Category Archives: Bookkeeping

Basic Bookkeeping Tips

For many small businesses, the most common bookkeeping errors are also the easiest to fix. Use these six tips to help keep your business on sound financial footing.

1. Use the right accounting system. Most businesses use either cash-based or accrual-based accounting. If you use the cash method, you count income when you receive it and expenses when you pay them. Under the accrual method, you count income and expenses when they happen, not when you actually receive or pay them.

In practical terms, this difference in timing is relevant if your company keeps inventory on hand or handles transactions on credit. In these cases, the accrual method might be a better choice for your business. And in fact, if your firm has more than $5 million in sales or keeps an inventory, the IRS might require that you use the accrual system. In other cases, however, the simpler cash system could be all you need.

2. Maintain daily records. This is one of the most basic rules: If you don’t keep accurate daily records, you don’t have an accurate way to track the financial condition of your business. Different people use different record-keeping systems; what matters is that you have one and use it every day. Once you have a good system set up, accurate record keeping will take just a few minutes a day.

3. Handle and review checks carefully. It’s easy to be on autopilot when you’re writing checks and tossing canceled ones into a filing cabinet without reviewing them. Remember: Those checks are as good as cash. And if something goes wrong, you — not the bank — will be on the hook.

Take the same care with checks as you would with cash. Sign checks using a clear, distinctive signature that won’t invite forgery. Review canceled checks before anyone else, including your bookkeeper or employees, sees them; that way you can catch unauthorized checks. And if your business is a partnership, it’s a good idea to have at least one of the partners co-sign the checks.

4. Get a bank statement with a month-end cutoff. This is another basic tip that can reap big rewards. Synchronizing your bank statement with other monthly records will make it much easier to reconcile your statement and track expenses.

5. Leave an audit trail. Your record keeping will be much more effective if you have a system that allows you to quickly and easily retrace your company’s financial activities. This means keeping your invoices and checks in numeric order, not skipping check or invoice numbers, and keeping separate bank accounts for your business and personal funds. If you can’t go back a year and reconstruct your company’s finances, you probably aren’t leaving an effective audit trail.

6. Use a computer. Computer bookkeeping software is absolutely essential for all but the smallest businesses. These applications make it easy to track income and expenses, prepare tax documents, summarize your company’s financial activities and back up records for safekeeping. If you’re working with an outside bookkeeper, make sure they know how to use a computer.


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Top 10 Bookkeeping Mistakes Made by Small Businesses

Statistics from the U.S. Small Business Administration reveal that about half of all new small businesses launched in the U.S. will fail within the first five years. What is the chief cause of small business failure? Poor financial management.

Sound financial management starts with an understanding of some basic rules of business bookkeeping, so here are 10 of the most common accounting and bookkeeping errors made by small businesses — and how you can avoid making them.

1. Using the Wrong Accounting Method
There are two main business accounting methods: cash and accrual. Cash accounting is the simpler method because it’s based on the actual flow of cash in and out of a business. The cash method is used primarily by sole proprietors and businesses with no inventory. On the flip side, accrual accounting records income and expenses as they occur, whether cash has actually changed hands or not. As they grow and become more complex, most small businesses should switch to accrual accounting, because this makes it easier to accurately match revenue to expenses.

2. Combining Personal and Business Finances
It’s critical that personal and business finances be kept separate at all times, regardless of a company’s size. That’s why one of the first things new business owners should do is open a business checking account and deposit all business income into this account. The next step is to work with an accountant to devise an earnings management strategy dictating how cash is removed from the business to meet personal expenses and savings goals.

3. Misclassifying Workers
In the eyes of the IRS, there are several different categories of workers: full-time, part-time, and temporary employees, as well as independent contractors, such as freelancers and consultants. Classifying your workers in the wrong categories can be extremely costly. The employee categories are often used to determine who is eligible for employee benefits. Full-time employees are generally eligible for all benefits offered by an employer, while part-time employees may be eligible for a pro rata share of benefits. Temps and independent contractors generally receive no benefits, and independent contractors are not covered by minimum wage, overtime, payroll tax, workers’ compensation, or unemployment compensation laws.

