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Maintaining Proper Records

blog_images1Documentation, documentation, documentation!!  These are the three true golden rules of accounting.  Most accountants will recite the three golden rules of accounting as the debits and credits of Personal, Real and Nominal accounts.  Those are the essence of how to mechanically account.  But as any good accountant knows, if you don’t document the purpose of the transaction, don’t document why you chose the specific ledger accounts used and the accountant can’t support the transaction with evidence, then there is no transaction in the eyes of a third party.

Your accounting records are for your needs equally as much as for a third party such as a taxing authority, your bank or your investors.  Don’t be afraid to write a memo to the vendor file, affix a note to the journal entry or add some other form of documentation that would allow an unrelated party to understand why you did what you did and that supports the accounting treatment.  The time invested at the beginning of the process will prevent or solve many of your later problems.