Practical Bookkeeping for Professionals, Part 1: Records Management

When you make a purchase for your business, you receive either a receipt or a bill, depending on whether you have paid, or you will pay later. Either way, you are required by the Internal Revenue Service to save the document associated with a transaction for up to seven years. This rule applies in general to documents that serve as supporting information for financial transactions relating to your business. In this context, the information that documents a financial transaction is called a record. To meet record keeping requirements, your bookkeeping system should include a records management system with a means to link your financial transactions with supporting documents or information. 

When I was a child, my mother owned and operated her own business. Her system for records management consisted of a box with a label to indicate the year. This box would get filled with documents throughout the year. Then, when the new year arrived, the box would be added to a stack of boxes that held business documents for previous years, and a new box was labeled for the new year. I believe many of these boxes are still in storage now, long after the seven-year requirement. Have you had a similar experience?  I found this system was not very practical, especially when searching through multiple boxes for a transaction that happened years ago.  Although not practical, the system worked infinitely better than not having a system at all!

Let’s consider what would be a practical means to manage documents related to financial transactions. A records management system should provide multiple, easy to use interfaces for document submission, e.g., file upload, email, or smartphone application.  A records management system should also synchronize with your accounting software, including means to pull account information and means to post transactions that have been categorized by account, including attached documentation.  In addition, a records management system should keep a record of documents submitted to it and of transactions posted to your accounting software.

At the time of this writing two of the most popular records management applications are HubDoc and Dext.  Either one of these applications does everything you need for records management and more. After trying these applications and others, my personal favorite records management application is AutoEntry. It is my favorite because of its simple user interface and its “pay for what you use” pricing model.

Now let’s consider a concept of operations for an individual using AutoEntry for records management, including an integration with Quickbooks Online. While this concept is specific to AutoEntry and Quickbooks Online, the general concept may be adapted to a different records management application or accounting software. You are the individual, and you have a vendor bill, a receipt, or a client invoice, which represents a financial transaction relevant to your business. If your document is already in a digital format, e.g., PDF, JPEG, or email, then it is ready to submit to AutoEntry. Otherwise, if it is a paper document, then you scan the document as a JPEG image or a PDF document and you save it as a file on your personal computer, or you snap a picture using the AutoEntry smartphone application.

You have a few options for submitting the document to AutoEntry. If the document is a file on your computer, then you upload the file using your secure login at the AutoEntry website.  When logged in to your account, you may also access an email address specific to your business and the document type, e.g., bill or invoice. As an alternative to uploading the document using the secure website, you may email the document using the email specific to your business and document type.  If the document is a photograph taken using the AutoEntry smartphone application, then you may submit the document to AutoEntry using the AutoEntry smartphone application. 

After submitting your document, AutoEntry scans the document to extract any relevant data fields. After this processing is complete, you view the document and relevant data fields within your AutoEntry online account.  Prior to posting the transaction to QuickBooks Online, you review all relevant data fields, including the vendor or customer name, the account (from your chart of accounts in QuickBooks), the transaction date, the transaction amount, and whether or not the amount has been paid.  Other relevant data fields may include a due date, how a bill was paid, or line items when a transaction includes items that must be attributed to multiple accounts.

After a document is reviewed for legibility and the data fields have been confirmed to be correct, then you post the transaction from AutoEntry to QuickBooks.  Once the transaction is posted to QuickBooks, then AutoEntry saves the transaction in an archive where you may review the transaction at any later date.  Having this archive of transactions is helpful when you receive a bill, and you are not sure whether or not it has been processed. With a quick check in the archive, you see if the bill has already been submitted, or if it needs to be submitted. Furthermore, once a transaction and document are published to QuickBooks Online, then you can search for the transaction and document by vendor, customer, account, date, or by some combination of these parameters.  By putting in the effort upfront to implement a records management system, and by consistently using it for all business transactions, then you make information easily available to you or your accountant, when it is needed for an audit, tax return, or some other purpose.

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