To clarify – not talking about your personal library here. If your business books are a mess and you want to do better in 2024, it’s important to understand what exactly makes your books (accounting records) “good.”
Here are the fundamentals of good bookkeeping. They are practically interdependent, each one supports the others, so you need all of these to have good books:
1. Timeliness. A basic requirement of good bookkeeping is maintaining up-to-date records. Your financial information is not as useful in making decisions if you only know what happened last year. Are all your financial transactions recorded in your books? Depending on your type of business and the frequency of your transactions, you should aim to update your books at least once a month. If you’re in a situation where cash is tight, you will need to review and update at least weekly.
2. Accuracy. Once you've ensured that all transactions are in your records, the next step is to verify their accuracy. Are they classified correctly in their respective categories? In this phase, you scrutinize the accounts to ensure that each transaction is allocated to the correct account. A vital process in ensuring your accuracy is RECONCILIATION, comparing your account records to your bank or credit card company’s records. You can have the details of a transaction perfect on your books, when actually it may never have happened. That expense or revenue you have on your books could be wrong or (I see this often) could be on the books in more than one place if it was recorded incorrectly, which doubles the amount on your books. Make sure what happened really happened.
3. Utility. Simply having data in your books won’t automatically help you - it must also be useful. Do your books lead to relevant reports that make sense and help you understand your business activity? Your categories and classifications (if accurate...) need to flow to the proper lines on your financial statements. Your chart of accounts is key to how all the information flows through to your statements. (See our previous article Start with your Chart)
Effective bookkeeping is the cornerstone of sound management of your business. Properly structured and accurate information is vital and immensely valuable for any enterprise. Accountants and Bookkeepers can be a great resource, so contact us if your books are not good and let’s talk about how we can help.