Individuals and businesses may use many different accounting techniques in order to keep their finances in check. A lot of the time, this involves using online accounting software, while those who keep their accounts manually often do so in a meticulous manner so that nothing goes missing and to ensure they are always able to calculate taxes and other financial matters correctly.
One technique that some use has become known as “shoebox accounting.” As you might guess from the name, it is something of a throwaway and a colloquial term, but it also has a literal meaning, too.
What is Shoebox Accounting?
Shoebox accounting does almost exactly what it says on the tin. It refers to the “practice” of business owners or individuals placing all of their receipts, both for incomings and for outgoings, into a shoebox, and then at the end of the tax year passing all of these onto their accountant to organise.
In many respects, this keeps accounting simple for business owners or self-employed individuals. All they need to do is to ensure they keep everything, and then pass it on to the person qualified to calculate their tax return or financial statement.
Does Shoebox Accounting Benefit Anyone?
If it benefits anyone, then the business owner doesn’t have to worry about anything financially related is that person. However, it must be recognised that most business owners will not be in a position to have such a limited level of involvement in their own finances. After all, if they’re disciples of shoebox accounting, there is always the chance they are more focused on other areas of their business, which could potentially lead to financial trouble further down the line.
What are the Problems with Shoebox Accounting?
If receipts, invoices, and other documentation is disorganized, then it can take an accountant much longer than it ordinarily would to calculate incomings and outgoings, and subsequently to produce financial statements and calculate a tax balance.
By contrast, if the business owner or individual has at least kept some record, the accountant can then have the easier job of simply double checking the balances and finalising the accounts.
It should be noted that some accountants actually prefer clients who take the shoebox approach. This is because they can be sure everything is present and nothing has been messed around with. It is, after all, often easier to start from scratch rather than have to double check someone else’s work, discover there are errors, and then have to do it all again anyway.