Operating A Simple Bookkeeping System

Why Do I Need To Keep Accurate Books & Records?

We all know that we have to 'do the books' when we run our own business but why do we really need to keep accurate records? Is it just to satisfy the tax man?

You are required by law to keep all documents – bills, receipts and wages documents – for six years. This includes petty cash records, bank counterfoils, and goods in and out records.

The Inland Revenue also requires every business to keep accurate books & records. But what business benefits are there to keeping good books? 

Cash Position

Keeping up-to-date, accurate records will enable you to keep on top of the cash position in your business and plan for any possible tough times ahead

• Are you making or losing money?
  
  
• More importantly, do you have enough cash to ensure the business continues? It's fine if you've made sales and are due to collect several thousand at the end of the month. However what about the bills that need paying tomorrow?
  
  
• What monies are owed to you and by you? When will you receive the money and when will you be able to pay what you owe?

Expenses

Analysing your expenses (i.e.. grouping them together under similar categories such as 'motor expenses') will enable you to see at a glance where you are spending your money and enable you to compare your expenses week on week (or month on month).

Customers

You may want to analyse your customers by the amount of income you receive from each customer.

This will enable you to find out who are the best customers and focus in on how you can sell more products/services to them more often.

Securing Future Investment

You need to be able to show the bank manager, investors and the Inland Revenue how things currently stand in the business.

This is even more important when you are looking for loans and/or investment as any bank or investor will be looking for evidence of past performance as an indicator of future performance in order that you will be able to repay any loans.

Keeping accurate, up-to-date books will enable anyone to see the current position of the business at any point in time.

VAT Turnover Threshold (Currently £64,000 as at 1 April 2007)

All businesses that have an annual turnover over a certain threshold must register for VAT purposes.

Businesses below this turnover threshold are not required to register, but there could be advantages in doing so.

Failure to register in time will attract penalties. Customs & Excise may also ask you to pay the VAT due on all backdated sales. If you didn’t collect any, you would have to find it out of business profits so it's obviously important to register on time.

Keeping accurate books & records will help you decide if & when you are likely to go over the VAT turnover threshold.

Please Click Here for more detailed information on whether you should be registered for VAT

Recording Income and Expenditure

No matter which method you use to keep you records there are certain things which must be done and will make like a whole lot easier & quicker;

Invoices & Bills

• Keep all your invoices and receipts in two sets of files, one for sales and one for purchases
  
  
• Allocate a unique reference number to every invoice in (purchase) and out (sales) and note it in your books or on your computer system. Then file the invoices in that order in the relevant folder. That way you can quickly locate paperwork should you have a tax or VAT inspection
  
  
• Always ask for and keep receipts for all business expenditure. You can only offset expenses against profits that are wholly and exclusively related to the business so you must ask for and keep receipts
  
  
• If you are VAT-registered, it is essential to keep VAT receipts for purchases because without these, you cannot reclaim the VAT element

The Cashbook

The cashbook is used to record all bank payments & receipts. Cash transactions are usually dealt with through the petty cash system (see below) unless there is a high number and/or value of cash transactions in your particular business.

A basic cashbook is constructed & maintained as follows:

Log the money you have received in one section of your cashbook. Assign columns for:

• date
• customer money is received from
• amount
• invoice number
• VAT element collected (if VAT registered)

Log the money you have paid in another section of your cashbook. Assign columns for:

• date
• the supplier’s name (or employee’s name if you are paying wages)
• the amount,
• your own reference number
• the cheque number
• Divide expenses up into columns with headings such as materials, rent and rates, light & heat, insurance, wages, marketing expenses, telephone, stationery, travel, postage etc..
• If you are VAT-registered, you will also need a column for VAT inputs 

At the end of each month, total up each column, then start a new page for the new month by bringing forward last month’s totals into the columns for this month.

At the end of the financial/tax year, you will have a breakdown of your income and expenses for the Inland Revenue.

This is all that is required to keep your books 'straight'.

Petty cash

There is a very simple way to keep petty cash records.

Keep the float at a constant level, say £100 either in cash, or cash plus receipts. When you need to top up the cash, only put in as much as you need to return it to the £100 level, and remove all the receipts and enter into your books properly.

Tracking Your Cash Position

At least once per week, but every day if cash is tight, you need to reconcile your bank account.

This involves taking the previous balance as shown in your bank statement, adding all receipts in and subtracting payments made. The new balance should reflect your new bank balance on the statement.

If it does not, either you or the bank have made an error. (probably you!) 

If it does then you know you have included everything correctly.

Make allowance for delays – for example, if you post a cheque to someone, it might take a few days for them to pay it in to their bank.

Similarly, cheques you pay in usually take three days to ‘clear’ through your banking system, although they are shown on your bank balance before this. You could become overdrawn simply by spending money before these have cleared.  

Outsourcing Your Bookkeeping

Outsourcing your bookkeeping requirements can free up valuable time enabling you to concentrate on running your business instead of spending hours on end writing up your books and ensuring their accuracy.

This may also save you money by allowing you to grow without taking on more employees: 

First you will need to identify your requirements including:

• Whether computerising your records is a requirement, given the size of your operation
• How you will get the paperwork to them and how often
• The reports you require and how often
• How they will handle your year-end procedures
• A rough idea of the quantity of purchase and sales invoices they will have to handle every month.

Please Click Here to fill in our Instant Enquiry Form and tell us your exact bookkeeping requirements. We will review your form & contact you to discuss how we can help you.

If you would like to our Monthly Value Packages for Bookkeeping please Click Here