4. Not Performing Basic Account Reconciliation
Reconciling your business’s books with your business bank statement every month is one of your most fundamental accounting duties.

5. Being Too Nonchalant About Petty Cash
Many businesses keep an informal stash of “petty cash” that can be used by employees to cover small and incidental business expenses, such as postage stamps, snacks from vending machines, and office supplies. But just because the amounts are small doesn’t mean that petty cash shouldn’t be accounted for properly.

6. Not Knowing the Difference Between Profits and Cash Flow
A business can have positive cash flow in the short term but still be unprofitable; conversely, it can have negative short-term cash flow but still be profitable in the long term. The first scenario is common among small businesses because they often have to pay suppliers before they get paid by their customers. The second scenario is common among point-of-sale and cash-based businesses, such as retailers and restaurants, that pay their vendors on terms.

7. Using the DIY Method of Bookkeeping
Many small business owners pride themselves on their ability to wear a many different business hats, including the accounting and bookkeeping hat. However, this is one area where small business owners are usually much better off hiring a specialist rather than trying to do it themselves. Accounting and bookkeeping can get very technical and complex. The money spent to hire a trained bookkeeper or accountant, even on a part-time or contract basis, will usually come back to the owner many times over given the time savings and all the mistakes that will be avoided.

8. Not Saving Receipts for Small Purchases
The IRS requires that expenses for business travel, meals, and entertainment that are greater than or equal to $75 be substantiated with a receipt in order to be deductible. So many business owners don’t bother saving receipts for expenses less than $75.

9. Not Implementing Adequate Internal Controls
If proper checks and balances aren’t implemented in a business’s accounting system, bookkeepers may have opportunities to commit fraud and embezzlement. Losses from internal fraud can significantly cripple a small business, or even lead to bankruptcy. The best way to guard against embezzlement by a bookkeeper is to implement solid internal financial controls.

10. Relying Too Heavily on a Paperless Work Environment
To reduce expenses and be better stewards of the environment, many companies today are trying to go paperless. In the realm of bookkeeping and accounting, however, there’s simply no substitute for paper documentation and a paper trail, when needed. There are many instances in which paper documentation of financial records will come in handy or be required. An IRS audit is one example. Bookkeeping isn’t an area where you should skimp on the paper.


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Posted by on 13/02/2013 in Bookkeeping, Business



Accounting activities generally fall into one of several natural accounting processes (or cycles). Accounting personnel may be responsible for all or only a part of a cycle. In either case, it is important that they have at least a basic understanding of the complete cycle. Primary cycles include:

Sales, accounts receivable, and cash receipts.
Purchasing, accounts payable, and cash disbursements.
Inventory and cost of sales.
Fixed assets and depreciation.
General ledger and financial statements.

Each cycle is briefly discussed below.

Sales, Accounts Receivable, and Cash Receipts

This process or cycle consists of selling goods or services and receiving payment from customers. The accounting department’s role in this process generally consists of the following activities:

Data entry (invoices). Entering the sales invoices (including any debit or credit memos) into the accounting system to produce the sales journal.
General ledger posting (invoices). Posting the sales journal to the aged trial balance and the applicable general ledger accounts (debit to accounts receivable and credit to sales).
Data entry (customer remittances). Applying customer payments against applicable open sales invoices to produce the cash receipts journal.
General ledger posting (remittances). Posting the cash receipts journal to the aged trial balance and the appropriate general ledger accounts (debit cash and credit accounts receivable).
Reconciliation. Keeping the aged trial balance in balance with the ending general ledger balance.
Account maintenance. Setting up new customer accounts and credit limits and deleting/changing existing accounts.

The Accounting Procedures and Procedures Guide Chapter 3, Processing Sales and Receipts, discusses this process in more detail.

A crucial part of this process is ensuring that invoices, remittances, and any adjustments are posted accurately and on a timely basis. If the timing is delayed or transactions are posted inaccurately, the aged trial balance will become unreliable for managing receivables, customer complaints will become common place, and financial statement accuracy could diminish.

