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Are you maintaining accurate records?

maintaining accurate records

Have you ever sat down at your desk and seen papers everywhere, little to zero organization, and not been able to tell where your company stood financially right away? It is easy for financial leaders, executives, and other business leaders to get in this messy state. Sure, you may have once had accurate records and known exactly where you were. But maintaining accurate records consistently is a critical piece to positioning your company for sale, getting ready for growth, acquiring capital, etc.

Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.

First, what is accurate or accuracy? Oxford Dictionaries defines accuracy as “the quality or state of being correct or precise.” If your company’s records are not consistently correct and precise, you may encounter some undesired results.

Are you maintaining accurate records?

A simple way to answer this question is to look at your records. Can you easily pull client reports, tax filings for the past couple of years, or receipts from a specific vendor?  Are you able to find information quickly? How well are you able to manage your business with your current records?

Why Maintain Records

Maintaining accurate records is not just for external entities like the IRS, banks, venture capitalists, etc.; but it is also essential for major management decisions, customer support, and financial growth. It allows every party related to your business to see clearly where the company stands. Banks, attorneys, decision makers, etc. all need to understand how your company is positioned. “These records will help you analyze your business’s profitability, stay out of trouble with tax authorities, maintain positive relationships with clients and vendors, protect your business from lawsuits and win lawsuits if you are harmed” (Investopedia).

maintaining accurate records

No one likes to drive blind, so why would you have disorganized, inaccurate records that blind you from seeing the whole picture when making decisions?

How to Maintain Records

There are several ways to maintain accurate records. These include identifying revenue streams, keeping track of invoices and receipts, preparing financial statements, tracking deductible expenses and preparing tax returns. Although these are not all the important records you should maintain, they are a good starting point.

Identify Revenue Streams

This might seem like the most obvious thing to do. But oftentimes we arrive at a new client to find they are mixing business and nonbusiness receipts as well as taxable/nontaxable sources of income. Separate for-profit and non-profit clients from each other. If you service multiple industries, it might be useful to separate your revenue streams by industry.

You don’t want to avoid looking at your business’s revenue. Where did that revenue come from? Is there an industry or type of business that is more profitable than others? Maintaining accurate records isn’t just for those outside the business, but it also will allow you to understand your entire company’s performance.

If you’re selling your company, buyers want to see each revenue stream clearly. By not having accurate records, you may be looking at destroyers of value. To improve the value of your company, identify and find solutions to those “destroyers” of value. Click here to download your free “Top 10 Destroyers of Value“.

Prepare Financial Statements

To prepare precise financial statements, it is critical that you maintain accurate records. Your income statement and balance sheet act as a window into how your business is performing. If the data isn’t 100% accurate, then any decisions made based on that data will not be the best decisions possible. This is because the information isn’t reliable. This can cause a disaster!

Keep Track of Invoices & Receipts

Because of the importance of tracking profitability, you as the financial leader should have a process to track your income and expenses. As a major tool in managing cash, regularly produce reports of the amount and composition of accounts receivables and accounts payable, what has been collected and paid. Not only will this create a system to time payments and encourage your team to collect, but your bank or creditor will be able to rely on your system. This is essential knowledge for the banks to know if you are in a financial crunch.

Prepare Tax Returns

Taxes are a necessary part of operating a business. When you produce tax returns, precise records are required. You need to report income, expenses, and debt on this document. Thankfully, this is not a major burden on your time as you should already have these three categories accurately measured and tracked as you need them to effectively measure the success of your business.

Track Deductible Expenses

Unless you track your deductible expenses throughout the year, you will most likely forget them when you prepare your tax returns. Be sure to create a file for all deductible expenses.

Tips in Maintaining Accurate Records

There are a couple tips and tricks to maintaining accurate records. Some of these include separating personal and business finances, having client files, storing contracts, and maintaining accounting/tax records.

Separate Personal & Business Finances

One of the top rules in operating your own company is to separate personal and business financials. When companies do not separate business and personal finances, records are muddled and there is no clear method to see what is personal and what is business. By doing this, you may run into tax issues, relationship issues, and inaccurate records.

