Handling your personal finances does not require much work. It may not entail much work as you might have only one checking and savings account, retirement account, and a few investments. Moreover, you may also need to make only a few monthly payments with a file to keep your receipts for taxes. Nevertheless, bookkeeping in Toronto for business purposes involves a lot. Businesses need to consider a lot for managing their books successfully. Business owners can also outsource bookkeeping from accounting firms like GTA Accounting when bookkeeping seems difficult for them to manage.
In addition, there are good bookkeeping practices for businesses to effectively manage their books. We are going to discuss them in this post with you.
Good Bookkeeping Practices for Businesses
Here are good bookkeeping practices for businesses to effectively manage their books:
Keep Your Personal and Business Finances Separate:
You should make sure you, alongside your employees, are not purchasing things for individual use with business reserves. Otherwise, it can cause you cash flow problems plus complications in tax filing and auditing. You can also suffer legal consequences if you mix your business expenditures with personal expenses. Top bookkeepers also recommend business owners keep their business and personal accounts separate to avoid such complications.
Create Internal Controls:
Businesses should establish internal controls to minimize the risk of fraud. It embraces dual control for processes for making or receiving various payments. For instance, you should have one employee write a check for you while the other to reconcile your bank account. Plus, the third employee to approve the payment. Moreover, a person who opens mail for you should not manage accounting functions for you. It is what internal controls are all about.
Decide about the Accounting Method:
Businesses have two standard systems of accounting. Those accounting systems include cash basis accounting and accrual accounting. Cash accounting entails the recording of transactions when the cash really changes hands. Further, businesses that typically deal in cash payments use it. On the other hand, the accrual method involves the matching principle to record revenues and expenses in the period they occur, irrespective of payments made or received. Usually, the accrual method is the right choice for businesses that invoice clients.
Use Accounting Software to Track Expenses:
It is vital for businesses to keep a complete record of their business expenses. It entails saving your receipts for at least a week, if not daily. For the same reason, the business should use professional accounting software, such as QuickBooks and Xero. It is important for business owners to choose a bookkeeping software that can work when their business grows.
Track Employee Time to Understand Your Profitability:
If your business is related to rendering services, you can automate processes via time-tracking and payroll automation. Further, you can accomplish it while choosing an automated system to capture project-related costs plus employee time. It will allow you to easily feed the preceding information into your bookkeeping system.
Optimize Your Chart of Accounts:
Usually, businesses have an alphabetical chart of accounts for tracking their expenses for tax and compliance purposes. However, the best practice is to use the chart of accounts as a basis of a management accounting tool. It can help you track customer acquisition accounts, breakeven points, and your ROI for expenses.
Carefully Manage Your Accounts Payable and Accounts Receivable:
You can exploit cash on hand if you flawlessly manage your accounts payable and accounts receivable. It means you should pay payments on time, which can also help you get early payment discounts. Plus, you should send the invoice to customers quickly and follow up on it so that you receive your payments on time.
Daily Download Bank Transactions and Reconcile Bank Statements Regularly:
Another good practice for bookkeeping in Toronto is to not let your bank statements pile up. You should daily download your bank transactions plus reconcile bank statements. Further, you should also resolve any discrepancies that exist.
Analyze Financial Data Monthly:
You should leverage your financial statements, management reports, and key performance indicators. You can generate financial reports to understand the drivers of your businesses and lucrativeness for this purpose.
Plan for Taxes Year-Round:
You should remain in touch with your tax accountant regularly. It will ensure you are managing everything properly to keep records and track expenses. Plus, it will allow you to correctly file your taxes when you have everything organized. Staying organized for taxes will also aid you in making strategic decisions year-round to avoid tax penalties and reduce tax burdens.
Managing the books is not as simple as managing your personal finances. Nevertheless, there are good bookkeeping practices that businesses should follow for effectively handling bookkeeping in Toronto. Here they are:
- Keep Your Personal and Business Finances Separate
- Create Internal Controls
- Decide about the Accounting Method
- Use Accounting Software to Track Expenses
- Track Employee Time to Understand Your Profitability
- Optimize Your Chart of Accounts
- Carefully Manage Your Accounts Payable and Accounts Receivable
- Daily Download Bank Transactions and Reconcile Bank Statements Regularly
- Analyze Financial Data Monthly
- Plan for Taxes Year-Round