Organizing Bookkeeping Records for Your Business

By Lita Epstein from Bookkeeping Workbook For Dummies

4 of 12 in Series: The Essentials of Accounting Basics

Staying organized is critical to efficient and accurate bookkeeping. Organize your bookkeeping records by deciding what to keep, and how to find information quickly when you need it. Everything you do in your business generates paperwork that can easily become overwhelming if you don't keep it under control.

If you computerize your accounting you may not need to keep as much paper, but you still want a paper trail in case something happens to your computer records or you need the backup information for a transaction that is questioned at a later date.

Obviously, file cabinets are where you’ll store most of your records for the current year and the prior year. Older files you may store in boxes in a warehouse or store-room if you don’t have room in your file cabinets. How you set up the files can be critical to your ability to find something when you need it.

Bookkeeping storage methods

Many bookkeepers use four different methods to store accounting information:

File folders: these are used for filing invoice, payment, and contract information about vendors; information about individual employees, such as payroll related forms and data; and information about individual customer accounts.
Three-ring binders: Your Chart of Accounts, General Ledger, and Journals are usually kept in three-ring binders. Even if you do use a computerized accounting system, it’s a good idea to keep a copy of this for the month most recently closed and the current month in hard copy in case your computer system goes down and you need to quickly check information.
Expandable files: These types of files are good for managing outstanding bills and vendor activity. You can get alphabetical expandable files for managing pending vendor invoices and purchase orders. You can use 30-day and 12-month expandable files for managing outstanding bills.

As bills come in you can place them in the 12-month file for the month they are due. Then move the current month’s bills to the 30-day file by the day they are due. You may be able to avoid using these files if you are using a computerized bookkeeping system and set up the bill pay reminder system in your accounting program.
Media for storing backup computer data: If you are keeping the books on computer, be certain you make at least one backup copy of all your data daily and store it in a safe place — a place where the data won’t be destroyed if there is a fire. A good alternative could be a small fire safe if your business does not have a built-in safe.

When to keep or discard paperwork

You’ll find it doesn’t take long to build up lots of paper and not have room to store it all. Luckily not everything has to be kept forever. Generally anything related to tax returns has to be kept for at least three years, but once you’re past three years the IRS can’t audit you unless it suspects fraud. So you can get rid of most of your paperwork once it is four years old.

Some exceptions include employees. Those records you must keep until the employee has left the employment of the company for at least three years. The statute of limitations for most actions that can be filed by an ex-employee is three years after they left.

In the fourth year, you will be able to get rid of most of your paperwork, but you may want to keep certain sensitive data longer. Any information about assets that are still held by the company should be kept. You also should keep any information about pending legal issues. Check with your attorney and your accountant before destroying old paperwork and be certain you are not tossing something that could be needed.