Keeping the Books

Many small business owners are deciding at this time of the years that they have made the wrong decision about their accounting needs during the year.

Some business owners are still in the "shoe box" mode of thinking when it comes to bookkeeping.  Throw everything that might relate to the 2009 into a box and let the accountant sort it out.  Several reasons make this a poor decision:

1. If a conscious effort was not made during the year to keep tax records in one easy to access to place, many records may be missing or incomplete, making the job of the accountant challenging and expensive. 
2. With incomplete records, there is a chance that the books may be misstated, resulting in possible penalties for both the preparer and the owner in the event of an audit.
3. If estimated payments are not made based on current year income, penalties on short paid taxes could be owed.

Another method commonly used today is for the business owner to decide to do the books himself with the availability of inexpensive software available today.  Several caveats should be made known to the business owner:

1. Just because the business owner has software, does not mean he knows accounting, which includes the knowledge of how to categorize all of the income and expenses and how to make journal entries for all unusual transactions.  Miscategorized items could lead to misstatement of tax.
2. Several functions need to done monthly and compared to the general ledger like bank reconciliatons.  Addtiionally, loan statemets, accrued liabiities and other balance sheet accounts need to reconciled monthly.  If they are not reconciled monthly, the accountant preparing the return is forced to re-perform the work.

The business owner may have decided to hire a bookkeeper who is not an accoutant or a CPA, but perhaps has bookkeeping experience.  The knowledge and expertise of people without a degree or certification varies widely and so does their work.  I have many times looked at the work of supposed "bookkeepers" and wished that they had done nothing and I could just start from scratch. 

The best advice is to consult with your CPA and ask them what would be the best approach for your business given its size, the number of transactions, and the talent of your staff.  Prepare for 2010 and make the best of the 2009 records that are available.