Now that you have an operating account, you need a filing system so you can keep track of all your transactions. Chapter 4 talked about using ledger paper for accounting entries, but you’ll also need file folders, three-ring notebooks or binders, file cabinets, and alphabetical and 12-month expanding files.

The chart of accounts, general ledger, and other subsidiary ledgers (such as the accounts receivable ledger, which is discussed in Chapter 7) should be kept in three-ring notebooks or binders. Ledger paper has holes for these binders. Using binders makes it easy to keep track of the ledgers and to use them daily. You can keep them in files instead of binders, but then you run the risk that the pages could fall out of the files and become completely disorganized or land in one of those piles on your desk.

Expanding files are a good way to keep track of current vendor activity and bills. For example, you can use the alphabetical expanding files to track open purchase orders by vendor. After the order is completed, you can file all shipping information and other related materials in the vendor’s individual file. A 12-month expanding file comes in handy for bills that need to be paid. That way you can file the bill based on the month that payment is due. Within each month, you can order the bills by date to be paid. That way you not only have a quick visual reference of bills due, you also can be sure you pay them on time. In some cases, you may even want to pay them early to take advantage of discounts for paying quickly. (Discounts are covered in greater detail in Chapter 9.)

You also should keep a file of any monthly accounting reports that you develop and print, so you can review them whenever necessary. The type of filing related to each aspect of accounting, such as accounts receivable, accounts payable, sales, and inventory, is covered in later chapters focused on each of these critical functions.

You also need to set up files for each vendor, contractor, and employee. You will want files for each major customer. If you are a small retail store, you may want to set up your files by day rather than customer. A doctor’s office needs files for each patient. A lawyer’s office needs files for each client, as well as each case. The filing system you design should be one that works best for your business. No one enjoys filing, but an efficient system that quickly gives you access to the information you need is certainly worth the pain.

Even if you track everything by computer, you will still have paper that needs to be filed. Also, you do want to have paper copies of what is on your computer in case the system goes down. And, of course, you want to digitally back up any computer data in case a system crashes.

How many times have you called a company or walked into a store just to be told that the computer system is down and you’ll have to call back or come back later? How angry do you get when that happens? You definitely want to set up your systems to avoid frustrating customers, vendors, and employees.