retention requirements. You’re required to keep certain records on file for a set period of time before you can archive or destroy them. The requirements do vary by record type, but for the most part, seven years is the common rule. Although some financial records, like the general ledger, depreciation schedules and journal vouchers have to be kept forever. A CPA Exam review course can help you identify those statements’ retention requirements. These retention requirements are usually dictated by the government, so failing to retain your records could result in fines or jail time.
These five tips are just scratching the surface of record keeping and accounting practices. A CPA can provide these services and more for you, but as a business owner it’s important you understand how the financial and accounting systems work.