8 Simple Practices For Small Businesses To Organize Receipts Efficiently

Keeping a record of your business transactions is considered a top priority for a self-employed or small business owner. Keeping your records properly saves you from being audited by the IRS. Plus, staying organized will save you time during tax season. 

However, we understand that keeping track of all your receipts and records can be tedious and time-consuming. That’s why in this article, we’ve outlined eight best practices to help you organize receipts and records efficiently. 

1. Use a business account and credit card instead of cash

As the IRS will continue to enforce its audit rules, keeping a better set of bookkeeping and receipts for all of your expenses will help you save time and hustle. This simple yet important tip can help you cope with it. Avoid using cash — it’s easy to spend, hard to track, and nearly impossible to match up cash spent with receipts. 

On the other hand, a credit card or debit card will provide you with monthly statements, enabling you to cross-check details with your paper receipts. It’s also a good idea to have a separate business account and credit card, so you don’t mix business expenses with your personal spending. 

2. Save your receipts

Don’t just rely on bank statements, credit card statements, or canceled checks! The IRS won’t accept your bank or credit card statements to justify deductible expenses. You will need an itemized receipt that corresponds with the transaction. 

Hang on those itemized receipts, which are also called “source documents,” for at least six years after your last Notice of Assessment since the IRS will ask to see them in the event of an audit. You can keep a physical or digital version of receipts. 

3. Choose email receipts instead of paper receipts

Nowadays, many merchants offer this service to their customers. You can choose to receive your receipts via emails, label and categorize them in a specific order. Email receipts are convenient and friendly to the environment as they go straight to your inbox and clear your desk and drawers from piles of paper receipts. You can always find them easily, create expense reports, and do so much more. 

4. Review your receipts once a month

Spending some time reviewing, categorizing, and organizing receipts for 30 minutes every month can make a huge difference! It keeps things manageable as the year progresses and helps you keep track of your spending so that you won’t miss out on any tax deductions. 

You can purchase an accordion folder every year to store all business receipts and make sure each folder contains all receipts for the year. These folders are inexpensive and easy to obtain. They allow you to organize receipts by category and year, making it easier than ever to find any receipt even years later. 

5. Make notes on the back of receipts

This is an especially great idea to keep track of dining and entertainment expenses. It’s easy to recall why you bought a printer, but it can be difficult to suddenly remember who you went to dinner with and what the business purpose was in 2015. By starting this simple habit, you will rest assured that you will not miss any dining and entertainment expense deductions for business purposes.

6. Create a spreadsheet for work-from-home expenses

Whether you have always been working from home, or you are working remotely due to the Covid-19 pandemic, there will always be some noticeably deductible business expenses. These expenses include a portion of cleaning materials, utilities, home insurances, office supplies, along with part of your property taxes, mortgage interest, and capital cost allowance.

To claim these expenses, you need to calculate the percentage of your home used for business and apply that percentage to the tax deduction. Create a spreadsheet including your receipts for home office expenses throughout the year. By making it a habit to update the spreadsheet once a month, you’ll save yourself the headache of scrambling to input and tally up all your work-from-home expenses at the end of the tax year.

7. Back up your receipts

Since paper receipts tend to fade with time, keeping a digital copy of each receipt can save you from getting in trouble with the IRS. The simplest practice is to snap a picture of each receipt on your phone, then upload it to a central location later and keep it for at least six years. The IRS allows digitally stored receipts, however, don’t forget to back up stored receipts (on the cloud or a memory device) in case your hard drive crashes and deletes all your important information by accident. 

8. Scan and store your receipts digitally

Storing receipts digitally has been proven to improve business efficiency. It provides several benefits including time and cost-saving, easy to store and access, tax-ready, reduces clutter,  lessens the risk of data loss, increases security, and so much more. 

There are plenty of receipt scanning apps that you can use to scan and store your receipt digitally. Each offers special features for particular purposes, so anyone can choose the most suitable one and benefit from it. 

Shoeboxed is a painless receipt scanning and organizing solution for freelancers and small businesses owners. This versatile app serves many purposes: scan, store and organize receipts, manage business expenses, store business cards and even track mileage for business travelers. 

Shoeboxed’s OCR engine and human data verification features ensure that your receipts are legibly scanned, clearly categorized, and accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. What’s more, Shoeboxed enables you to create clear and comprehensive expense reports that include images of your receipts. You can then export, share or print all of the information you need for easy tax preparation or reimbursement… within a few clicks. 

