Smart Accounting Principals for Small Business

1. Use accrual-based accounting: Accrual basis better represents the financial condition of the organization than Cash basis accounting. (Note: QuickBooks allows you to see most reports on both Accrual and Cash basis)
Accrual accounting will help you:
- recognize revenue in the correct fiscal period and when related expenses occurred.
- restrict income to the period or purpose to which it was intended.
- highlight expenses paid in advance or due to be paid to recognize in the correct fiscal period

2. Use double-entry bookkeeping: for every transaction, the money has to come from somewhere (i.e. a checking account) and go to somewhere (i.e. office supplies). Since debits must equal credits, double entry provides a safeguard against error. (Note: QuickBooks is double-entry automatically)

3. Customize your Chart of Accounts: the Chart of Accounts is the key stone to your organizations finances. It should list every possible way for money to come in, go out, hang out in or move around in your organization. It should encompass what board, staff, management, and investors need to know. If your organization uses a budget, the categories of the budget should be the same as your Chart of Accounts. You can create sub-accounts to give you more detail and get a subtotal for types of expenses. (Note: QuickBooks also has Class codes to break out expenses by Program area without duplicating expense categories)

4. Print and review the Profit and Loss report and the Balance Sheet report on a regular basis (at least monthly) to catch errors and omissions.

5. Have a consistent bookkeeping system that standardizes when and how you enter data, summarize/report data, and reconcile data. A written "bookkeeping manual" can ensure continuity between bookkeepers.

6. Have internal controls and segregation of financial duties to prevent error or theft. Unless the owner of the business, the same person should not be responsible for cutting and signing checks and reconciling the bank accounts.

7. Petty Cash should be small amounts, carefully managed by at least two people, for short term use only.

8. Do not loan money to staff or board members. Do not use business funds for personal charges, even if you are the business owner - transfer money to your account instead.