Have Client Files

Separate each client into their own individual file. This will allow you to easily see when they started doing business with you, what work you’ve done with them, and how your relationship is progressing. In addition, you will be able to save time by picking up just one file for the client. And you will have everything you need to know about them in that folder. Need to have invoices, etc. in another folder? Make copies and put everything related to that specific client in their folder.

Store Contracts

When you get served with a lawsuit, it can be shocking. But the best way to combat the stress is to know exactly where to find everything you need to battle your accuser. Store and make copies of all contracts in one place. Then categorize the contacts by clients, employees, vendors, suppliers, etc.. Organize the contracts in a way that makes sense for your business.

Maintain Accounting & Tax Records

The worst offence in maintaining accurate records is not staying on top of your accounting and tax records. Instead of doing the past three months of accounting in a week, create a system to update, maintain, and produce reports regularly. Submit these report for your financial and executive team to view on a schedule.

One of the main “destroyers of value” is not consistently having accurate records. If you are looking to sell your company or just want to improve its value, download your free guide to avoiding things that take value away from you.

maintaining accurate records

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maintaining accurate records

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History of Accounting

See Also:
History of Factoring
Generally Accepted Accounting Principles (GAAP)
International Financial Reporting Standards (IFRS)
Financial Accounting Standards Board (FASB)
Certified Public Accountant (CPA)

History of Accounting

Below is the history of accounting timeline is a general overview of larger events which have all contributed to modern day accounting. It encompasses primitive accounting, with the use of an abacus, to the accounting software and regulation that we use today.

History of Accounting Timeline

The history of accounting timeline starts in 2500 B.C.

2500 B.C.

Historical accounting records have been found in ancient civilizations like the Egyptian, Roman, and Greek Empires as well as ancient Arabia. Back then, rulers kept accounting records for taxing and spending on public works.

1000 B.C.

The Phoenicians created an alphabet with accounting so that they were not cheated through trades with ancient Egyptians.

500 B.C.

Egyptians carried on with accounting records. They even invented the first bead and wire abacus.

423 B.C.

The auditing profession was born to double check storehouses as to what came in and out the door. The reports accountants took were given orally, hence the name “auditor.”

1200 – 1493

The first requirement for businesses to keep accounting records spread across many of the Italian Republics in the 13th century. They took these records mainly to keep track of the day to day transactions and credit accounts with other businesses.


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1494

Luca Pacioli, the father of accounting, writes his famous paper “Everything about Arithmetic, Geometry, and Proportion.” The treatise that he writes is mainly a study that Pacioli performs on the common practices of merchants in Venice, Florence, and Milan. He revealed that several merchants kept books of debits which means “he owes” as well as credits which means “he trusts.” With this early double entry accounting system merchants were able to maintain records so that they could improve the efficiency of their businesses. With these records came the primitive income and balance sheet statements.

1500 – 1700

As the time progressed, double entry records had large and small innovations added. For example, the East India Company develops invested capital and dividend distribution during the 17th century. This also created the need for a change in financial accounting and managerial accounting. They used the first presentation to gain investors, while they used the next presentation for business efficiencies.

1700 – 1900

During the Industrial Revolution, accounting really took off as industrial companies sought out to gain financing and maintain efficiency through operations. Several of the double entry accounting methods was truly developed in this area as there was a focus on business as never before. Shortly after, the first accounting organization was developed in New York in the year 1887. The title and professional license of the Certified Public Accountant followed shortly in the year 1896.

1920 – 1940

The 20s accounting really became important to reduce the amount of fraud and scandals that were performed in businesses around the country. U.S. GAAP was developed shortly after by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) in the year 1939.

1940 – Present

Since this time the AICPA and FASB have been working together with the Securities Exchange Commission (SEC) to develop accounting standards for business. Through the help of technology and computer systems all standards created for U.S. GAAP have been centrally located into what is known as the “codification.” The codification reveals all of the current practices and standards, and even reveals developing areas of standards of accounting that are currently being debated upon.

Several accounting systems like Peachtree and Quickbooks have also made the accounting profession automated. These programs ease the reporting of transactions, but also comply with GAAP. Because of this there is a lesser need for accountants to post transactions, and more of a need for the review of these transactions. In some firms, they don’t realize the change as they still employ a full accounting staff. As time moves forward it is necessary for accountants to move into a role of reviewing transactions rather than posting them.

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history of accounting

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