Business owners make numerous transactions in a day which also means innumerable entries in the books. This significantly increases the chances of committing errors. Hence, it becomes essential for bookkeeping to clean up consistently for maintaining transparency in the cash flow. But in some instances, business owners do not give enough importance to the procedure of keeping the books clean uniformly.
Instead, they tend to wait until the end of the year or for a convenient moment that never arrives. One should avoid such a mindset to plan taxes, analyze financial statements, or evaluate the business’s overall health.
In the current circumstances, it has become critical for businesses to sustain a clear process of regularly maintaining their books.
Meaning of having clean books?
Specifically, for many businesses to have clean books means keeping accounts payable and accounts receivables up to date consistently. The inability to do this can hamper your cash flow as you invoice your customers slowly and follow up. Also, relations with vendors are degraded if you are late on bills.
Importance of Bookkeeping Clean Up
To make the right decisions:
No amount of information might be enough to make a decision. However, a business person can at least make sure they have as much information as possible to acquire. This is one of the major reasons to have clean books; obtain all the information available for decision-making.
For example, suppose you want to purchase new equipment for your business. Now how will you know that you have enough cash unless you know about cash in the bank, accounts receivables, and account payables? In addition, an accurate income statement indicating consistent profits can assure you that cash will continue coming in.
Usually, business owners make decisions based on cash in the bank. However, it is not a good indicator to evaluate business health, even with virtual bookkeeping services in place. A hefty bank balance might assure a false sense of security until you realize that your overdue payables are more than the cash available at present. This is a common problem among businesses such as retail stores that receive money upfront from customers but pay suppliers on terms. Clean books can display how sustainable your business really is regardless of cash levels.
To encounter audit and taxation nightmares:
Some may think it is useless to worry about them, but audits and taxes can cause significant harm. Numerous businesses have shut down, bringing down the owners’ personal lives as well due to inaccurate reporting and payment of taxes. And even if everything is in compliance, cluttered books can result in tedious and expensive audits.
Therefore, it’s relevant to forestall such issues by keeping the books clean.
Fresh start:
Analyzing previous year’s books can help to plan effectively for the upcoming year. This allows you to commence the new financial year in an organized manner and with a strategy in mind which provides your business a head start. On the contrary, if your books are not clean by the end of the year, you may initiate your new financial year in an unorganized manner and end up repeating the same bookkeeping mistakes that you made last year.
The organization is necessary to succeed in any business, especially in finances. Thus, a clean set of books provides you with details to which you can refer back without any confusion and assists in creating a solid budget for the following year.
How can one ensure clean books?
Have you ever thought about why your bookkeeping system is in a mess? This happens due to an apathetic attempt to do bookkeeping, insufficient time, amateurish bookkeeper or just failed efforts.
A logical way is to start your bookkeeping efficiently from the very beginning. For example, maintaining books and balance sheets regularly rather than waiting for the month-end can ensure clean books. In addition, installing QuickBooks or any other bookkeeping software can be the first step.
For your convenience, here is a step-by-step guide to bookkeeping tasks to perform every month. This routine can help you maintain clean books so you can easily make decisions and prepare for year-end taxes at the end of the financial year:
Accounts receivable: All monthly invoices of work done for clients, you should monitor critically, and all the deposits and cash details you enter in QuickBooks should be thorough.
Accounts payable: Monthly recurring bills and payments such as car insurance and loan payments must enter into the respective books of accounts. Outstanding vendor bills and statements should be in accordance with the Balance Sheet and the Accounts Payable. Your final check-up of accounts at the month-end and your vendors’ records should match.
Reconciliation Statements: The reconciliation statements for all your bank accounts and credit card transactions for a specific month should print and file to reference in the future. Your reconciling loan balances and credit against the monthly statements that you should file, making bookkeeping easier to handle when the year ends.
Prepaid income and expenses: Look for suitable journal entries made for prepaid income and expense adjustments. This would reduce the burden on your bookkeeper.
Write off Bad debts: Bad debts that remained uncollected must be written off. QuickBooks can write off bad debts via Credit Memo.
Consistently monitor your fixed assets: Changes in Fixed Assets like depreciation must be updated at the end of each month.
Examine all checks and invoice numbers: Check books and invoice statements follow a numerical order of generation. Therefore, check if there is any number missing on checks or the absence of transactions. If any are found, bring them to records. Also, any void or canceled checks must be listed and kept on record.
Review Financial Statements: Evaluate all postings in the financial statements for errors, absent records, and abnormal balances. If you did find any unexpected transactions, recheck them and make the required adjustments. Printing and filing financial statements are a must for a perfect clean-up.
Protecting Books and Backups: QuickBooks contains a ‘Closing Date’ feature that allows you to lock the previous month and protect it from any unwanted changes via password. In addition, when all the adjustments for a specific month are completed, the bookkeeper can close the books for the month and create a backup.
The above-given measures, along with cleaning up your books of accounts, also provide confidence that you are on the right path.
Read More: Top 11 Bookkeeping Software Suggested By Professional Bookkeepers
Conclusion
Sooner or later, you will need to clean up your books. It may either be forced due to government agencies or by your wish in order to obtain information. Keeping books clean may not be the most exciting aspect of running a business, but it can help sustain the other elements and ensure your business runs smoothly. To make a small up-front investment for this, an experienced accountant can help you with an accounting system, or you can hire a virtual bookkeeper. However, if you seek precise assistance for keeping your books clean, you can consult firms that provide optimum Bookkeeping Services that can help you keep your books clean and up to date in a seamless manner.
Looking for a starting point?
Cogneesol’s experienced team of Accounting Services professionals can assist you to clean your books and make it a superiority to do it each month. We are precisely allocated to the correct accounts in real-time. We have been helping our clients with quality accounting services since 2008. To know more, call us today at +1 833-313-3143 Or send us an email at info@cogneesol.com
Read More: Top Bookkeeping Issues Businesses Face and their Solutions!