Tips for Tracking Expenses and Income During the Holiday Season
Written by
Gabriel Nwatarali
The holiday season offers consumers plenty of reasons to spend money more than any other time of the year, and it’s fast approaching. This means more revenue for companies and freelancers but it also means more expenses. Expenditures tend to increase around the holidays for businesses too, not just consumers. All of those transactions have to be tracked, and it takes time to do so when you’re not using accounting software. If you're not careful, the time that should be spent working to gain revenue can be used to track expenses and income. In this article, we will give you some actionable tips for tracking holiday transactions.
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1. Keep Transactions in Separate Bank Accounts
You may already have a business bank account; if not, create one asap (as soon as possible). As an entrepreneur or freelancer, you have to make sure personal and business transactions are separated. Both income and expense transactions should be in separate bank accounts. Consider using a system that makes sending transactions to the appropriate bank account easy.
For example, QuickBooks is accounting software that lets users add several bank accounts and automatically pull transaction data. You can also set up default bank accounts for income and expenses, write checks, pay bills, collect sales tax, and make deposits.
Separating your transactions into different bank accounts will keep records organized and easy to use for tax purposes. It also makes tracking expenses easy, which is an important aspect of running a business.
2. Establish an Accounting System
Establish a system for tracking expenses and income. First, decide how to track expenses and income. This will depend on your situation (e.g., being a freelancer, a corporation, etc.). In general, they’re two accounting methods you can use. These are cash and accrual basis.
A cash-based method means income is only counted when it has been deposited and expenses when a payment is made. The accrual basis method means you’ll record income and expenses only when incurred. In other words, it doesn’t matter when the money is paid out or received as long as you incur them during the relevant timeframe.
Cash basis is the simplest and most preferred method for tracking expenses, including income from business owners or freelancers. Second, design an accounting system that supports your chosen accounting method. The best way to do this is via accounting software since spreadsheets are inefficient and time-consuming. Plus, hiring a bookkeeper isn’t always efficient either.
3. Keep Your Receipts
Expense receipts are important, especially when paying for business-related things using a personal credit card or non-business bank account. Entrepreneurs and freelancers may have to do that in the beginning stages of their businesses or careers. Ideally, receipts should be stored digitally.
Some vendors offer the option of emailing purchase receipts, making storing them easy, but not all companies do that. So take a picture of all receipts that weren’t emailed to you and store them digitally in cloud storage on your computer. Cloud storage will be a backup in case your computer is damaged or fails. This way, you’ll always be good in the event of an audit, even if a copy of the physical receipt is lost.
Most accounting software companies provide apps that make storing receipts on the go easy. All you have to do is shoot your pictures using the app, and receipts will be saved. QuickBooks does this really well. The company has an online app that can scan and upload receipts from your phone. You can then manage receipts later using the main accounting software.
4. Group Expense and Income Transactions
Tracking expenses and income can be tough during busy times. A great way to easily track transactions is by grouping or tagging them, preferably using accounting software that supports grouping. Revenue is fairly easy to group since most companies have one to three types of income sources (e.g., income, other income, etc.). However, expenditures can be tricky since it’s typical for companies to have many expense types.
FreshBooks is accounting software that allows the use of expense categories or tags to group expenditures. The bookkeeping software lets you use custom categories to organize expenses. With FreshBooks, transactions from your bank account are labeled as ‘uncategorized’ until you drop them in the right category. This kind of feature is great because it increases flexibility in tracking expenses and organizing transactions overall.
Some banks and credit card companies can automatically group your expenses, but they’re usually very generalized. For instance, a Walmart and Home Depot purchase may be classified as ‘retail.’ However, Home Depot purchases probably equipment or tools to run operations, which makes ‘retail’ an inaccurate category. Hence, grouping expenses with what’s provided by a bank or credit card company will most likely be inefficient for your needs.
5. Look at Your Numbers Regularly
Set aside a small amount of time to look at the numbers. Are you meeting your expense and revenue goals? What products are selling, and which ones aren’t moving? These are some of the questions that a regular transaction check-in can answer. Looking at the numbers will help you adjust things as necessary to meet your objectives.
For example, you can reduce spending in a given area if the expense is about to exceed the budget. Ideally, you should check in on transactions weekly to be effective but don’t spend too much time diving deep. Instead, look at a transaction overview report, which is provided by most accounting software.
Tracking Expenses and Income is Easier with Accounting Software
Knowing how to track expenses and income is a critical aspect of being a freelancer or business owner. Accounting plays an important role in business and shouldn’t be considered an afterthought. Poor accounting can cause companies to fail, and the biggest part of this is transaction tracking. You have to keep track of all your income and expenses all the time, not just during the holidays.
However, tracking expenses and income can be plenty of work without good accounting software that streamlines processes. Make sure you have separate bank accounts for personal and business transactions. Establish a reliable accounting system and store all your receipts digitally for easy retrieval. Use groups to further simplify transaction tracking and look at your data every week so you can adjust things if needed. All of the aforementioned are things that bookkeeping software helps with. Lastly, accurate records pay off in the long run and can keep you from trouble with tax agencies.
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