The 6 Key Elements Of Business Expense Transactions
Each expense that your business incurs is a vital part of both its operation and its financial stability. But what do you need to know in order to record expenses in a way that keeps your books accurate, allows you to make informed business decisions, and ensures you pay the lowest tax rate you can?
Here are a few of the key elements of each bookkeeping expense transaction and why it matters.
1. Date
The date you spend the money is important in two areas. The first is to know when that cash went — or needs to go — out of your account. Without accurate dates, you don't know how much money you have at any given time. Secondly, assigning the right expenses to the right dates tells you your real profit or loss.
2. Vendor
Who did you pay? If you have to pay a bill that will come at a later time, knowing whom you owe is the only way to make accurate and timely payments. You'll also need to know if any vendors will need Form 1099 from you at the end of the year. And of course, keeping suppliers straight helps you do research and track expenses later.
3. Reason
Why did you spend the money? Every expense must be put in an expense category within the chart of accounts. These categories allow you to know how much you're spending in various areas, balance your books, and create reliable financial statements. Many small business owners make notes on the receipt or invoice to give detail to the bookkeeper about what was bought and why.
4. Amount
Possibly the most important facet of recording expenses is getting the amount correct. If you don't or can't enter the same amount as what the vendor or bank records, your books will be off balance. Learning how to find data entry errors is an important bookkeeping skill.
5. Terms
Expenses usually come in two forms. The first is items paid at the time of receipt, such as with a bank card. The second is items purchased on credit. If you buy on credit, pay attention to the terms of that credit. You may get a discount for paying them within a certain time frame. On the other hand, you may see a penalty for late payment.
6. Proof
Finally, a paper trail or electronic proof of the purchase could be important if you are ever subject to an internal or external audit. Anything related to your taxes may also need to be proven to the IRS, state tax agency, or other oversight agency. And maintaining proof of expenses helps you prevent embezzlement and errors.
Where to Learn More
Could your business improve in its handling of business expenses? Start by meeting with a qualified bookkeeper in your state today. With their help, you'll soon be helping your business grow by knowing all the right details about the money you spend.