As a small business owner, it’s easy to become overwhelmed by the sheer volume of financial data you must track and store. Every successful small business leaves a trail of hundreds – if not thousands or millions – of transactions in its wake. Depending on your industry, these transactions may take place on paper, electronically, or both.
Business transaction records demonstrate that your company is running smoothly and efficiently, as well as whether or not you comply with rules and regulations. They show that you follow tax regulations and payroll requirements, as well as Generally Accepted Accounting Principles (GAAP) standards in your workplace.
You can easily manage all of your company’s financial transactions with a bit of planning and organisation.
The following are the three major types of transactions that you must be aware of and keep records for:
Daily business transactions
As a small-business owner, you must keep an eye on various aspects of your company.
You must maintain control over source documents related to customer sales and payments and documents related to vendor and supplier purchases, items received, and cheques issued. You should also provide secure storage for employee timecards and payslips.
These original documents are proof of completed transactions:
Customer invoices – invoices filed by customers; keep a list of invoices in numerical order.
Deposit slips, and teller transactions – filed chronologically.
Purchase orders – matched to item receipts, which are then matched to vendor invoices and filed by vendor or supplier.
Cancelled cheques – filed in numerical order with each bank statement.
Timecards or timesheets – filed alphabetically by employee and pay period.
Payroll cheques – filed in numerical order by pay period.
Why you might need access: To settle a disagreement or inquiry about a customer payment, vendor charge, or an employee’s earnings or benefits.
When others may need access: The totals reflected on your financial statements are supported by source transactions. If SARS is validating your revenue figures or verifying sales taxes paid, it may request access to customer invoices. A tax auditor may examine your vendor invoices to see if you have underreported your tax liability. Officials enforcing labour and employment laws may examine your timesheets to investigate your handling of overtime pay and mandated breaks for hourly employees.
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Month-end business transactions
At the end of each month, go over the results of your transactions with your customers, suppliers, and employees. You are now prepared to run your month-end reports:
Bank reconciliation: Displays your current cash balance and outstanding cheques and deposits. File by month, often in the same location as the monthly bank statement.
Deposit registers: Kept with the monthly bank reconciliation and bank statement.
Accounts receivable ageing report: Shows how much and how long payees owe you. File by month and compare the totals to your balance sheet or general ledger at the end of the month.
Accounts payable ageing report: Shows how much you owe others and when payments are due. It should be filed monthly and compared to your balance sheet or general ledger total at month-end.
Sales report: Displays total monthly sales by invoice number and should be filed by the month.
Inventory ageing report: Displays the value of items on hand and the length of time they have been in stock. File your paperwork by the month. Compare the report’s total to the balance on your general ledger and account for any discrepancies.
Payroll register: Displays the month’s total payroll. File quarterly, along with the associated payroll tax returns.
Month-end income statement and balance sheet: Shows your earnings for the period as well as your assets and liabilities. Keep in a file for the entire year so you can look at monthly trends.
Why you might need access: When forecasting your cash flow requirements, evaluating your sales or marketing efforts, or projecting your inventory needs.
When others might need access: When auditing monthly sales tax returns, SARS may request a review of your monthly results. It may also go over monthly reports to look for discrepancies or information to back up annual totals on income tax returns. Your banker may want to review monthly results as collateral for any loans currently in place.
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Year-end financial transactions
At the end of the year, you are ready to review the cumulative results for the months you have been in business. In addition to the monthly reports listed above, you will want to generate your annual financial statements at this point, including:
Income statement: Reflects gross margins, operating expenses, and net income or loss. File by year.
Balance sheet: Reflects your assets, liabilities, and equity. File by year.
Cash flow statement: Shows the sources and uses of funds and ending cash balance.
Why you might need access: When assessing the success of your operations, auditing your expenses, or reviewing your equity position.
When others might need access: In the event of an audit, tax authorities will examine your annual financial statements. If you are applying for or extending a loan, bankers will review your annual financial statements, and any potential partners or investors will be interested in these reports.