For many business owners, one of the biggest concerns regarding their finances is whether or not they’re Keeping Proper Account Of Business Expenditures to ensure they’re keeping as close an eye on the books as possible. 

While you could hire an accountant or bookkeeper to do this kind of work for you, there are certain aspects of your business that you can audit and account for on your own with a little planning, some ingenuity, and the right tools. 

This article on auditing and accounting will help you find the right balance between accounting practices and help keep you on top of your business finances.

Have Separate Personal and Business Accounts

Having two bank accounts is a great way to keep your personal funds separate from business funds. It’s important that you’re able to account for every cent you spend since it has an impact on your tax liability. 

If you want to be sure your business transactions are accurate and accounted for, utilize a checking account specifically designated for business expenses—these transactions must be reported for you to file them on your taxes at year’s end. 

Also, ensure that any vendors supplying you with services or products charge your company rather than yourself—otherwise, it may look like personal spending. This can help lower taxable income by reducing self-employment taxes.

Determine A Preferred Accounting Method

Before you begin tracking your expenses, it’s important that you determine what kind of accounting method you’ll be using. 

Do you want to use cash-basis accounting or accrual-basis accounting? Cash-basis accounting (also known as cash only) allows for business expense deductions when payments are made. This means a business owner can deduct costs from their tax bill once they’ve been paid—even if those costs were incurred before January 1st. 

Unfortunately, several things can get complicated regarding cash-only accounting: estimating income, paying estimated taxes on those estimates, keeping an accurate inventory of what was sold in what period, etc. Because of these complications, most businesses choose to use accrual-basis accounting instead. 

Accrual-basis accounting requires companies to record expenses based on when they occur rather than when bills are actually paid. In other words, you can claim any cost that has been accrued even if you haven’t yet paid for it. 

The upside is that many small businesses prefer an accrual basis because it’s easier to keep track of money coming in versus money going out. And since everything is recorded at its actual value rather than its purchase price, investors and accountants can gain a clearer picture of how much profit your company is making at any given time.

Categorize Expenses

If you’re not auditing your expenses, money can easily slip through your hands. The best way to prevent that is by setting up a strict expense-tracking system—even if you use spreadsheets. 

The easiest way is to categorize each expense into different buckets based on where it came from (for example, travel, rent/mortgage, advertising/marketing costs, etc.). Setting up categories ahead of time will let you easily track where all your money is going. 

If a certain category exceeds its budget for some time (e.g., travel), perhaps you need a strategy adjustment! You should also set up reminders to enter new expenses as they come in so you don’t forget anything. 

Utilize Accounting Software For Expenses

If you are a small business owner doing the accounting on your own, one simple way to cut down on time spent tracking expenses is to invest in accounting software that can automatically update your accounts.

The most basic accounting function involves keeping track of inventory levels to determine how much product remains at any given time. An accountant or bookkeeper typically performs these tasks by hand, but some companies opt for computerized systems. 

Although an accurate inventory is necessary for many different aspects of running a company—and it is often required by law—the process itself doesn’t require much technical skill from its users.

While keeping paper receipts may seem like a good idea, it’s a pain that’s not worth it. You may have some business expenses deductible if you itemize them on your taxes, but first, you need to keep track of what they are. A good rule of thumb is that any expense over $50 can be recorded in accounting software. 

Next, try automating your accounting tasks as much as possible with software that sets up the expenses. You’ll get an end-of-the-month snapshot of how things are going in under a minute. They’re often simple and painless to set up—and will keep you out of trouble down the road! 

This software makes it easy for you or your bookkeeper (if you have one) to enter an expense and have it flow directly into accounts receivable or other appropriate categories. You can also find free versions online if budgeting is tight. 

The best part about using these tools is that they’re automated; once you’ve set up your company with them, all you need to do is log into your account each month and review the numbers. In most cases, the system will flag any discrepancies, so there’s no need to sift through paperwork or receipts unless something looks off.

Review Expenses Regularly

Review your business’s expenses regularly. At a minimum, you should review your expenditures biweekly or monthly. It is also helpful to compare expenses between quarters or months as it can reveal seasonal trends or increased spending in certain areas. 

If there are changes, take time to understand why they occurred before deciding whether they need a change. For example, if advertising costs have increased significantly over the last year, consider what factors could have contributed to that increase. 

For example, did you add new services? Did demand for existing services increase? Did you hire more employees? Were more resources dedicated to one area? These questions help you identify where additional expense control measures may be needed. 

Reviewing your financial records regularly will ensure that expenses don’t spiral out of control.

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