The Business of Keeping Records

As a business owner, your financial information is incredibly important and necessary to help you run your business. But how do you know what to track?

It all starts with a system. You need to have an accounting system that will clearly track the financial state of your business. There are lots of different types of accounting systems (we have a few recommendations) but ultimately, you need something that will summarize your business transactions, gross income, deductions and expenses.

Supporting documentation. In order to get the information you need for your accounting system, you need to have the records or supporting documentation. These types of records include:

Gross receipts = income you receive from your business

  • Cash register tape
  • Deposit information
  • Receipt books
  • Invoices
  • Forms 1099-MISC

 Purchases = what you resell to customers, as well as what you buy

  • Canceled checks
  • Credit card receipts and statements
  • Invoices

 Expenses = costs you incur (other than purchases)

These need to show the amount you paid as well as a description of what it was.

  • Account statements
  • Credit card receipts or statements
  • Invoices
  • Petty cash slips

As a note, if you deduct travel, entertainment, gift or transportation expenses, you have to prove certain elements of the expenses. For more information on how and what to do, go here.

Assets = property you own and use for your business

  • When and how you obtained the assets
  • Purchase price for each
  • Cost of improvements
  • Documentation of deductions taken, including: 179D, depreciation, casualty losses
  • Selling price
  • How the asset was used
  • Expense of sale

So where do you find all of this information? Often you can find it on purchase or sales invoices, real estate closing statements and even canceled checks that identify the payee, amount and proof of funds transferred.

Employment taxes

There are lots of different tax records you need to keep. At a minimum, you need to keep record of employment for four years.

Why you need to worry about it.

For starters, accurate books help you make financial decisions about your business. But there’s even more benefits to ensuring you have good records.

  • Tax time isn’t fun when you don’t have good records. Your books allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and various other items you’ll need for your tax return.
  • Without solid financial information, your bank won’t be able to make lending decisions for your business.

For more tips and tricks on why you need to keep good records, check out this blog.

 The moral of the story

Documentation is important when it comes to running your business. It’s necessary to ensure you’re in compliance, as well as gives you the information you need to ensure you have the right financial information.

Common Troublemakers on the Books

By: Ryan Renner, Eide Bailly LLP

A while back, we discussed some ways to know when things go wrong on your books. When something goes wrong, it’s important to understand the root cause in order to hopefully avoid the problem altogether. While there are many pesky problem causers, the basic concepts of these generally apply to a lot of the most common errors.

Here are a couple of the most common troublemakers we see causing problems on the books.

Lack of Consistency

Often times, errors start in areas of the books that are unfamiliar or new to small business accountants (we can help you get familiar with them – just ask). When these processes aren’t completed consistently and accurately, this can lead to issues over the course of the year that, if not caught right away, can cause even bigger issues down the road.

One common example? Those pesky balance sheets. Balance sheets contain a lot of important information that can tell you where your business stands and where it’s going in the future. If you only reconcile them annually, or convert from a cash to accrual basis at the end of the year, you could end up forgetting what you did previously, and you might even be doing it a little differently. The problem? This can often lead to issues with your prior and current year balances being calculated differently, resulting in balances that don’t make sense.

The best way to correct this common issue and prevent it from taking over is to implement a consistent process over the course of the year. Consider setting up monthly or quarterly updates and reviews. This can help you keep information fresh in your mind (as opposed to trying to figure out how to record something in December that happened back in April), and can also help you remember how a process was completed previously. Although this might add time up front, it can help save time in the long run. Whether you spend your time trying to remember what occurred earlier in the year or trying to find an error caused by a change in your processes, your year-end can become much more efficient when you come up with a consistent process, leading to less errors on the books.

If implementing a consistent monthly process sounds confusing, know that you can always check with your accountant or auditor to make sure you’re doing things correctly from the start. They can help you make sure you’re on the right track, and can help make your process a breeze. 

