Practical Bookkeeping

I have observed bookkeepers entering a business's monthly transactions by converting them into a series of journal entries to save time. Is this practice incorrect? Not necessarily, but it does have implications. When financial records are consolidated in this manner, it bypasses important historical reports. What does this mean? It means you lose the ability to access detailed records for future reference. For instance, there will be no reports generated from the vendor module, which would typically display all transactions by vendor from the beginning of the relationship. This applies to the income side as well, where you would be unable to generate reports showing income from various sources.

It is important to note that entering data via journal entries increases the risk of overlooking inaccuracies or issues. As a standard practice, when I review my clients' books, one area I examine is vendor activity to identify any anomalies. In most accounting systems, the vendor file will indicate the expense account used for each transaction. A quick review can help identify mistakes, particularly if you are monitoring spending for a specific expense account for budgeting purposes or expense reduction strategies. It would be noticeable if all transactions for a vendor were consistent except for one or two, allowing you to investigate further to ensure accuracy.

As a business owner, the most effective strategy for business growth involves closely monitoring your financial activities and comprehending the financial reports. These reports are crucial for gaining insights into your spending and income patterns. Your financial system should consistently offer a clear overview of your operations. Failing to fully utilize the accounting system will limit your business to a cash-basis performance, making it challenging to forecast data, reduce expenses in the appropriate areas, and make sound financial decisions.

A penny for your thoughts