Bookkeeping Systems: 5 Essential Components

The Proper Foundation

Five components are essential in designing the proper accounting system for your home based business. These components form the foundation upon which you will make informed business decisions. They are your:

  1. Filing System:  so you can lay your hands on documents when you need them
  2. Transactional Recording System: some examples include QuickBooks or Excel
  3. Chart of Accounts: which shows what the numbers do
  4. Processes and Procedures: who does what and how they do it
  5. Reporting Package: structure used to run your business

Your Bookkeeping System Should Serve You

It’s important to understand that your accounting system will change as your business grows.

Your size, your business structure, your industry, your internal control requirements means your system needs to be considered carefully. It needs to be designed so it is easy to use and in such a way that you can understand it even if you don’t have bookkeeping training. In other words, your accounting system needs to serve you just as well as your bookkeeper.

To serve you well, it needs to:

  •  Help you make sound business decisions by answering questions like: “Are you charging enough to cover your expenses? What is your profit margin? Are you spending too much?”
  • Track criteria agreed upon in bank lending arrangements
  • Aid in the efficient and accurate preparation of all your compliance tax returns (sales, payroll, worker compensation and income taxes)
  • Ensure you can pass a tax audit with flying colours by tracking what is required by law and having a system to retain your support documentation

Source: Bookkeeping Essentials Blog

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