Tips for Tracking Expenses and Income During the Holiday Season
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 when you’re not using accounting software. The time that should be spent working to gain revenue can be used up for tracking expenses and income if you’re not careful. In this article, we’re going to give you some actionable tips for tracking holiday transactions.
1. Keep Transactions in Separate Bank Accounts
You may already have a business bank account and if not, go 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 it easy to send transactions to the appropriate bank account.
For example, QuickBooks is an accounting software that lets users add several bank accounts and automatically pull transaction data. Also, you can set up default bank accounts for income and expenses. Default bank accounts can be set up for writing checks, paying bills, collecting sales tax, and making deposits.
Separating your transactions in different bank accounts will keep records organized and easy to use for tax purposes. In particular, it makes tracking expenses easy, which is a very 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. freelancer, corporation, etc.). In general, they’re two accounting methods you can use. These are cash and accrual basis.
A cash basis method means income is only counted when it has been deposited and expense 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 for tracking expenses, including income by 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.
A properly configured accounting or bookkeeping software like Zoho Books can automatically record your transactions as they happen. Including streamline the entire transaction tracking process this holiday season and beyond.
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. That’s something entrepreneurs and freelancers may have to do in the beginning stages of their business or careers. Ideally, receipts should be stored digitally.
Some vendors offer the option of emailing purchase receipts, which makes it easy to store them 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 and your computer. Cloud storage will serve as 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 the physical receipt copy is lost.
Most accounting software companies provide apps that make it easy to store receipts on the go. 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 be used to scan and upload receipts right 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, by 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 group your expenses automatically but they’re usually very generalized. For instance, a purchase at Walmart and Home Depot may both be classified as ‘retail’. However, the Home Depot purchase is 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 treated as an afterthought. Poor accounting can cause companies to fail and the biggest part of it 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 take a look at your data every week so you can adjust things if needed. All of the aforenoted are things that bookkeeping software helps with. Lastly, accurate records pay off in the long run and can keep you out of trouble with tax agencies.