Tom Carlson’s Blog Post
During tax season, many business owners provide their accountants with their tax data sometimes neatly compiled and other times in less than orderly fashions. When accountants receive client’s information without any structure or method they tend to wonder what expenses may have been omitted.
On the other hand, when a client delivers a computerized accounting file that has been kept up to date and includes cash and credit card purchases, accountants can be much more confident that every eligible deduction will be included on the tax return. in my opinion all serious business owners need to keep their books on computerized accounting software. Aside from completeness of data, I have compiled a few other reasons to track a small business’s financial transactions using modern accounting software:
- Bank Reconciliation Made Simple: You will not miss deductions when you reconcile your bank account on computerized software. The account will not balance if you omit the bank charges or the missing receipt.
- Easy Input: If you don’t like keyboarding in your transactions, most banks will allow for a direct download of your bank account data. The process has been made a lot easier simply by entering an entire month’s worth of transactions on your computer. Tracking credit cards used in the business can be simple and you will remember to post the finance charges. Reconciling the credit card balance in the same way you reconcile the bank balance to the statement will ensure that all transactions are accounted for.
- Formalized Financial Statements: A computerized accounting software program can provide profit/loss statements as well as balance sheets that are vital when evaluating a business’ progress. Note… if business owners are seeking financing for their business, they must present investors with financial statements.
- History of the Business: There is nothing more educational and satisfying than bringing down a comparative income statement to compare your current year activity with prior year(s). A spreadsheet program can give you this as well, but the data entry is clumsy and more prone to inaccuracies. Speaking of spreadsheets, you can always dump your data from the software to your spreadsheet program in the event you want to play with the numbers and do projections.
- Customer History & Aging: Using a software’s invoicing feature allows you to track your customers’ purchasing history and payment habits. Aging reports can be created to facilitate collection efforts. You can also note collection attempts in a special “Notes” box on the customer profile screen.
- Vendor History & Aging: Rather than simply cutting checks when bills are due, you can use the accounts payable system to track bills and plan for cash flow. Using a software will also provide you with reports for each vendor. It makes it much easier to locate prior payments and invoices.
- Audit-Proof the Books: Whenever IRS auditors and the agent see the books have been kept on a formalized accounting software, especially by a professional bookkeeping service, the audit tends to be short, easy, and with much less stress involved. The agent will run a cursory review of the bank statements and if things line up with the software, he/she may simply take a sampling of expenses to audit, rather going line by line.
from Tom Carlson http://ift.tt/1okNUuS