Letting Issues Grow

Another common issue that leads to major problems on the books is letting issues go and deciding you will take care of them later. Once example is sitting back and ignoring small differences in the details, such as in your bank reconciliations. Generally, we see accountants noticing these small errors, spending a little bit of time of them and then letting them go if they can’t figure out what is going on. They usually push them off and just assume they will figure it out next month.

However, by letting them go and pushing them off until next month, these issues will only continue to grow. If allowed to sit and grow for too long, the issues can build up until you find your business with some serious problems. Although it may seem like a small, pesky task at the time, taking care of issues right away can save you time (and help you keep your calm) later in the future.

It’s also important to note that if these seemingly small issues keep popping up every month, even when you took care of them previously, you may have an even larger underlying problem. Don’t be afraid to seek out assistance when it comes to issues in your business – after all, you’ve invested a lot in it, and you want to make sure everything is in tip-top shape!

Entries from Your Accountants

Your accountants are there to help you and your business grow and be successful, and they really know their stuff. A common (and somewhat perplexing) issue we see is companies and organizations not booking entries from their accountants. Rather than taking the year-end tax or audit work information and putting it in the books, companies often ignore it or post it to the wrong period. Rather than waving this off, schedule time to talk to your accountant to make sure you fully understand what they’re telling you, and ask for help posting them to the books (numbers nerds enjoy helping you understand your finances!).

When it comes to your business, it’s likely you will run into a few speed bumps. When you run into these issues, work to identify what caused the problems in the first place. By identifying these issues and taking care of them right away, you protect your business from falling victim to common mistakes that can seriously impact the success of your business.

The Hidden Monsters of Accounting

halloween-graphic-finalHappy Halloween! With it being the scariest time of the year, you are probably thinking about black cats, jack o’ lanterns and how to sneak away with a little bit of your child’s Halloween candy. However, you’re probably not thinking about another topic that can be frightening to some: accounting!

We promise, it’s not that scary… we numbers nerds actually find it pretty fun! But, there are some monsters hiding in the accounting world that you should always be on the lookout for.

The Zombie — Assuming Profits Mean Cash Flow

It’s easy to make a sale (we’re talking either a sale of goods or services) and subtract your costs and then record the remaining amount as a profit. But if you’re allowing your customer to purchase on credit (meaning you are letting them pay you later), don’t be too fast to count it as cash in your pocket and spend it on your Halloween costume. What if it takes longer than expected to collect? What if you don’t collect? Now you have cash flow issues you weren’t anticipating.

It may be tempting to think profits and cash flow are the same, but by doing this, you’re giving yourself a twisted image of your company’s real condition and this can lead to even bigger problems down the road. Like a zombie, your financial statements (if you don’t understand them) can rise from the dead and scare you. If you need more help with this concept, check out this blog.

The Vampire – Not taking Bookkeeping Seriously

It’s easy to pretend bookkeeping doesn’t exist (just like vampires). However, if you’re not keeping accurate books, you might be in for major struggles that can be very painful in the future.

No matter the size of your business, investing in accurately tracking your business financials can be compared to garlic. That’s right, maintaining a good bookkeeping system can protect your business from the vampires who can suck your financials dry. Having accurate, timely financial statements also gives you confidence when making your business decisions. 

Frankenstein – Not Having a Clear Budget on Each Project

Does your company operate without a budget? And we’re not talking about the kind of budget you fill out at the beginning of the year and forget about the rest of the time. We’re talking about a rolling budget; the kind you reference and update throughout the year (ebbs and flows with the changes in your business). Operating without any financial guidance could result in a freaky experiment with the end product not being what you hoped for.

Operating without a clear budget can make it difficult for your company to keep in check, and can lead to spending a lot of your hard earned money unnecessarily (nobody wants to flush money down the toilet). Don’t throw everything into one pot and hope it turns out. It is best to have a rolling budget to start with the end in mind and to help provide a roadmap for getting there.

The Witch – Lack of Accountability

Do your people know what is expected of them? And do they know what they should be doing day-to-day to meet those expectations? Lacking accountability can lead to some serious confusion; it may be a struggle to figure out who’s flying around on which broom.