Shoeboxed is now available on iOS and Android. Get your free trial before choosing the perfect plan

Conclusion

Organizing your receipts can keep you proactive and productive, which saves you lots of time, stress, and even money in the long run. Going digital helps you organize receipts and keep track of your expenses easier than ever. As everything is digitally stored and accessible through a cloud-based system, you will be able to work with them anytime, from anywhere, with any device, within a few clicks. 

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10 Reasons Why Bookkeeping Is Important To All Businesses

The main purpose of bookkeeping is to track the financial activities of a business. Alongside the growth of the business, bookkeeping becomes more complex with why the introduction of tax, assets, loans, and investments. Bookkeeping allows businesses to keep an up-to-date record of their revenue and expenses, the amount owed by the business, investors, and customers, and so much more. 

Obvious, detailed, and thorough bookkeeping is crucial for businesses of all sizes. This article will give you a detailed answer to the question “Why is bookkeeping important to all businesses?”

10 reasons why bookkeeping is important to all businesses

1. Optimizes your budget 

Bookkeeping is vital to any business because it makes budgeting so much easier. Bookkeeping helps you organize your income and expenses properly,  and makes it simple to review your financial resources and costs. A clear budget in turn creates a clear financial plan for your business. Then you can plan for future expenses and the anticipated resources needed to cover those expenses. 

See more: 9 Basic Types Of Bookkeeping That Every Bookkeeper Should Know.

2. Simplifies tax planning

Every business has to file their taxes at the end of the tax year. And for many accountants, tax season means scouring their desks to find missing paperwork. If this sounds familiar to you, then you may need to consider setting up a bookkeeping system. With an efficient bookkeeping process, you will have your financial information ready for tax season and your accountants will no longer need to spend hours on the tax filing process. Bookkeeping is important for your personal tax return as well. For business owners, a large part of their income comes from their business. To know their total annual income, they need to know what their business earned first. Having detailed balance sheets over time helps you predict your annual profits more accurately. 

3. Supports decision-making

The best decisions are informed decisions, and to make an informed decision, you need to have access to all available information. Bookkeeping tracks and compiles all of the information needed to support your financial decisions. 

An inaccurate understanding of your financial status and key performance indicators can lead you to make some erroneous decisions that could jeopardize your business. For example, in the short term, if you don’t understand your cash inflows and outflows correctly, you may experience overdrafts, late fees, and difficulty in making your payroll timely. In the long-term, if you don’t know your sales profitability, you may miss many opportunities to invest in the more profitable lines of your business, which leads to lower earnings. The same thing can happen to non-profit organizations. If you don’t know the true cost of your programs, you may make bad decisions on which programs to invest more resources in. Business owners can prevent these types of situations by maintaining accurate books and records. This will simultaneously optimize business operations as well. 

4. Tracks profit and growth

Bookkeeping provides financial information about your company through financial statements. Financial statements, including balance sheets, income statements, and cash flow statements provide information for a set period. For example, you can see if your business is profitable or not from the income statement. Together, all these statements take a snapshot of your business, allowing you to see how well the business has performed. 

Bookkeeping also helps to track business growth. Over time, you will collect months and years of data. You can use this data to observe trends and better understand your business progress and compare results across periods. By keeping regular financial records, you can map out your business goals more accurately and achieve steady growth. 

5. Manages and improves cash flow

Bookkeeping allows business owners to take control of their business’ finances. It draws a clear picture of how you spend money. As a business owner, you need to ensure that your customers’ invoices are paid on time. You can track when your customers and vendors pay their invoices through the routine records of revenues, expenses, liabilities, and receivables. You can also notice if you are paying your bills on time to avoid penalties. 

So, how does bookkeeping improve your cash flow? Bookkeeping provides information regarding your outstanding invoices, such as customer or vendor names, amounts, issued dates, and due dates. Business owners can use this information to implement better cash flow policies, such as shortening payment deadlines or adjusting the time of payment for vendor invoices. By doing so, you can increase the average amount of cash you have on hand at any given time. 

6. Greater focus on strategy

Disorganized books can weigh heavily on a business owner’s mind. Your bookkeeping should not be keeping you up all night. When your books are completed and in order, you can rest easy knowing that your company’s financial information is review-ready. You will then find your mind at ease and more focused on other elements of the business, such as planning and strategy. 

Tactical and strategic planning are at the core of business operations. As you are always thinking of growing and developing your business, bookkeeping will bring you closer to your short and long-term goals. You can use the information provided by bookkeeping to track the results of your strategy and adjust your goals accordingly. 

