If you’re a business owner, keeping financial records clean and organized can be daunting, but it’s one of the most crucial aspects of running a successful business. So, what does it mean to have “clean books”?
In short, having “clean books” means that your financial records are up-to-date, accurate, and organized. Keeping clean books helps to make informed decisions about the health of your business. It can help identify areas needing improvement and keep your business on the right track. Additionally, it can provide insights on how to allocate your company’s resources more efficiently.
Having clean books is also crucial when it comes to taxes. Nobody wants to have any issues come tax time, and no one wants to pay more taxes than they have to. By keeping the books clean, meaning they are up-to-date and accurate, you’ll not only have a more precise idea of your company’s financial situation but your tax return is based on accurate numbers, potentially saving you some money on your tax bill.
So, how can you keep your business’s books clean? First and foremost, keep a record of every transaction. No matter how small, record every purchase, whether it’s an expense or income. This will help you to keep count of your money coming in and going out so you have accurate books by year end which in turn ensures you are being taxed on the correct amount of income.
Secondly, keep things organized, including things such as keeping receipts, invoices, and statements in one place. Keeping your business organized will make it easier to keep your books clean and make sure you are not leaving anything important out which could impact your tax outcome at tax-time.
There are some key steps you can take in order to have clean books and so you can file an accurate tax return and be ready at tax-time.
What Are Some Key Steps to Clean Books?
- Reconcile your books to your bank and credit card accounts. Make sure what is shown in your bank reconciliation is accurate so you are not overstating or understating how much money you have.
- Make adjustments. Make adjustments for any inaccuracies or stale items on your books like uncollectible receivables or uncleared checks.
- Separate your business and personal expenses. If you are a business owner it is best to have separate business accounts. You would not want to mix personal and business expenses and possibly miss a business expense that you thought was personal and vice versa.
- Organize your chart of accounts. It is important to categorize things correctly so they are categorized correctly on your financial statements since what’s on your financial statements also impacts your taxes.
- Make sure you gather your receipts for business deductions. Make sure you have your receipts together for your business expenses like business equipment since these expenses should be reflected on your income statement and will lower your income taxes.
- Verify inventory. If you run a business that has inventory make sure you take inventory so you are not counting an asset that you don’t have which will be reflected on your balance sheet.
- Account for payments to contractors and employees for services. If you paid contractors and employees for their services you want to make sure you include everything you have paid them since what you paid out is a deductible expense.
- Close your books. After all accounting adjustments are made, your books should be closed for the year so that you have your final numbers for your taxes and financial needs.
These are some of the key steps you need to take to clean your books, but don’t worry about taking these steps alone. QuickBooks can help you with the accounting needs mentioned like reconciling your accounts and producing financial statements you need, in order to make informed financial decisions and get your statements ready for tax-time.
Taking the time and energy to keep your business’s financial situation clean and organized will pay off in more ways than one. Keeping clean books will enable you to make informed decisions, keep your cash flow in check, and ensure your financial records are accurate so that you are taxed correctly at tax-time. Plus, you’ll have peace of mind knowing that your business is in good financial standing.
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