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We may constantly tell our clients that they need to organize their paperwork better, or do a better job at maintaining their files. The problem is that often times we fail to give the business that we help any guidance or practical application. For some, it appears that their receipts grow legs and leave without a trace; others let their receipts fade and become mere sheets of white paper.
How do we organize our source documents in an efficient way? Start by always saving your files as PDFs; Word and/or Excel files can be altered, which can result in risk of data loss.
Consistency is the key; for example, use a simple, document-saving format like Name-Code-Date to create a structured, filing system:
- Name–This is the name of the vendor, customer, or institution that engaged in the business transaction with you.
- Code–A code can be a check number, debit/credit card abbreviation, or account number.
- Date– The date that the transaction took place; i.e., MM.DD.YY
Let’s say that you purchased some equipment from Best Buy with a check. When you get to your office, scan the receipt, save it as a PDF with the name: Best Buy-101-01.25.14.
Now when we review our records, we can see that there was a purchase at Best Buy; we used check number 101 on Jan 25th, 2014.
If it was a debit purchase use DBT, for a credit card use CRD or CRT; if it was an electronic funds transfer use EFT.
It is better to use a vendor name instead of an expense type/category for several reasons:
- Typically, the vendor name is always listed first on a receipt, this makes naming your file quicker because you don’t have to stop and think about what expense type to use. This also facilitates the matching-process between your receipts and your bank/credit card statement; there is a higher chance that statements will itemize transactions by business name than by the nature of the transaction.
- If you/your accountant have to reclassify an account during a month-end /year-end close, there is no need to change the name of the file if we classify it by ”vendor”. For example, if our saving format is Office Expense-101-01.25.14, if we discover that this needs to be recognized as an Other Expense, we would have to change Office Expense to Other Expense to maintain the integrity of our accounting system; think about if we had hundreds of files like this to rename. Yikes!
If you desire to go paperless, before destroying your receipts, make sure that you use the following tools for storage:
- Cloud tools (Dropbox, Google Docs)
- External hard-drive
- QuickBooks Attach Function
The QuickBooks Attach Function is great for quickly locating source documents because it keeps the file or receipt located within your QuickBooks software file. This makes your records audit-ready; however, it can be a time-consuming activity if you have a lot of transactions to enter every month.
Note: If you don’t have the third option, the first two steps will suffice. If using a desktop work station, look into performing automated backups for additional protection.
Remember, an organized office is a happy office.
Edward Morrow is an accountant, writer and public speaker as well as the managing member of APC Bookkeeping. APC Bookkeeping creates and streamlines accounting systems for service-based, college startups and family-owned businesses.