7. Maintains organized records

As your company’s financial records are important to a number of stakeholders – investors, lenders, customers, employees, etc, providing the information requested by these parties is vital to your ongoing operation. In this case, being organized is a skill that every business owner should be able to find information at any time. If you cannot provide records to the IRS, your business can face penalties and fees. If you don’t provide records that investors and lenders requested, it could result in the stoppage of cash flow and so on. Being disorganized with your books can compromise or even terminate your relationships with these parties. 

Furthermore, the last-minute stress of finding a crucial piece of paperwork can lead to missed deadlines and other errors. Businesses of any size can’t afford to make mistakes, and regular bookkeeping can help with that. By keeping an eye on your bookkeeping frequently, instead of leaving it to the last second, you will be able to maintain organized records and save a lot of time finding the information you desperately need. 

8. Meets law requirements

The law requires businesses to keep their financial records separate from the owner’s personal expenses. Failing to do this can lead to the termination of your business. 

Accurate financial records are essential to filing your tax return properly, and can also minimize the chance of being audited and/or incurring tax penalties. Businesses with bad bookkeeping practices tend to file late and may lack the proper documentation to support their filings. This can land you in deep trouble with the IRS. If you are audited and cannot support your income and deductions, the result can cost your organization a lot. 

9. Data analysis 

Bookkeeping matters because it helps with business analysis. Bookkeeping is a management tool used to analyze business performance. 

One of the most useful products of bookkeeping is the financial statement. Business owners should generate the financial statement regularly to know which lines of business are working or not working. Financial statements allow business owners to focus on their business’s strengths and improve on its weaknesses. 

Bookkeeping reveals the previous financial performance of your business. In order to make future plans, you need a good understanding of your situation. Bookkeeping will give you a clear picture of what does work and what does not. 

10. Makes it easier to report to investors

Investors and shareholders want to know the financial performance of your business so that they can determine the value of their investment. Let financial statements do the work. The combination of the balance sheet, income statement, and cash flow statement presents the value of the business. 

As stated above, the main product of bookkeeping is financial statements. Bookkeeping provides investors with up-to-date and accessible information. Then, investors will be able to make better, well-informed decisions, which is the ultimate purpose of bookkeeping. Bookkeeping is not only vital for current investors but future investors, too. Potential investors are more likely to invest in your business when you have organized information. Speaking of which, if you were an investor, would you invest in a company that did not have accessible and organized financial records? 

Final thoughts 

So now you have the answer to the question “Why is bookkeeping important?” It saves your money, time, and energy and helps you manage your business’s finances better. You can streamline the process even further by implementing a paperless bookkeeping system using Shoeboxed. Shoeboxed helps you clear your desks and turn your data into actionable information. Let us scan and organize your receipts, extract key data, create expense reports, and manage them in standard categorizations. Business owners no longer have to worry about keeping so many receipts, documents, and other accounting paperwork. Just leave it to experts. Contact us today and get ready to see how bookkeeping benefits your business. 

If you have any other reasons why bookkeeping is important to businesses, let us know in the comments!

Business Transaction: Definition, Types, And Examples

Business transactions are a crucial aspect of every business. Without it, a business may not know its position at a particular period of time. This article will give you a formal definition of a business transaction, its different types, and examples of typical business transactions. 

1. What is a business transaction?

In accounting, a business transaction (also known as a financial transaction) is an event that must be measurable in terms of money and impacts the business’s financial position. It can also be defined as any monetary activity that occurs in a business. All business transactions must be accompanied by a source document. 

For instance, if you run a merchandising business and sell goods to a customer for $1000 cash, you can measure this event in terms of money and impact to your business’s financial position. So it’s a valid business transaction. Similarly, suppose you pay $500 in cash to your salesman as his pay. In that case, this event is also a transaction because it has a monetary value of $500, making a financial impact on your business. Only those events that can be measured in monetary terms are included in the business’ accounting records. 

There are numerous events related to a business to which we can’t reliably assign a monetary value. Such events can’t be called business transactions or financial transactions. For example, when a company CEO delivers a motivational speech to the employees, though this event may be of great benefit to the business, we can’t assign a monetary value to it. So it isn’t a business transaction and can’t become a part of accounting records.  

Each business transaction must be recorded by making a journal entry by the bookkeeper or accountant. Since each transaction impacts the business’s financial position, the bookkeeper or accountant must make sure that a responsible person has authorized it. 

