Reliable financial statements are a CEO’s friend because they give you critical data on how the business is doing. Whether you use QuickBooks or other accounting software, the way your accounts are set up and the way you record transactions can have an impact on your ability to manage your business. Here are some tips for improving the quality and usability of your financial statements:
- If you use a credit card for business expenses, set it up as a “credit card” account type in your accounting software. Then, record charges separately and code them to their proper expense accounts.
- Instead of recording all the payroll in a single account, split it up into different categories as needed. Salaries paid to production workers, administrative personnel and salespeople can each have their own accounts.
- You may be maintaining your books on a cash basis, but an accrual basis may be more beneficial for decision-making. What does this mean? If you record your bills and your customer billings on the books as they are invoiced, you will be able to track how long it takes for these bills to be paid. A low accounts receivable turnover rate means you may have a collections problem; a low accounts payable turnover rate can indicate a cash flow problem.
- Reconcile your bank accounts and credit cards on a monthly basis. The more time passes in between reconciliations, the less accurate the account balance in your accounting software will be.
- Take a look at your product costing. Any expenses that are directly related to producing your product or service should be included in Cost of Goods Sold rather than Operating Expenses.
- Lastly, be sure to perform backups of your accounting software on a regular basis, whether manually or automated.