Small Business Bookkeeping

Bookkeeping is maintaining accurate records of income and expenditure for a person or a company. Before accounts can be settled, there must be a list of related transactions somewhere. It can't simply be in the businessman's head or in a shoebox full of receipts and invoices.

This is why mafia mobsters were vulnerable to arrest if their ledgers got into the hands of the police; the company financial records are a history of its deeds.

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Even for a criminal, it's important that the books are accurate, otherwise valuable insights may be lost and thus bad decisions made. You may think you're doing well but your books may tell a different story. Here are the three you need to keep:

1. Cash book.

The payments into and out of your bank account.

2. Sales invoice file.

Store invoices in chronological order, electronically.

3. Purchase invoice file.

Again, file them in chronological order. This will keep your accountants’ bill down.

What you can do:

- Get an invoice or receipt for everything you buy.

If there's no tangible record, HMRC could potentially challenge your accounts. Your accountant may wish to see particular invoices also.

- Separate business and personal expenses.

Mixing your own personal expenses with your company's muddies the records and means you'll pay more to your accountant to untangle the mess.

It can also look as if you, as a person, are earning much more money than you are, and it may mess up your tax returns, especially if HMRC take an interest.

- Check bank statements.

Find out what you're wasting money on and watch out for fraud.

- Keep up-to-date with your bookkeeping.

- 'Little and often' means you don't have a major hassle at month or year-end.

- Too much trouble? Hire a bookkeeper.

If the money is pouring in and you're on £120 an hour, paying a nerd £20 an hour to keep track of your outgoings makes good sense.

What do bookkeepers do?

- Send out invoices;
- Manage the accounts receivable ledger;
- Prepare invoices and send them to clients;
- Keeping an eye on cashflow;
- Preparing the books for the accountant.

HMRC Bookkeeping Video

Sole traders must keep paperwork for at least 5 years after the 31st January tax submission deadline, as HMRC may ask to inspect it.

Limited company directors can be fined £3,000, or even disqualified, for not keeping proper business records. These should be kept for a minimum of 6 years from the end of the last company financial year. Inform HMRC that you’re using estimated or provisional rather than actual figures if you don't have the paperwork to back up your figures.

Single or Double Entry Bookkeeping?

Single-Entry bookkeeping records transactions as you pay bills and make deposits into your company account. This works only if you have a low volume of transactions.

Double-entry bookkeeping is when two entries, at least, are made for each transaction. A debit is made to one account and a credit is made to another record.

Cash or Accrual Accounting?

Small enterprises often use cash accounting; you record your transaction when the money actually 'changes hands'.

Businesses which operate on credit use accrual accounting; you record purchases or sales immediately, even if the cash doesn't change hands until a later time,

Assets = Liabilities + Equity

This equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims based on what the company owes vendors and creditors. The business owners have claims against the remaining assets (equity).

Revenue, Expenses, Costs

Revenue is all the income a business receives in selling its goods.

Costs is all the money a business spends to buy or manufacture that which it sells to others.

Expenses are all the monies spent running the company that are not specifically related to goods being sold.

You need to keep:

- Sales and purchase invoices;
- Credit notes,
- Remittance advice notes;
- Cheque book stubs;
- VAT information (if registered);
- Staff wage slips;
- Fuel receipts;
- Business expense receipts;
- Bank statements.

Having adequate bookkeeping systems helps you:

- Monitor cash flow;
- Prepare profit and loss accounts;
- Prepare balance sheets;
- Prepare reports;
- Anticipate when to pay suppliers;
- Keep track of debts;
- Keep track of credit;
- Process sales invoices;
- Prepare VAT returns;
- Process expenses;
- With bank reconciliations;
- Process petty cash reconciliations;
- Pay wages;
- Forecast the future more accurately!

Here are some popular software programs which let you and your accountant do bookkeeping electronically. Find out which he uses, get it and you can help him do your accounts much more quickly, thus saving you money.

Spreadsheet programs:

- Microsoft Excel;
- OpenOffice (Freeware which includes a spreadsheet package called Calc);

Dedicated accounting software:

- Sage;
- Freshbooks;
- Zoho;
- Xero;
- Quickbooks.

There are online alternatives, but we would be concerned about their confidentiality and wealth of features. Another problem is, if you don't have an internet connection, you can't update your accounts!

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