It is extremely important to define everyone’s roles and performance expectations. Not only that, tell them how they can meet those expectations by relating them to their day-to-day tasks. We’re talking about KPIs (key performance indicators).

And now a plug for accounting (let’s be honest, you knew that was coming). Having timely, accurate financial information is important as many KPIs are tied to financial information. Make sure you are holding your people accountable against accurate information.

The moral of dealing with this Halloween monster…having accountability in your business can help your people know which broom they should be flying and be able to fly them in the same direction.

The Ghost – Failing to Reconcile Your Books With the Bank

Failing to reconcile your accounts frequently can come back to haunt you. When you reconcile your books, you are ensuring an account balance is accurate and correct, and that it can be tied back to supporting documentation (such as your bank statement). Without reconciling your accounts, there could be a ghost hiding around the corner. Boo!

All accounts should be reconciled (especially the balance sheet), no matter the size. From cash to accounts payable, these accounts all have an impact on your financial situation. Small to mid-sized businesses should especially be sure to reconcile their books every month to ensure the accuracy of their financial information. And don’t be afraid to reconcile them more frequently. For example, if you are experiencing cash flow deficits or concerns, you may want to consider tracking your accounts receivable, accounts payable and cash more frequently just to keep those ghosts at bay.

The Mummy – Managing All Accounting Tasks In-House

It is a common misconception that handling all of your accounting activities in-house will allow you to save money. That’s not always the case. Depending on your situation, outsourcing might actually save you money. In some cases, outsourcing is less expensive than hiring internally (remember all the cost associated with your people, onboarding, training, wages, benefits, etc.). Not only that, a reputable outsourced accounting provider may save you money due to costly bookkeeping errors.

If your business is too busy getting wrapped up in all of the accounting details, you may struggle to pay attention to other important parts of the business, and this can hurt your company – whether in the loss of revenue, customers or even reputation. Outsourcing your accounting needs (we can help!) allows you to ensure the other parts of your business are running smoothly, and lets you get back to why you got into business in the first place.


Although these accounting monsters may be scary, they are avoidable. With the right knowledge and skills, your business can avoid these tricks and instead focus on the treats of timely, accurate financial information.

Behind the Metrics: Accounts Payable & Accounts Receivable

This set of blogs will take you behind some of the metrics you should be measuring in your business. We’ll talk about what they are, what they really mean and more.

accounts-payable-behind-the-metricsToday we’re talking the ins and outs of your accounts … payable and receivable that is. To begin, let’s look at what they actually are:

            Accounts payable: Money owed by you to your vendors

            Accounts receivable: Money owed to you by your customers


Okay, so what does this really mean?

Accounts payable and accounts receivable are different sides of the same coin. When you talk about accounts payable, you’re discussing the money YOU owe. On the other side, accounts receivable measures how much money OTHERS owe you.

Let’s break it down …

Accounts Payable

When you buy goods or services from someone and don’t pay them for it at the time of transaction, you’re buying them on credit. This is tracked in your accounting system as an account payable. This seems like it should go without saying, but you need to pay these off within a given time to avoid incurring late fees and/or interest. Some vendors are even nice enough to offer discounts if you pay early.

Accounts payable are current liabilities; meaning the accounts payable due within a year However, we all know vendors typically don’t give you a year (most are due on receipt or within 30 days). There are other liabilities like short-term loans, payroll costs or income taxes for your business … but those are recorded elsewhere.

Accounts Receivable

Think of accounts receivable as your outstanding invoices. It’s like you’ve received an IOU from your customers. They have a legal obligation to pay you back.

Similar to accounts payable, the accounts receivable is a current asset … we’re talking at the most a year. But again, you likely aren’t going to give your customers a year to pay you back. If a company cannot collect on its accounts receivable, they do have options for recourse, including taking the debtor to court or handing over the debt collection to a third-party bill collector.

As a fun fact, if a company has bad debt (accounts receivable was recorded as income but payment was not received …learn more about why this would happen here), the IRS allows you to subtract it from your gross income on your income tax return. However, this is only as long as the debt was reported as income on a previous return. But if by chance your customer comes through (after you record it as bad debt), you will need to record a bad debt recovery (income) when the money is received.

