Creating Books Without Financial History

How do you set up books for the first time without previous financial history?

How do you set up books for the first time without previous financial history?

Hi there,

What do I need to start books for a company that has been up and running for 3 years with no previous (real) financials? I've been paying it by year sorta. I don't know how much was put in the business to start, bank balances, etc.

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Well ... you are not alone. When someone starts out in business, they often don't put a priority on business records. Some have visions of how great it would be to work for yourself and be your own boss.

Little do they realize that their real boss now are the customers. And because the buck now stops with you, being compliant with the CRA requirements (or IRS requirements) is your monkey on your back.

I have a chat on the basics to start doing your own bookkeeping.

A forum posting discussing opening bank balances may also be useful in getting you started.

I started this site to share my notes with small business owners who don't hire bookkeepers because they don't have the money to do so. The catch is ... it requires their sweat equity ... they have to put time aside (I recommend reading this site for 15 minutes each during your coffee break) to make their way through the site.

You may want to consider hiring a bookkeeper to setup your books ... chart of accounts, opening balances, etc. Discuss and choose a software package that meets the needs of your business. If you don't get your starting position setup correctly, all the information that follows will just be garbage. So do this step properly.

If you don't have a large volume of transactions, you may to consider entering all of your data for the past three years. The historical information could be a very useful tool for you. Start by entering all your bank and credit card transactions on your monthly statements ... then hunt down all the supporting paperwork.

I'm not sure I understand your comment about bank balances. Are you saying you don't have your bank statements since inception? Or are you saying you don't have a business bank account because you either mixed your business and personal income/expenses ... or you dealt only in cash?

The AIPB free newsletter had an interesting topic this past week (March 16, 2015). It was on the requirements for ensuring you had adequate electronic records. A recent bankruptcy court case was cited. It ruled that "electronic JEs alone document neither a transaction nor the parties’ intent".

The article also stated that the Tax Court has ruled that "accounting software records were insufficient or that they had to be accompanied by supporting records—and in one case, that relying on electronic entries without retaining the source records was negligent. When electronic records were the only proof offered of certain transactions, the IRS has at least on one occasion pushed for a fraud penalty".

I congratulate you on wanting to get your business records in order. I hope you are successful.

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