How to organize your bookkeeping paperwork

How to organize your bookkeeping paperwork

How to organize your bookkeeping paperwork. Organizing the bookkeeping paperwork for your handmade business starts January 1 and continues all year long ………..today I’m going to offer you some tips on getting things organized.

Many blog posts I’ve read about getting your financial/bookkeeping paperwork organized – talk about getting things organized for year-end so you can put paperwork together for taxes.

Those same posts talk about getting ready to sort through all the receipts that you may or may not have been hoarding all year long.

My approach is different – you start saving, sorting, categorizing, and organizing those receipts starting January 1 of each and every year. And then, you do your books at least once a month.

a clean paperwork basket on a desk after you organize your bookkeeping paperwork

Seriously, WHY would you put off organizing your bookkeeping paperwork until the end of the year?

Only to spend an insane amount of stressful hours sorting through it all. AND THEN spend another insane amount of hours putting it into some sort of bookkeeping records?

How to organize your paperwork

  • If you were behind on your bookkeeping for last year
  • spent an insane amount of time searching for receipts
  • and swear you’ll be better organized this year

Then the tips in this post will help you turn over a new leaf, get everything sorted out and in one place. Believe me, this will help make your bookkeeping less stressful.

Recordkeeping rules – what you need to keep and how long you need to keep it.

So, our friends at the IRS have some pretty strict record keeping rules about what you need to keep and how long you need to keep it.

As a matter of fact, they’ve put together a 28-page document, called Publication 583 – Starting a Business and Keeping Records. If you decide to read this, be prepared for a headache, because they don’t make anything easy to understand!

stacks of paperwork held together with binder clips learn to organize bookkeeping paperwork

Here’s a basic overview from Publication 583.

Receipts (for the things you buy for your business) – basically, if you don’t have a receipt for something you buy, then you shouldn’t be deducting it on your tax return.

Ouch!

Sure, you spent the money and it shows up on your bank, credit card, or PayPal statement as a payment or withdrawal …… but without your receipt you don’t have any proof of what you bought or what it was for.

You see, just showing a withdrawal on your bank or credit card statement isn’t good enough to deduct that expense on your tax return – because it doesn’t provide you with the information that you MIGHT need if the IRS decides you are the lucky recipient of an audit. You need the actual receipt to show what the payment was for.

bank statement showing a payment
A withdrawal on your bank or credit card statement isn’t good enough.

Now that you know what you need to keep and why it’s important.

Let’s talk about how long you need to keep your receipts and records.

Again, our friends at the IRS tell us that we have to keep our receipts and bookkeeping records/paperwork for 3-7 years!

Man, that’s a long time!

We’d better do something to organize that bookkeeping paperwork!

There are two different methods for storing your business paperwork, (I wrote a blog post last year on Tips for keeping track of business receipts). You can create a:

  • physical file system using file folders – printing all of your receipts, bank statements, credit card statements, and keeping lots and lots of paper
  • virtual file system using Google Drive, Dropbox, iCloud, etc. – where you turn all of your receipts, bank statements, credit card statements, etc. into .pdf files

If you’re like me, I purchase just about everything online – so it makes sense for me to create a virtual file system and save everything as a .pdf.

How to create a virtual file system to organize your bookkeeping paperwork, step-by-step

piles of paperwork vs organized bookkeeping paperwork file system

Using Google Drive, Dropbox, Box, iCloud, etc. keeps your bookkeeping receipts in the cloud & synched to your local computer.

BUT, you don’t have to worry about keeping things backed up or what you’ll do if your computer dies.

  1. Create a folder called Business Receipts
  2. Inside this folder, create another folder called 2021 Receipts
  3. Then inside of that folder, create 12 more folders – one for each month. TIP: When creating the monthly folders name them 1 January, 2 February, 3 March, etc. This way they stay in month order instead of alphabetic order.
  4. As the receipts arrive into your Inbox – use the print to PDF option
  5. Choose the appropriate “Month” folder to save it to
  6. When naming include the receipt date and what you bought
  7. Put everything in there – bank statements, credit card statements, sales reports, PayPal reports………..

POOF!!!!! Done in seconds, in date order, with info on what you bought. And SO MUCH better than digging through your email at the end of the month (or worse yet, the end of the year) trying to make sure that you find all of your receipts!

But wait, what about that occasional paper receipt?

The last thing you want to do is to have two different filing systems for your receipts – one for digital (.pdf) and another for paper! YUCK – talk about an unorganized nightmare of a mess!

We all have a phone. Our phone has a camera. Take a picture of your paper receipt (turn it into a .PDF with an app if you want) and save it to the appropriate folder.

Tell me, what did you think of this post?

Your in yarn & numbers, Nancy

2 Comments

  1. Great post! Thanks

    1. Diana, I’m so glad you liked it! Thanks for taking the time to leave a comment 🙂

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