Here, in no particular order, are the five worst accounting systems that I have come across in my twelve years in public accounting:
- The shoebox accounting system – this is a great idea if you want an extremely high bill from your tax professional. For the best results, have the receipts wrinkled up and mixed in no particular order, add random pictures of your pet or a recent vacation, and make sure you include some receipts from different years just to keep your tax professional on their toes.
- The handwritten, single page summary of income and expenses – nothing instills confidence in a tax professional like a list of income and expenses with no backup that resembles a grocery list – especially when all the numbers are conveniently rounded.
- Saving twelve months of banks statements for your tax professional – this is not really even an accounting system, but you would be surprised how many clients save twelve months of accounting input and reconciliation work for their tax professionals to complete during tax season. This is a good system if you enjoy finding a new tax professional each year.
- The “is it personal or business?” accounting system – mixing your personal and business transactions in a personal finance software file is another winner with tax professionals as it creates hours of never ending trivia.
- The “good intentions” accounting system – this disaster is often the result of an owner who bought a popular accounting software package with the great intention of getting training and assistance, but in the end just quickly input all the transactions and posted them haphazardly, leaving a big mess for their tax professional to sort out.
Hopefully you get the point from these examples – an accounting system has to be organized, detailed, accurate, and timely. This is can be done manually, with computers, or a mix of the two.