All businesses, regardless of the size of their operations, are required to keep their accounting records. Deciding on how to record transactions is essential to the efficiency of your business. The option you settle for will depend on several factors such as them the number of transactions that your business completes in a day.
Selecting an Accounting Method
There are two common methods of accounting: the accruals method and cash-basis method. Each method has its benefits and limitations. Businesses may consider hiring accounting experts to assist them not only in determining the best method for their businesses but also in setting up their preferred accounting methods. Reliable Xero accountants offer consulting services to interested businesses at affordable prices. Additionally, the company has powerful accounting software that businesses may acquire to increase the efficiency with which they update their books of accounts.
The cash-basis method requires that only those transactions that resulted in a cash transfer may be recorded. For example, when a customer orders for a product, the transaction remains open until when they complete payment. It is only then that the transaction may be recorded. It is assumed to be an efficient method, especially for small businesses. On the other hand, the accrual method requires that two records are entered for every transaction.
Choosing How to Record Transactions
Small businesses tend to undertake only a few transactions in a day and may, therefore, settle for the manual entry of transaction records. The transactions may be recorded in a journal or even as a rough sketch to be sorted out later. However, that is not the case for bigger corporations. Imagine a business that serves over 1,000 clients in a day, settling for handwritten records. The process will not only be slow but also ineffective. It may also be difficult to solve any errors committed. Hence, such companies are likely to acquire accounting software. The software allows for the real-time entry of transaction records. The acquired software should not only generate receipts for all transactions made but must also allow for the generation of transaction reports.
Keeping as Many Transaction Receipts as Possible
Businesses are encouraged to retain as many receipts as possible. They come in handy when updating the books of accounts. Sometimes, you may commit entry errors while recording transactions. At that point, it is only by going back to your receipts that you are able to identify the errors and make the correct adjustments. Transaction receipts are also an effective control method. As a business owner, such receipts may help you detect possible cases of stock theft because the receipts indicate the day, the date, and the quantity of products that have been sold. Therefore, it becomes possible to determine the number of items sold and those expected to still be in stock.
Effective accounting practices also come in handy when filing for taxes. That is especially true for businesses that record their transactions manually. The receipts may act as a backup to your claims of the taxes you should pay.