Purchasing, Accounts Payable, and Cash Disbursements

This process or cycle consists of the purchase of goods or services and the subsequent payment of those goods or services. The accounting department’s role in this process generally consists of:

Account coding. Ensuring that vendor invoices have been coded with the appropriate general ledger account numbers based on the approved chart of accounts. Proper account coding requires accounting personnel to have a strong understanding of the company’s chart of accounts.
Data entry (invoices). Entering the vendor invoice amounts (including any debit or credit memos) into the accounting system to produce the purchases journal.
General ledger posting (invoices). Posting the purchases journal to the accounts payable subsidiary ledger and the various general ledger accounts. For instance, recording a debit to the appropriate asset (inventory or fixed asset) or expense accounts and a credit to accounts payable.
Check preparation. Selecting invoices to pay and preparing checks for paying specific vendor purchases to produce the cash disbursements journal.
General ledger posting (checks). Posting the cash disbursements journal to the accounts payable subsidiary ledger and the general ledger (debit to accounts payable and credit to cash).
Reconciliation. Keeping the accounts payable subsidiary ledger in balance with the ending general ledger balance.
Account maintenance. Setting up new vendor accounts and deleting old accounts.

The Accounting Procedures and Procedures Guide Chapter 4, Processing Purchases and Payments, provides in-depth discussion of this process.

Ensuring that vendor invoices have been recorded accurately and coded with the appropriate general ledger account numbers are crucial steps in this process. Any undetected errors at this stage could affect vendor payments, financial statement accuracy, and tax return amounts. Thus, accounting personnel should exercise great care at this stage and follow established internal controls.


The payroll process consists of processing payrolls and remitting amounts due to employees, government, and others (health insurers, retirement plan trustees, etc. ). The accounting department’s role in this process generally consists of the following activities:

Time cards processing. Checking mathematical accuracy of time cards.
Data entry. Entering time distribution by employee, including hours worked, time off, and overtime hours into the accounting system to produce the payroll journal.
General ledger posting (payroll). Posting the payroll journal to the general ledger. For example, debit compensation expense and credit liability accounts for net payroll and payroll taxes.
Check preparation. Preparing and distributing employee payroll checks to produce the payroll check register.
General ledger posting. Posting the payroll check register to the general ledger. For example, debit liability accounts and credit cash.
Tax reports preparation and deposits. Preparing payroll tax reports and making required tax deposits to state and federal agencies.
Account maintenance. Setting up new employees, deleting terminated employees, changing pay rates and tax rates, revising employee withholding amounts, etc.

The Accounting Procedures and Procedures Guide Chapter 5, Processing Payrolls, covers all aspects of this process in great detail.

Preparing timely and accurate paychecks is obviously important to accounting personnel, since to do otherwise will often bring an immediate response from affected employees. Also, failing to file accurate and timely payroll tax reports subjects the company and key employees (possibly even some supervisory accounting personnel) to tax penalties.

Inventories and Cost of Sales

The inventory and cost of sales process consists of properly accounting for incoming and outgoing inventory. The extent of the accounting department’s involvement in this area varies greatly with the nature of the company’s business (retailer, wholesaler, or manufacturer) and the type of inventory accounting system. In many small businesses, CPAs (both internal and external) are heavily involved in this area because of its complexity and importance to the business’s success.

The accounting department’s role in this process generally includes:

Data entry (purchases). Entering inventory purchases is typically done as part of the purchasing process. In addition, posting the purchases journal typically updates the inventory subsidiary ledger if one is maintained.
Cost of sales. As mentioned above, the method used to record cost of sales varies greatly among small businesses. If a separate inventory subsidiary ledger is maintained, cost of sales is often automatically recorded by the accounting system (as part of the sales and accounts receivable process) when customer sales are posted. If a separate subsidiary ledger is not maintained, cost of sales is often recorded with a manual journal entry at month end by applying an estimated cost of sales percentage to sales for that month. In any event, accounting personnel should ensure that all recorded sales have a matching recorded cost in the same period.
Inventory transfers. Adjusting the detailed inventory records (if any) and the general ledger for transfers of inventory between locations or the disposal of excess, obsolete, or damaged inventory.
Reconciliation. Keeping the inventory subsidiary ledger in balance with the ending general ledger balance.
Account maintenance. Setting up new inventory parts in the system and changing part numbers of existing inventory items.