So how do I track it?

Accounts Payable

To track your accounts payable, your numbers guru credits accounts payable when a bill is owed and debits accounts payable when the bill is paid.

Of course, we’re just talking here about the accounts payable section of your accounting system. In reality, the full tracking looks like this:

When an invoice is received, the invoice is recorded as a credit to Accounts Payable, AND a debit to another account(s) within your system like inventory or expense (cough, double entry accounting).

When an invoice is paid, the payment is recorded as a debit to Accounts Payable, AND a credit to cash (or in some cases credit card payable).

Accounts Receivable

To track your accounts receivable, your numbers guru debits accounts receivable when an invoice is create and credits accounts receivable when payment for the invoice is received.

Of course, we’re just talking here about the accounts receivable section of your accounting system. In reality, the full tracking looks like this:

When an invoice is create, the invoice is recorded as a debit to Accounts Receivable, AND a credit to another account(s) within your system like income.

When payment for the invoice is received, the payment is recorded as a credit to Accounts Receivable, AND a debit to cash.

Anything else?

Why yes in fact … let’s talk turnover.

Accounts Payable Turnover Ratio

In its simplest form, the accounts payable turnover ratio is a measurement of the rate you’re paying off your short-term debt to suppliers.

It’s calculated like this:

Total Supplier Purchases

Average Accounts Payable

This matters because this calculation allows your investors (and you) to see how often you pay your average payable amount to your vendors. When your turnover ratio falls, it means you’re taking longer than normal to pay off your short-term debts. When the turnover ratio rises, you’re paying off vendors at a faster rate.

Accounts Receivable Turnover Ratio

What this basically means is your ability to effectively extend credit and collect debts on those credits. In other words, how well are you collecting on the debts your customers owe you?

It’s calculated like this:

Net Credit Sales

Average Accounts Receivable

A high receivable turnover ratio often means your collection policies are effective and efficient. You have a good quantity of customers who pay off debts owed to you in a timely fashion. Or, it could mean you’re conservative with the amount of credit you extend.

A low ratio can tell you that you have a poor collection process or are being too generous with your extensions of credit. It could also mean you have customers who aren’t willing to pay off their debt, or are having difficulty doing so.

Big difference in your turnover numbers?

This can tell you a story about your cash flow; but these aren’t the only components of cash flow. For example if your accounts receivable turnover is low compared to your account payable turnover, it means you are paying your suppliers faster than your customers are paying you. This could create decreased cash flow and you might be feeling the pressure. However if your accounts receivable turnover is high compared to your accounts payable turnover, you might be seeing a cash influx. But it’s important to remember you have accounts payables coming due so don’t be quick to spend it all.

The moral of the story …

Accounts receivable and accounts payable (and their respective turnover ratios) tell a part of your company’s story. By examining them and continually measuring them, you can see ways to adjust course, change methods or improve systems in order to help make you a more successful business.



Changing Times: An Accounting History Lesson

A long, long time ago, when ancient civilizations ruled the earth, accounting came in to being … at least that’s what Wikipedia tells us. Needless to say, accounting is a tried and true profession. It’s also being affected by technology … just like everything else.

Ledgers & liquid paper

When I was younger, my mom was the bookkeeper for our farm, as well for a few other side projects. In her role as a bookkeeper, she kept track of everything by hand. She would use hard black ledger books with 14 column paper and record things in pencil. Hence the need for the best pencils on the market … as good as accountants are, sometimes you need to erase things and redo them. My mom even had liquid paper, the same color as the green ledger paper (because accountants are anal like that).

Accounting software

Fast forward a few (okay a little more than a few) years and I’m an accounting professional. In my 14 years in the profession, I’ve never used 14 column paper. I’ve had a couple clients hanging on to it, but they’ve always been rare. Rather, I typically use accounting software to help my clients with their financials (looking at you QuickBooks).

