Bookkeeping The Basics
Want to keep better financial records?
In this introduction, you'll gain an understanding of bookkeeping best practice. I'll explain how to maintain records and why you need to perform bank reconciliations, track invoices and expenses.
What is Bookkeeping?
Bookkeeping is the process of recording and labelling the financial transactions in your business. This allows you to track what your business spends and receives.
Why do Limited Companies need bookkeeping?
Well kept books are a great foundation to running a successful company and controlling your business finances. In the early years it can help ensure your survival and as you grow it gives you meaningful, up to date information to support decision-making.
- Looking at your total incomings and outgoings allows you to check whether you are making more money than you are spending.
Up to date books provide reliable information for planning and budgeting decisions.
Planning allows you to see your cash position and if you may be short or cash at certain times. Understanding this allows you to take steps to avoid it, by planning spending carefully, identifying borrowing needs or chasing payment from customers.
Accurate records also help you to complete accurate tax returns.
Having your financial information organised makes it easier for you to work with other parties such as lenders, investors, and accountants.
All of your business transactions need to be recorded and reconciled. It is advisable to have a dedicated bank account for your business so that it is separate from your personal finances.
You need to record your sales and purchases. Sales date may come from point of sale or invoicing software or a spreadsheet that you use to track your customer transactions.
Business-related purchases can be put into a spreadsheet or you can automate it through linking your bank account with your accounting software.
Note: Income and expenses will be recorded differently depending whether you are using cash or accrual accounting.
Having recorded your transactions, you need to check your books against your bank statements to identify differences. This is best done daily or weekly so that you have up to date information about your business and can highlight errors and issues as quickly as possible. At the very least, you will need to do this annually to prepare your accounts and tax.
Once you have reconciled your transactions, you can start to classify transactions in a meaningful way so that you can see how you are performing and what your position is. From here you can run reports such as a Profit and Loss account, balance sheet or cash flow report.
Using Bookkeeping Software
I work with Xero cloud-accounting software to simplify the process of reconciling the transactions in a business. It saves time and also reduces the chance of error. It also allows you to connect with your point of sale software, raise invoices, send invoice reminders and see when invoices have been paid.
Once you are set up on Xero, it's easy to reconcile your bank yourself. Equally, depending how you busy you are in your business, you can get help with this. Having all of your numbers in one place make it easy when you need to make decisions and also prepare accounts and tax returns.
Get in touch to discuss your needs.