Recently, I was asked to set up and train someone in QuickBooks. During the consultation, I noticed the client was downloading transactions from the bank and then coding them incorrectly. Before I could estimate the work they needed, I asked how they planned to use the software. When they asked what I meant, I explained that there are three common ways businesses handle their books.
The first is what I call the Preventive Method. This follows accrual-based accounting, where invoices and bills are entered into the system as they arrive. Each transaction carries three important dates: the date on the document, the date of entry into the software, and the due date. The balances sit in Accounts Receivable or Payable until the payment is made. This approach gives you the most benefit from a management standpoint. You can produce aging reports, forecast cash flow, and make informed decisions before problems arise.
The second is the As You Go Method. Here, entries are made only when money moves. Bills may sit on the desk until the checks are written, and invoices are recorded only after payment is received. This method is common among smaller businesses with less paperwork. Someone comes in periodically, catches up the records, and keeps things moving. It’s not as powerful as the Preventive Method, but it at least provides a second set of eyes to compare your books against the bank’s records.
The third is the Modern Method. Instead of entering transactions manually, you rely solely on downloads from your bank or credit card company. This may seem efficient, but it removes an important safeguard. No one is double-checking the accuracy of the data. Banks make mistakes every day. Vendors overcharge or double-bill. And as more payments move to autopay, it’s easy to lose sight of the day-to-day cash flow in your business. AI is helping in this area, but it is far from perfect.
When I explained these methods to my client, I compared them to health: everyone knows that an ounce of prevention is worth a pound of cure. The same holds true in accounting. The Preventive Method provides the most accurate reporting and the greatest control. The As You Go Method is workable but has its limitations. The Modern Method is risky if used without oversight.
The solution, regardless of the method you choose, is due diligence. The speed of business has increased, and time stands still for no one, but setting aside even a little time each week or month to review your numbers and check for errors can make all the difference. That’s exactly what I told my client that day: a small investment of time and attention now can save you from a much heavier cost later.
