Part II: Key Components of a Recordkeeping System
Currently, there are many different computerized accounting software programs available, such as QuickBooks, which help small business owners keep detailed records of their business operations. No matter what system you decide to install, there are several key components that should be implemented.
First, the system should be accurate. A good system will separate items on the balance sheet as assets, liabilities, and equity. Likewise, an income statement will separate items based on whether it is an income or expense item. If you are unsure of the proper classification, it is recommended that you contact your accountant. For example, classifying an item as a Research & Development cost (an expense), instead of Inventory (an asset), could have a substantial impact on your bottom line.
Second, the system should be current. If you are paid by a customer in February, but do not record the payment until April, you will not have the most recent information available to make a reasonable decision. Make recordkeeping a habit and update regularly.
Third, the system should be consistent. Consistency allows you to compare your records from one period to another period, as well as with industry standards. For example, a change in accounting policy, such as changing from a cash basis to an accrual basis affects the consistency of information. While a change in accounting policy is sometimes necessary, it will affect your ability to compare information.
Jessica Taylor, Associate Accountant
Davis & Hodgdon Associates, CPAs