While few entrepreneurs start their own businesses because they're fond of paperwork, recording your day-to-day sales, purchases and other transactions is a must. Learn where to record what, and how often to do so.
Control of your financial recordkeeping begins with accurately recording pertinent transactions. You need to record:
- Sales and revenue transactions, including cash transactions
- Accounts receivable, if you extend credit to your customers
- Accounts payable, if you purchase from your suppliers on credit
- Summaries of transactions in your general ledger
Consider separate accounting for different product lines
If you have more than one product line or department, you may want to keep a separate set of books for each. Many entrepreneurs find separate accounting provides more meaningful information for their products. The practice may reveal that one product line or department is profitable and another is not.
Unfortunately, it may be difficult to keep a separate set of books for each product line or department. For example, some or all expenses may not apply to only one department, but must be allocated among departments. You should seek the advice of an accountant before setting up an accounting system of this nature.
Selecting the right accounting software
Shop around for the right accounting software, and be sure to ask for your accountant's opinion. With so many options like QuickBooks, MYOB, Peachtree, as well as online options, take the time to consider the pros and cons of each.
While many accountants will do their best to accommodate their clients’ already installed software, their experience with companies of you size and (hopefully) your industry will provide real insight. Ask your accountant for recommendations prior to investing in a system. If your accountant knows the software you've chosen, he or she will probably help you set it up.
If you have employees, your chosen software should permit the use of passwords to control access to all or some of your accounting transactions. In order to prevent irregularities by your employees or others, it's wise to restrict access to your accounting records.
Whether your operate your business as a sole proprietorship, partnership, or corporation, always keep your personal transactions separate from your business transactions in your accounting software. Using business funds to pay for personal expenditures complicates your recordkeeping and can lead to serious tax problems. It can also result in some hefty accounting fees as you pay your accountant to sort it all out.
Maintaining sales and cash receipts journals
You record daily sales in a sales journal. To simplify your bookkeeping, we recommend a combined sales and cash receipts journal. With a journal that combines sales and cash receipts, you record all sales (cash and credit) and all cash receipts, including collection of accounts receivable, in one journal, which your software should be able to accommodate.
Entries in your sales and cash receipts journal come from the source documents you use in your business every day. These documents are sales invoices, daily cash register totals, daily cash sheets and daily sales registers.
Keeping tabs on sales invoices
If you use sales invoices, you will post the information from each invoice to an entry in the sales journal. If you maintain customer charge accounts, you will also be posting entries to the accounts receivable ledgers so that each customer account is up-to-date. Sales invoices should be numbered.
While you can store paper copies in file cabinets, tracking invoices digitally makes much more sense.
If you prefer a paper method, prepare two copies at a minimum: one copy for the customer, one for you. Preferably, you should prepare the invoices in triplicate, with two copies retained by you. File one by customer name, the other by invoice number. Include canceled or voided invoices when filing by number so you can account for all of them.
Whether digital or paper, the invoice should show:
- The date of the sale
- Quantity, if applicable
- Price or rate
- An extension column, if applicable (quantity multiplied by price)
- A payment due date
Don't worry about creating a sales invoice template. Most office suites (such as Microsoft Office or OpenOffice.org) contain a number of invoice templates that may be used as a starting point to design your own sales invoice. And a quick “sales invoice” Google search will surface free templates on a number of websites.
Recording cash register receipts
If you use cash registers, daily sales can be totaled on the register. Most cash registers produced within the last decade should be able to separately record cash sales and charge sales, and keep track of sales tax.
Some should also be able to record cash received on account. At the end of the business day, record your cash register totals in the sales journal.Example
Say you total the cash registers of your automotive supply store at the end of the day. The totals show cash receipts of $1,640, cash and charge sales of $1,325 and $450, respectively, which include sales tax of $75, and $315 received for payment on customer charge accounts. You will make the following entry in your combined sales and cash receipts journal: