Is your bookkeeper handling your business books correctly?
If you aren’t trained in accounting, don’t be too quick to say yes…
Bookkeeping is often one of the first tasks to get outsourced to a contractor or bookkeeping firm, which is a great strategy for entrepreneurs that dislike the task. But YIKES – I get antsy in my seat when I see businesses outsourcing and then ignoring this important job. You still need to keep an eye on the process and results to ensure accuracy and keep tabs on the financial health of your business. However, if you aren’t a trained accountant you are looking at your books with blurry vision. You won’t know for sure if the books are being done correctly, because while the silhouette is recognizable (it looks like everything is OK!), the details may reveal some trouble spots.
If you need bookkeeping “glasses” to confirm that your bookkeeper is handling your business books correctly, I come in many prescription strengths and fun frame colors! Whether you just need a little more focus or a lot, grab a pair of Huxley CPA bookkeeping glasses. I’m available to take a look at your books and can point out anything amiss, training you along the way so that you can improve your bookkeeping eyesight. Contact me today for clarity on your bookkeeping!
The Importance of Accurate Bookkeeping
Unfortunately, I’ve worked with dozens of clients who hired a bookkeeper who doesn’t fully understand accounting. This is a significant problem because if you don’t understand it, then you are leaving room for mistakes – many of which aren’t obvious without 20/20 bookkeeping vision.
So what really happens when your bookkeeping is incorrect or sloppy? As the old saying goes, “garbage in, garbage out.” If your books aren’t correct, then you don’t have the right information to make good business decisions. A healthy business is able to hide the problem well, because an erroneous few thousand dollars here or there isn’t going to plummet profits. But if your business isn’t healthy, your problems will be amplified.
Accurate bookkeeping is essential to running a healthy, growing business. And you need to be 100% sure that your bookkeeper is doing things right.
6 Things To Look For To Achieve 20/20 Bookkeeping Vision
If you hire help for bookkeeping, here are 6 small clues to look for that will let you know if something isn’t quite right. These clues will ensure you have 20/20 bookkeeping vision!
- Company credit card transactions should be recorded as a liability and should be a positive number on your balance sheet. In fact, everything should be positive on your balance sheet with a few exceptions such as accumulated depreciation and owner’s draw.
- Expenses which will be reimbursed to the company should be listed in accounts receivable and not as an expense. For example, if a company credit card is accidently used for a personal expense, it should be coded to accounts receivable instead of an expense because it will get paid back. This method also allows you to keep track of who still owes you.
- Any personal expense of the owner that was paid using company funds should be categorized as owner’s draw instead of an expense.
- Accounts with “income” in the title should always (and only) be in the revenue section* of your books. Sometimes they get put in the equity section or assets section, which is mixing apples and oranges. (*It’s ok to also have income accounts towards the bottom of your Profit & Loss statement in the “Other Income” section if it is unusual in nature and not part of your ordinary revenue streams. An example is cash back from your credit card.)
- Sales tax should always be listed as a liability when collected, and not included in your revenue. You are simply capturing this money from the customer and forwarding it over to the government. It’s not income! This is tough to catch sometimes because you may have an e-commerce system which records all of the cash received as income instead of separating out the tax portion.
- If a bookkeeper thinks creating an accrual report is “easy” because they just toggle the button on QuickBooks, then chances are they don’t fully understand accrual-based accounting. Don’t let QuickBooks fool you – accrual accounting is not as easy as hitting a button. (Pro tip: that button in QuickBooks doesn’t work properly anyway, so don’t rely on it!) Good bookkeepers understand the difference between accrual basis accounting vs. cash and will be able to keep your books using accrual. More on this topic coming to the blog soon.
In addition to these clues, make sure to set up proper internal controls to protect your business: Always sign the checks, closely review payroll change reports, put a face to every name on the payroll, and do your own bank reconciliations (or at least review them with the statement). Yes, even if you hate it – it’s that important! This is critical because you may otherwise have a fraud or embezzlement issue and not even know it. There are a few red flags you can look for that may indicate money is being stolen from your company. You can learn all about mitigating that risk in another article of mine, “The Importance of Internal Controls”.
Huxley CPA Consulting Is Here To Help
Now that you know a few things to look for, do you know if your bookkeeper is handling your business books correctly? If you still aren’t sure, grab a pair of Huxley CPA bookkeeping glasses! I know exactly what to look for to make sure your hired help is providing you with accurate bookkeeping services. I can also train you along the way so that you can achieve 20/20 bookkeeping vision and do the checks on your own once you are comfortable with it.
Are you looking for a bookkeeper that you can trust? Contact me today and I’ll be happy to share my vetted list of trusted bookkeepers with you.