Accounting for inventories and cost of sales is a complex area that varies greatly from one company to the next.

Fixed Assets and Depreciation

The fixed assets and depreciation process consists of recording fixed asset additions and deletions and related depreciation. The accounting department’s role in this process generally includes:

Purchases. Recording fixed asset purchases in the general ledger is typically done as part of the purchasing and cash disbursement cycle. Purchases are usually posted to the general ledger by debiting the appropriate fixed asset account and crediting accounts payable.
Subsidiary fixed assets ledger. If the company’s fixed asset system is integrated with the company’s accounting system, the fixed asset subsidiary ledger is generally updated at the same time fixed asset purchases are posted to the general ledger. Otherwise, additions and retirements typically must be reentered into a separate stand-alone fixed asset/depreciation system.
Depreciation. Calculating and recording depreciation for each asset is typically done by using an automated fixed assets/depreciation system. However, companies with relatively few fixed assets sometimes use manual or automated spreadsheets to track fixed assets and related depreciation. In addition, those companies make a manual journal entry to record the depreciation provision. Companies generally must make separate depreciation calculations for tax purposes.
Retirements. Recording fixed asset retirements (sales, trade-ins, or disposals) is typically posted to the general ledger via a manual journal entry.

Accounting personnel have two primary challenges in the fixed assets and depreciation area. They must ensure that the subsidiary fixed assets ledger stays in balance with the general ledger control account and that depreciation calculations comply with financial statement rules and ever-changing tax requirements.

General Ledger and Financial Statements

The general ledger process consists of posting the period’s transactions to the general ledger and preparing financial statements. The accounting department’s role in this process generally includes the following activities:

Posting summary journal entries. Entries from summary journals (purchases, sales, cash receipts, cash disbursements, payroll, etc. ) are typically posted by the system throughout the month as batches of transactions are processed.
Preparing manual Journal entries. Preparing and posting manual journal entries varies depending on the type of entry. The entries may be either recurring journal entries that must be made each month or adjusting journal entries that are made as needed to correct any errors that are detected.
Generating the trial balance. The trial balance is simply a numerical listing of all general ledger accounts in account number order. Accounting personnel generate the general ledger trial balance to ensure total debits equal total credits.
Reconciling subsidiary ledgers and supporting workpapers. As discussed previously, comparing general ledger control accounts with subsidiary ledgers (accounts receivable, inventory, property and equipment, and accounts payable) and any supporting workpapers (bank reconciliation, investment schedule, prepaid expense schedule, etc.) is crucial to ensuring the accuracy of the general ledger. Accounting persons should investigate out-of-balance situations and prepare adjusting journal entries when needed.
Closing out. Closing out the general ledger involves making an entry to zero out all income statement accounts for the period (month or year) and posting the offsetting entry to the balance sheet’s retained earnings account. After making this entry, the balance sheet should be in balance (in other words, assets should equal liabilities plus equity).
Producing the financial statements. Producing the financial statements is done after the general ledger has been prepared and is in balance. Computer-generated financial statements typically include a balance sheet and an income statement.

The Accounting Procedures and Procedures Guide Chapter 7, Maintaining the General Ledger, and Chapter 8, Preparing Financial Reports, provide in-depth discussion of the general ledger and financial statement process.

Accounting personnel’s main concern in preparing the general ledger and financial statements is ensuring that all entries have been accurately posted. A careful review of the trial balance and preliminary general ledger and a comparison to subsidiary ledgers and supporting work papers will often reveal additional adjusting journal entries that are needed to correct errors.


