Maintaining Proper Paperwork for a Business’s Cash Transactions - dummies

Maintaining Proper Paperwork for a Business’s Cash Transactions

When it comes to handling cash transactions in your business, a lot of paperwork changes hands. In order to properly control the movement of cash into and out of your business, careful documentation is critical. And don’t forget about organization; you need to be able to find that documentation if questions about cash flow arise later.

Monitoring cash flow isn’t the only reason you need to keep paperwork. In order to do your taxes and write off business expenses, you have to have receipts for expenses. You also need details about the money you paid to employees and taxes collected for your employees in order to file the proper reports with government entities.

Creating a filing system

Setting up a good filing system and knowing what to keep and how long to keep it is very important for any businessperson. To get started setting up your filing system, you need some supplies:

  • Filing cabinets: This one’s pretty self-explanatory — it’s hard to have a filing system with nothing to keep the files in. . . .

  • File folders: Use these to set up separate files for each of your vendors, employees, and customers who buy on store credit as well as files for backup information on each of your transactions. Many bookkeepers file transaction information by the date the transaction was added to their journal. If the transaction relates to a customer, vendor, or employee, they add a duplicate copy of the transaction to the individual files as well.

    If you have a computerized accounting system, you need to file paperwork related to the transactions you enter into your computer system. You should still maintain employee, vendor, and customer files in hard copy just in case something goes wrong.

  • Three-ring binders: These binders are great for things like your Chart of Accounts, your General Ledger, and your system of journals because you’ll be adding to these documents regularly and the binders make it easy to add additional pages. Be sure to number the pages as you add them to the binder, so you can quickly spot a missing page.

  • The number of binders that you need depends on how many financial transactions you have during each accounting period. You can keep everything in one binder, or you may want to set up a binder for the Chart of Accounts and General Ledger and then a separate binder for each of your active journals.

  • Expandable files: These are the best way to keep track of current vendor activity and any bills that may be due. Make sure you have the following:

    • Alphabetical file: Use this file to track all your outstanding purchase orders by vendor. After you fill the order, you can file all details about that order in the vendor’s individual file in case questions about the order arise later.

    • A 12-month file: Use this file to keep track of bills that you need to pay. Simply place the bill in the slot for the month that it’s due. Many companies also use a 30-day expandable file. At the beginning of the month, the bills are placed in the 30-day expandable file based on the dates that they need to be paid. This approach provides a quick and organized visual reminder for bills that are due.

    If you’re using a computerized accounting system, you likely don’t need the expandable files because your accounting system can remind you when bills are due (as long as you added the information to the system when the bill arrived).

  • Blank computer disks or other storage media: Use these to backup your computerized system on a weekly or, better yet, daily basis. Keep the backup discs in a fire safe or some place that won’t be affected if the business is destroyed by a fire. (A fire safe is a must for any business; it’s the best way to keep critical financial data safe.)

Figuring out what to keep and for how long

The pile of paperwork you need to hold on to can get very large very quickly. As they see their files getting thicker and thicker, most business people wonder what they can toss, what they really need to keep, and how long they need to keep it.

  • You should keep most transaction-related paperwork for as long as the tax man can come and audit your books. For most types of audits, that’s three years after you file your return. But if you failed to file taxes or filed taxes fraudulently, you may be questioned by the IRS at any time because there’s no statute of limitations in these cases.

  • You also may need proof-of-purchase information for your insurance company if an asset is lost, stolen, or destroyed by fire or other accident.

  • You need to hang on to information regarding any business loan until it’s paid off, just in case the bank questions how much you paid. After the loan’s paid off, be sure to keep proof of payment indefinitely in case a question about the loan ever arises.

  • Information about real estate and other asset holdings also should be kept around for as long as you hold the asset and for at least three years after the asset is sold.

  • It’s necessary to keep information about employees for at least three years after the employee leaves (in case any legal actions arise regarding an employee’s job tenure).

In general, keep information about all transactions for about three years. After that, make a list of things you want to hold on to longer, such as asset holdings and loan information. Check with your lawyer and accountant to get their recommendations on what to keep and for how long.