The advent of accounting software allowed businesses to operate more efficiently and changed the way accountants and business owners worked. You could open your snail mail and key in the necessary information, then print off checks to get the bills paid. The systems could even print invoices and track payments from your customers, all of which came in the mail.

The initial accounting software was somewhat easy to use, affordable and did all the basics … without the need to put pencil to paper.

Automation & efficiency

Somewhere along this path, we realized that paper copies could easily be replaced by paperless technology and increased automation. So technology changed accounting again. Rather than having a specific “accounting computer,” technology and applications moved to the cloud and could be accessed from anywhere, including your mobile phone.

Today, accountants and bookkeepers can access real time information faster than ever. They can take a picture on their phone and have it uploaded and coded instantly into their books. Bill pay is now automated and invoices magically appear via email, directly from your cloud accounting system. Point of sale systems are helping retail businesses, and talking directly to your accounting system.

When all this technology works together, it’s accounting magic. You now have interacting systems that record data in real time and allow you to have clean books and accurate financials in order to make sound business decisions. In other words, you have instant access to your numbers … and that’s a good thing.

The moral of the story

While all of this technology is making us more efficient, it’s also eliminating the human factor. No more licking envelopes and mailing paper bills, or keying in data at the end of the month. But this isn’t necessarily a bad thing. Technology is allowing bookkeepers, accountants and business owners to focus on what matters and not get wrapped up in the busy work.

Yes, it’s scary because it sounds like some of your staff (maybe even you) are being replaced by technology. Trust me, I understand (remember, I’m an accountant too). But it’s really okay. What technology is doing is automating the parts of the process that were subject to human error and making them more precise. This allows us numbers nerds to devote more time to analyzing the numbers and getting them in your hands must faster. It’s helping you make smarter business decisions.



Bartering & What It Has to Do With Accounting


Bartering (also known as trading), is the act of exchanging goods or services for other goods or services without money.

Let’s say you’re the local plumber that everyone knows and trusts. Your favorite restaurant calls with a toilet issue (crappy, I know) and needs it fixed pronto. However, they would like to give you a $250 gift card to the restaurant in exchange for your toilet fixing abilities. You’re probably thinking, well that’s great, now you get to eat at your favorite restaurant and they get a working toilet. It seems like a pretty sweet deal so you agree to the arrangement and accept the gift card. Later that day, you fix the toilet, shake hands (after washing them first) and go about your day.

The week following, you take a couple of your employees out to lunch at this restaurant. After all, they’ve worked hard and you want to show them you took notice. You use the gift card to pay for the lunch ($75), crumple up the receipt and head back to work. No big deal right?

Not so fast.

If accounting police existed (which we think would be pretty cool), you would be written up for this infraction. Accounting rules require you to capture all business transactions (including non-cash transactions … one of which is called BARTERING) in your financial data. How you might ask? The accounting is quite simply (it’s the tracking that gets complicated).

We suggest setting up a bartering clearing account in your chart of accounts. Let’s go back to the above example and walk through the accounting side of this transaction.

First, you would invoice the customer (to record the revenue) and issue a credit memo.

Accounts Receivable                                            $250

      Service Revenue                                                          $250

Bartering Clearing Account                                  $250

      Accounts Receivable                                                  $250


Then as you use the gift card, you would record the respective expense(s).

Meals & Entertainment                                           $75

      Bartering Clearing Account                                        $75


If your system does not allow you to bypass entering a bill for an expense, enter the bill and issue a vendor credit.

Meals & Entertainment                                           $75

      Accounts Payable                                                       $75

Accounts Payable                                                 $75

      Bartering Clearing Account                                        $75


Once the gift card is used, the bartering clearing account should net to zero. The key to accounting for bartering is making sure you still record the income earned and expenses incurred. And remember to keep your receipts (which in the financial world is just good practice as a whole)!

In conclusion, we’re not saying bartering is a bad thing, or something you shouldn’t do ever. We are saying, however, that you need to be cautious when entering into a bartering relationship and track everything. Even though no cash exchanged hands, you still need to track it.