Bookkeeping Basics

by M Tombs
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It is a legal requirement for every business to keep accurate records of its financial transactions. The basic need it to keep track of what the business owes, what the business owns, what its income is and what its outgoings are.


There are lots of inexpensive bookkeeping programmes available designed for non-accounting types, and nowadays most people have some sort of spreadsheet programme which makes it quite straightforward to record money coming in and out of the business.


At its simplest, cash accounting is a system where transactions are only recorded when money is either paid out or received. Sales and purchases on credit are only recorded when money changes hands, and no notice is taken of things like stock purchased but not yet used. This is often referred to as ‘single entry bookkeeping’ and is only really appropriate for very simple businesses.


Accruals accounting goes one step further, and records income when a sale is made regardless of whether or not it has been paid for, purchases when they are received even if not paid, and keeps track of things like the value of stock on hand. This is generally known as ‘double entry bookkeeping’.


It is essential to keep records up to date. With the best will in the world if you only try to make sense of what each scrap of paper or receipt is for every six months, you WILL forget, and in practice will probably end up not claiming for costs that are quite legitimate simply because you forget.


Even for small businesses, try to sort out your record keeping at least monthly. Any longer than that and the backlog ends up just growing.


Keep and sort your receipts for all outgoings. Use some type of system to list them by date and type of expenditure, and use a numbering system so you can find individual receipts if needed. At its simplest a spreadsheet with columns for reference number, date, amount and description may suffice. Number the first receipt ‘1’, the next ‘2’ and so on, write the number on the receipt and file them all in number order. To make it easier to analyse where your money is going, use different columns for major expenses, e.g. stock, printing, advertising or whatever is important in your business.


Record all cash sales in some form of register, again it can be something as simple as a spreadsheet showing the date, amount and any required details. If you sell on credit make sure that invoices go out quickly, and keep a separate page for each customer recording the date and amount of each sale, and the date and amount of each receipt.


Keep a summary comparing income and expenditure so you can see how healthy your finances are. It is particularly common for small businesses to try to manage the business only by looking at the bank balance, but all to often you can be caught out by irregular bills that only come into focus when it’s time to make payment.


Your bookkeeping system can be as simple or as complicated as you like, as long as you can establish easily where your money is coming from, where it is going to, what assets the business owns, what money it is owed and what money it owes. Although simple spreadsheets may work for very simple businesses most would benefit from at least a basic computerised record keeping system. Some of the best available are also some of the least expensive.


As an accountant I often help clients choose suitable packages and of course we do perform bookkeeping services for clients. As an absolute minimum though if you do outsource your bookkeeping, make a point at least once a month of going through the reports in detail. Nobody understands your business as well as you and you owe it to yourself to keep on top of the numbers as well as everything else. By all means get help, but never leave it completely to someone else.

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