Author Archives: Karl

One ground principle you must never forget

There’s no excuse for this and what’s even more, you’ve got to retain those documents for 5 or so years, depending on your local legislation. Yes. If there’s no source document for an expense than how did you know the amount to account for? Or to which account it should go to – is it really rent? I know that keeping source documents is something we’ve discussed over and over again, but it’s really important.

It’s important and yet it’s neglected and not considered as one at the spot but considerably regretted later on. Trust me on this. Keeping things on track with having source documents for each entry, referencing them properly to the entry itself and storing those documents whether physically or electronically in the end makes your life a lot easier.

So please keep this one rule in mind – have source documents for each entry. For each entry in your accounting make sure it states the sums the entry is made in, the reason for the entry or what the entry is about and most importantly that it’s also referenced to the entry (i.e. the entry has the same document number than the source document carries).

Best practices in everyday accounting

We’ve covered quite a few tips and advice for you by now. You what’s generally expected in accounting and what to watch out for when it comes to common mistakes done. However, since accounting is a continuous process done on daily basis there are things to be done every day:

  • As we mentioned before, one of the most important things in accounting is having and keeping source documents for all your entries. Now, when making an entry, make a habit to prepare or obtain a document for it and store it in orderly fashion – i.e. all purchase invoices in one place, all sales invoices in another etc. Make some sort of ordering for you but don’t forget to store a source document for the entry.
  • It’s for your own good to have a daily routine when it comes to accounting procedures – when are you accounting for expenses, when are you checking the bank etc. Make yourself a schedule and do make it a habit again to follow it. Accounting is a collection of habits if you will.
  • Every now and then it happens that you mess something up in your accounts. It happens and it’s perfectly normal. A point to take away from this is however that you should fix your mistakes when they become apparent and as always, leave a source document explaining the entry. When accounting entries is just debit one account and credit the other (or multiple accounts), its not telling the reason why this entry was done and what triggered it. That’s something a source document is for.
  • In case you’re not the only one doing accounting entries in your company please make sure you’ve got clear roles and responsibilities communicated to everyone involved in accounting – everyone needs to know who is doing what exactly and when.
  • Do you know where everything is? Keep order both on your desk and in your computer. It sounds simple and so obvious, but truth of the matter is that experience shows otherwise – documents laying around and piling up, files gone missing from the computer, too many working files for one thing etc. Keep order and see your life going a lot easier.
  • You no doubt have various reporting dates – if not for investors or similar, surely you’ve got some reports to be filed for government bodies or tax officials etc. Something I strongly recommend is having those deadlines in front of you and possibly also a list of materials you need to obtain beforehand or statements you need to prepare for those reports. Have your list of actions ready and try to schedule those things to be done timely.

Accounting is a process of little things you do on daily basis. It’s best to be on track and make sure that what you do you do timely, accurately and with ease. Accounting as everything else in life should not be done with stress and believe me, those little best practices are what make sure you’re having as little stress as possible when it comes to your companies accounts.

For whom am I doing this again?

No, not just for some regulatory body, but also for your suppliers who might be interested in your financial performance, your investors and other creditors should there be any and more importantly, for yourself.

How it’s beneficial for you we’ve already covered more than enough, however accurate and proper accounting is something that may cast informational light to your financial statements from your creditors and investors perspective.

Your creditors may be interested in seeing if you have enough resources to meet your obligations and keep business going, i.e. in buying further more goods. It also shows how you manage your assets – most importantly your receivables and how they relate to your revenue – how well are you able to collect for the sales.

Investors however are generally interested in seeing how you’re performing compared to the investment they’ve made into your company and how you’re doing generally. How you’re managing your assets and what are your earnings compared to your assets (i.e. what are your assets earning to them), it’s what the investors are interested in.

Accounting isn’t just for you, but for numerous other parties that have different agendas with this information however they’re interested in the same figures – your assets, liabilities and earnings for the period. It’s where the get their information – from your company’s relevant figures.