Tracking expenses is an essential part of running a business. All businesses have expenses. Whether you operate a retail store, restaurant, computer repair shop, window cleaning or any other business, you’ll have to purchase goods and services to carry out your operations. Known as expenses, they will affect your business’s cash flow and tax liabilities. Below are five simple tips to follow when tracking business expenses.
#1) Use Business Accounts
You’ll have an easier time tracking business expenses if you use business accounts for purchases. Rather than using a personal credit card to purchase goods and services for your business, for instance, use a business credit card. Not only will this help you build business credit; it will separate your business expenses from your personal expenses.
#2) Create Expense Categories
For smoother expense tracking, create expense categories. Expense categories are exactly what they sound like: categories to which you can assign business expenses. You may want to create expense categories for payroll, equipment and office supplies, for example. Rather than placing all of your business expenses together, you can assign them to a relevant expense category.
#3) Maintain a Paper Trail
Maintaining a paper trail can prevent many common headaches associated with expense tracking. A paper trail is a set of records showing business expenses. When you purchase goods or services with a credit card, you’ll leave behind a paper trail. The paper trail will consist of monthly statements breaking down all of the purchases you made during that month. If you purchase goods or services with cash, on the other hand, you may not have a paper trail. The vendor may provide you with a paper receipt, but paper receipts often get lost or damaged. And without a receipt, you won’t have a paper trail showing the transaction.
#4) Reconcile Accounts
Another tip to follow when tracking business expenses is to reconcile accounts. Account reconciliation is the process of comparing transaction reports between two or more sources, such as accounting software and monthly statements. You want these sources to match. If there’s a discrepancy between your accounting software and monthly statements, you’ll need to go back and correct the problematic transaction or transactions.
#5) Plan for Deductions
Business expenses are tax deductible. If you purchase something that’s essential to your business’s operations, you can typically deduct it from your business’s taxes. But you’ll need to plan for these deductions accordingly. Familiarize yourself with common deductions for businesses in your industry, and keep records of all related transactions so that you can claim them as tax deductions.
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