Meaning Of Shoe Box Accounting
Businesses and individuals may use many different accounting methods in order to keep their finances in check. Sometimes, this involves the use of online accounting software, while the people who keep their accounts manually usually do so in a careful manner so that nothing will go missing and to make sure they are always able to calculate their taxes and other financial related matters accurately
What is Shoebox Accounting?
Shoebox accounting does nearly what it says on the tin. It can be defined as the “practice” of business owners or individuals placing all of their receipts, which include both for incomings and for outgoings, into a shoebox, and then at the end of the tax year, he passes all of these to their accountant to organise.
In other words, this keeps accounting simple and easy for business owners or self-employed people. All they need to do is to make sure that they keep all the records, and then pass it on to aaqualified accountant or bookkeeper to calculate their total tax return or financial statement for the year
Problems of Shoebox Accounting?
If receipts, invoices, and other source documentation is not organized, then it can take an accountant much longer than it ordinarily would to calculate incomings and outgoings, and to prepare financial statements and calculate a tax balance.
Shoe box method of Accounting represents procrastination, the major reason for this kind of approach is a fear of accounting and financial information. In a class of 30 students, it’s common for me to find that NOT ONE PERSON has had ANY form of financial literacy training. Recently, i saw a survey that 25% of people meeting with an accountant for the first time will not ask him/her a question because they are well convinced they won’t comprehend the answer!
It is important for good accounting system to get good financial information. So why can't people always have one in place for their business?
Some excuses include:
- I don’t understand finance and accounting
- I’m not good at mathematics and accounting which means I have to be a whiz with numbers
- In other to understand accounting I need to learn bookkeeping first.
- I save money by not paying a bookkeeper
- I don’t know where to find a bookkeeper
- I run my business based on gut feel
- I don’t understand financial statements