- ALICE: To remember which accounts are debits or credits remember ALICE; Assets, Liabilities, Income, Capital (older term for Equity), and Expenses. The first and last letters, the ones on the ends – those are the debit accounts, and the ones in the middle are your credits. This is an old tool, but like a hammer, still gets the job done nicely.
- Transpositions: if your accounts are out of balance look for transposition errors first because they are the most common of all accounting errors. A transposition is when you switch two numbers around. Consider that you intend to write the number 69, but your hand for some reason writes down 96 – that is a transposition.
- Due Date Calendar: missing filing deadlines is a costly pitfall (see #4 – vertical analysis). The average small corporation can be expected to meet as many as 26 or more filing requirements each year if it pays sales tax and runs payroll – a lot of room for error. If you are having problems meeting deadlines because of forgetfulness, as opposed to poor budgeting, get one of those paper calendars and in early January write down every deadline you need to meet for the entire year. Then count backward 5 business days and put down a reminder that the deadline is coming.
- Vertical Analysis: consider an income statement; income at the top, less all expenses, with the profit at the bottom. Divide all expense numbers and the profit number by the income number; you’ll get a percentage for each of these. In a nutshell, that is a vertical analysis and a graphic representation of the ratio of each expense and the profit, in relation to the gross income. Now consider that you missed a deadline that resulted in a $100 IRS penalty. Pitfalls like penalties and fines are not business expenses, and as such must come out of the profit. Since the $100 came out of profits, and your profits are 10% of the gross in this model, you will need to generate an additional $1,000 of gross income to make it up. Think about that next time you get a $3,000 IRS late penalty; at 10% net – $30K of gross income effort down the drain.
- Your Title: is your title that of “Bookkeeper,” or something more elaborate and ego stirring like, “Controller?” Do your research because if you’re making $11 an hour at the Golf Course and your title is Controller, might make you feel important but on paper that makes you responsible for the payroll tax deposits, and the IRS will come after you if your boss absconds with that money. The burden will be on you to prove to the IRS that you had no real control over who gets paid, how much, and when, despite being able to sign checks as a convenience to the organization. Always downplay your title to what it is: bookkeeper.
There are volumes dedicated to bookkeeping and business records. These are just 5 ideas that are hopefully easy to remember.