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Posted by on 13/11/2012 in Bookkeeping


QuickBooks (Bookkeeping Tips) of Mistakes My Clients Have made

QuickBooks (Bookkeeping Tips) of Mistakes My Clients Have made

  • Not reconciling their bank statements – this error has left clients with overdrawn accounts because they thought they had more money in their bank account than they really did. At about $30 per bad check, this can add up quite quickly, not to mention you can mess up your credit rating. If all your checks and debit charges aren’t added to your bookkeeping system in a timely manner, you won’t know what your balance is. If you have duplicate deposits, your account balance will be overstated. By reconciling your bank statements every month, you will catch errors or omissions you have made. In a rare instance, you might catch errors the bank has made.
  • When using the bill payment feature of QuickBooks, make sure to pay the correct vendor. Double check who you are paying. By paying the wrong vendor, you will screw up you accounts payables balances and get in hot water with the vendor you didn’t pay.
  • If you use a bill payment feature, assuming your accounts payable balances are correct, don’t pay vendors with a regular check. If you do this as opposed to using a bill payment check, your payment won’t get applied to the vendor balance. This will result in the vendor payable balance being larger than it really is and you will eventually overpay the vendor in the future.
  • If your vendor accounts payable balance is different than they say it is, reconcile the account against the vendor’s invoices or latest statement. If your vendor accounts payable balance is larger than they say it is and you keep making bill payments, you will eventually overpay your vendor.
  • Undeposited Funds – If you invoice your customers/clients, you will have accounts receivables balances. As you process customer receipts, the money received will show up in an account called Undeposited Funds. When it’s time to process your deposits, make sure to check off which payments are to be applied in the Undeposited Funds account. This will keep your Undeposited Funds balance accurate.
  • Debit charges – Although debit cards are used like credit cards, don’t set up debit charges as a separate credit card account. They are part of your checking account.
  • Entering personal credit card accounts in QuickBooks – This shouldn’t be done especially if you have a corporation. You can’t co-mingle your funds. Furthermore, the credit card balance will show up on your balance sheet, which would effect your net equity.



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Posted by on 03/03/2012 in Bookkeeping


QuickBooks service discontinuation policy and upgrade information

QuickBooks service discontinuation policy and upgrade information

Live technical support and add-on business services such as payroll, credit card processing, QuickBooks Email, and online banking will be discontinued for QuickBooks for Windows 2009, QuickBooks 2009 for Mac, and a few other products as of May 31, 2012.

We are committed to developing easy, straightforward financial tools that help you today and grow with you tomorrow. But it’s a balancing act – making QuickBooks better and easier to use while still supporting older versions. So we offer support for the current version of QuickBooks and the two previous versions.

This article explains what service discontinuation means to your business and provides information on upgrading to the latest version of QuickBooks.

Call us at any time to take advantage of special upgrade pricing and to discuss your options:

  • QuickBooks Pro or Premier or QuickBooks for Mac: 866.676.9670
  • QuickBooks Enterprise Solutions: 800.450.7498
What service discontinuation means

Products affected by service discontinuation as of May 31, 2012, are listed in the table below. If you don’t make use of live technical support or any of our add-on services, and are happy with your current version of QuickBooks, you can continue to use it.

If you are using a product affected by service discontinuation and want to maintain access to live technical support and add-on services, you’ll need to upgrade to the latest version of QuickBooks as soon as possible.

Contact: QuickBooks Expert


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Posted by on 28/02/2012 in Bookkeeping


How to protect yourself against liability as a bookkeeper

  • To protect yourself against liability, consider the following practices:
  • Avoid public statements about your employer.
  • To all inquiries (even informal ones by phone) about your firm’s financial activities, answer “No comment.”
  • Add a cover letter to your financial statements that says, “I am not independent and did not audit the enclosed financial statements.”
  • Don’t be the only signatory of checks.
  • Hold checks until funds are available.
  • Follow to the letter pension laws and plan documents.
  • If you do work for a closely held corporation, consider asking for an Indemnification Agreement from the owners that personally guarantees payment of payroll taxes. This both protects you and allows the owners to run the business without having to countersign each paycheck.
  • If something that an employee does raises a question related to your area of responsibility (e.g., bookkeeping or office management), ask about it. For instance, if another employee is taking out cash without proper documentation, it is entirely proper to ask about it. Ignoring a questionable action or practice does not protect you and may result in your being held accountable for it.
  • More details on
  • Yeshwant Mehta (President) QuickBooks Expert Email:
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Posted by on 01/02/2012 in Bookkeeping

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