Business planning

Keeping track of small business financial transactions

picture of a POS point of sale system with a black credit card

As a small business owner, it is easy to get overwhelmed by the sheer volume of financial information you must track and store. The trail to every successful small business is littered with hundreds, if not thousands or millions of transactions. Depending on your type of business, these transactions might be in paper or electronic form or both.

Business transaction records are evidence that your business is operating smoothly and efficiently and also indicate if you are compliant with rules and regulations. They show you adhere to tax regulations and payroll requirements and comply with Generally Accepted Accounting Principles (GAAP) standards in your workplace.

With a little planning and proper organization, you can easily manage all of your business’s financial transactions. Here are three main types of transactions you must be aware of and keep records for:

1. Daily business transactions

As a small-business owner, you need to keep your eye on numerous aspects of your organization. You want to be sure you maintain control of source documents that are related to customer sales and payments as well as documents tied to vendor and supplier purchases, items received, and checks disbursed. You will also want to provide confidential storage for employee timecards and payroll checks. These source documents are evidence of completed transactions:

  • Customer invoices – filed by customers, maintain a listing of invoices in numerical order
  • Customer check stubs, deposit slips, teller transactions – filed by date
  • Purchase orders – matched to item receipts, which are then matched to supplier invoices and filed by vendor or supplier
  • Canceled checks – filed with each bank statement in numerical order
  • Timecards or timesheets – filed by pay-period in alphabetical order by employee
  • Payroll checks – filed by pay-period in numerical order

Why you might need access: To resolve a dispute or inquiry related to a customer payment, a vendor charge, or an employee’s earnings or benefits.

When others might need access: Source transactions provide proof of the totals reflected on your financial statements. State or federal tax authorities may request access to customer invoices if they are validating your revenue figures or verifying sales taxes paid. A sales tax auditor might review your vendor invoices to determine if you have underreported your tax liability.

2. Month-end business transactions

At the end of each month, it’s time to review the results of the transactions that occurred between you and your customers, suppliers, and employees. You’re ready to run your month-end reports. These reports reflect your monthly results:

  • Bank reconciliation – shows your cash balance and outstanding checks and deposits. File by month, often in the same place as the bank statement for that month.
  • Check and deposit registers – kept with the bank reconciliation and bank statement for each month.
  • Accounts receivable aging report – shows how much payees owe you and for how long. File by month and compared to your balance sheet or general ledger total at month end.
  • Accounts payable aging report – shows how much you owe others and when payments are due and should be filed by month and compared to your balance sheet or general ledger total at month end
  • Sales report – shows total sales for the month by invoice number and should be filed by the month
  • Inventory aging report – shows the value of items on hand and how long they have been in stock. File by the month. Compare the total on the report to the balance on your general ledger and account for any differences
  • Payroll register – shows the total payroll for the month. File by the quarter with the associated payroll tax returns.
  • Month-end income statement and balance sheet – shows your earnings for the period and your assets and liabilities. Keep in a file for the year so you can review monthly trends

Why you might need access: When you are forecasting your cash flow needs, evaluating your sales or marketing efforts, or projecting your inventory requirements.

When others might need access: tax authorities might ask to review your monthly results when they are auditing monthly HST, GST and PST returns. They might also review monthly reports when they look for discrepancies or information to support annual totals reflected on federal or state income tax returns. Your banker may wish to review monthly results as collateral support for any loans that are in effect.


3. 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. At this point, in addition to the monthly reports listed above, you will want to generate your annual financial statements. These reports reflect your annual results:

  • 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.
  • Statement of cash flow – shows the sources and uses of funds and ending cash balance.

Why you might need access: When you are evaluating the success of your operations, examining your expenses, or reviewing your equity position.

When others might need access: Federal or state tax authorities will review your annual financial statements in the event of an audit. Bankers will review annual financial statements if you are applying or extending a loan, and any potential partners or investors will be interested in these reports.

Keep it simple—Look to an accounting software solution

You may (and likely should) want to spend more time focusing on your business, not your accounting. Keep the recording of financial transactions simple by using an accounting software solution to manage your cash flow, cost containment, invoicing, and billing.

Consider your budget and read plenty of reviews from independent websites and magazines. Don’t just think about the current size and requirements of your business. You need a solution that can grow as your business expands, so look for software that offers a multitude of options to handle the business you will have several years from now.

And look at the language options available—will you need to create invoices in Spanish for instance? Will you need to switch between English and French on the fly? Once you’ve identified the features you need for your business, check out the different software providers. Don’t focus solely on the software package—consider the company, options for local support, and availability of trained resources.

Content adapted from: Geni Whitehouse, CPA.CITP, CSPM is the Founder of Even a Nerd Can Be Heard, an organization focused on communication skills for smart people. With past roles ranging from partner in a CPA firm to leader of a technology practice, she has a range of small business experience to draw on.