See also: Bookkeeping For Entrepreneurs Best Practices.

One or more source documents must support a valid business transaction before being recorded to the journal. Typical examples of source documents are sales invoices, purchase invoices, cash receipts, payment vouchers, statement of accounts, bills of exchange, promissory notes. Basically, any other document containing the basic transaction details can be presented as proof of valid transaction.

2. Characteristics of a business transaction

A business transaction can be an exchange transaction (which involves physical value exchange such as purchase, payment, etc.) or a non-exchange transaction (which does not involve physical exchange, such as fire loss, flood loss, internal production, depreciation, etc.). A business transaction can be as simple as a cash purchase or as complex as a long-term service contract. However, a business transaction must include the following characteristics: 

  • The transaction must be for a certain sum of money
  • The transaction occurs between two parties
  • The transaction is on behalf of the business entity
  • The transaction isn’t for any individual person’s purpose
  • The transaction must be supported by authorized legitimate documents (sales invoice, official receipt, disbursement voucher, remittance advice, etc.)
  • The transaction must have a two-fold effect on the elements of accounting.

3. Main types of business transactions

In accounting, there are two ways to classify business transactions: cash and credit transactions or internal and external transactions. 

Cash and credit transactions

Cash transaction: In a cash transaction, the payment was paid or received in cash at the time the transaction occurred. For example, suppose you purchase a new shirt from a store and pay at checkout, a cash transaction happens between you and the store. Even if you made the payment with a credit card, as long as it was a payment in-full at the time of purchase, it is still considered a cash transaction because the payment is made when the transaction occurs. In the modern business world today, cash transactions are not limited to currency notes for making or receiving payments. All transactions made using debit or credit issued by financial institutions are also categorized as cash transactions.

Credit transaction: A transaction is classified as a credit transaction when the payment is made after a set period of time, also called the credit period. In other words, the payment is received or paid at a future date. For example, when you purchase a couch from a furniture store, the store allows you to pay within the next 30 days instead of paying at the time of the transaction. Though cash isn’t involved at the time of sale, you will need to pay to the couch after a set period of 30 days. In the business world today, goods are mostly purchased and sold on credit. 

Internal and external transactions

Internal transaction: When there is no external party involved in a business transaction, it’s classified as an internal transaction. Even though there is no value exchange with a third party, a monetary event has taken place that impacts the business’s accounting. An internal transaction can be in the form of depreciation on a fixed asset or loss of assets. The internal transaction is also known as a non-exchange transaction.  

External Transaction: An external transaction is sometimes called an exchange transaction. This transaction occurs when two or more parties are involved in the transaction. These are daily occurring transactions such as purchasing goods, paying rent or utilities, or paying employees. Normally, a large portion of business transactions consists of external transactions. 

4. Examples of business transactions

Let’s take a look at some common business transactions: 

  • Sales of goods and services (either for cash or credit);
  • Purchasing of goods and materials (either in cash or credit);
  • Purchasing services (such as equipment repair, advertising, printing costs);
  • Investment of cash on other assets by the business owners;
  • Borrowing of cash for business purposes from other entities;
  • Withdrawal of cash or other assets, and distribution of dividends; 
  • Paying wages and salaries;
  • Accounting for and paying tax;
  • Collection of receivables from customers and other entities;
  • Payment of payables to the supplier or other entities;
  • Consumption or expiration of assets (e.g., the use of office supplies, the expiration of insurance, expiration of rent, depreciation of equipment, etc.);
  • Movements of cash in the bank account (which usually arise from the transactions above). 

Final thoughts

It’s important to understand your company’s role in a transaction. It affects everything from how you provide services to your customers to marketing, pricing, and more. Understanding thoroughly about these types of business transactions helps you make more informed decisions about the business. 

In most cases, companies have to work with multiple types of business transactions, and they need to keep track of them with numerous paperwork like invoices, receipts, and expense reports. If this sounds familiar to you, then you can consider digitizing your paper receipts and getting them into action. 

Shoeboxed is an outsourced receipt-scanning service that converts paper receipts into organized digital copies on your company’s behalf. You can scan your receipts with a single smartphone or mail them to any Shoeboxed facility to have them scanned and organized. Shoeboxed is the simplest way to keep track of your business transactions by turning your receipts into data. Get paper off your desks and keep your vital documents in a logical sequence for years with Shoeboxed!

Try Shoeboxed for free with our 1-month trial!