While keeping track of business records can be a daunting activity, basic bookkeeping will help you to stay on top of your business income and expenditure – and in control of your finances. In this article, we’re going to cover bookkeeping basics such as the management of business loans, business finances, financial transactions, income tax and other assets liabilities.
What is bookkeeping?
Bookkeeping is the first part of the accounting process. It concerns the way in which financial transactions are recorded and organised into your company accounts.
For example, every time a supplier is paid or a customer makes payment this information needs to be tracked and recorded. Doing so accurately, will help you keep track of your business incomings and outgoings and, in turn, ‘balance the books’. However, unlike accounting, bookkeeping doesn’t go into reporting on and interpreting financial data.
Why is bookkeeping important?
Bookkeeping involves the organised processing and storing of your business records and financial statements. It is important to ensure that you are up-to-date with the financial affairs of your business. Such as: accounts receivables, accounts payables, corporation tax, liabilities and equity and other financial activities. There are a number of business bookkeeper guides available online for small business.
Having adequate bookkeeping systems in place will help you:
know when to pay suppliers and when payment is due
allow you to keep track of customers that owe you money
process sales invoice documentation
review the cash flow of the business – such as paying bills
prepare profit and loss accounts and balance sheets
prepare business finance reports
forecast and set projections for the future.
As a business owner you are required to keep and store accounting records for a minimum of six years.
What’s the difference between bookkeeping and accounting?
This is a common question as there can be some overlap between the two skillsets and job roles. In this video from AAT, the key differences between bookkeeping and accounting are laid out.
Many small businesses or sole traders use accountants or accounting systems to accurately record their bookkeeping.
This will involve you passing over all of your books and records to the bookkeeper who will then process the documentation for you. Most bookkeepers are happy to come to your offices and do the bookkeeping on your premises or provide online accounting solutions. This bookkeeping software is a computer program used to act as accountant and bookkeeper for your business – detailing your organisations financial information.
Other business owners will do their bookkeeping themselves or ask a family member to do it. This will involve:
Some business owners are confident to carry out all of the above tasks themselves – which will obviously same them a lot of money – but does take up a lot of time. Others may carry out some of the tasks themselves but then use a professional for some services such as Payroll or VAT.
If you decide to take on the work yourself, it is vital that you stay on top of your bookkeeping. To find an accountant or bookkeeper to help with your bookkeeping click here.
Does software help with basic bookkeeping for small businesses?
Software can definitely help, particularly with simple bookkeeping for a very small business. There are a wide range of software providers available, offering various services and tools from the basic to the more complex.
Some of the features accounting software can offer are:
Basic accounting tasks – recording income and expenditure, financial reports and budgets
Automation – preparing invoices and purchase orders, setting up automatic billing, processing single and recurring payments, bank reconciliation
Tax preparation – Online completing and filing of tax returns
Inventory – Control stock levels, track sales and purchases
Payroll processing – timesheets, salary calculations, payslips, submissions to HMRC.
Here are two examples of accounting software to give you an idea of what’s available on the market:
To carry out your bookkeeping duties, you will need the following. Login to save this checklist to your profile for future use – as you work through the list, any checkboxes that are ticked or unticked will be automatically saved to your profile. (To register to join and enjoy the benefits of membership click on the link at the top right of the page. It will only take a few minutes to create your profile).
How often do I need to keep my bookkeeping up to date?
As often as possible. The longer you leave it, the bigger an administration burden it is.
It is a good idea to get into the habit of writing up your books on a weekly basis.
If you are in the United Kingdom using a business account professional to do your bookkeeping for you, then the frequency will depend on the size of your business and the volume of transactions. If you are VAT registered and doing VAT returns, then the frequency of your VAT return periods will usually govern the frequency of bookkeeping i.e. you will prepare your VAT returns whilst processing all of the relevant books and records.
Interactive tutorial: Understanding bookkeeping
Here we look at the fundamentals of double-entry bookkeeping. Click on the Start button below to find out more.