Basic Bookkeeping Guide

Basic Bookkeeping Guide

If you run your own business you have to keep books and records, this is known as bookkeeping (sometimes spelt as book keeping or even bookeeping!), the simplest form of bookkeeping is the recording of all the money that comes in to (Income) and goes out of (Payments) your business.

It is advisable when you start your business that you open up a bank account purely for your business transactions only.

All monetary transactions that appear on your business bank statements are known as 'bank transactions' and EVERY transaction on your business bank statements needs to be recorded.

All other monetary transactions that do not appear on your business bank statements are known as cash transactions and they all need to be recorded. Cash transactions can be actual cash (£5.00, £10.00 etc) or business payments or receipts that have gone through your personal bank account.

Payments (Money out)

All money that is paid out that relates to your business needs to be recorded with as much detail as possible, this will include every payment on your business bank statements plus all other cash payments that relate to your business.

Each transaction recorded should have at least the following details:

  • Date of the transaction
  • A description to identify the payment (e.g. British Telecom, PC World, Petrol)
  • The total amount of the payment
  • Whether the payment came from the business bank account or whether is was a cash payment
  • A category for the expense (e.g. Telephone, Computers, Motor expenses)

Income (Money in)

All money that comes in to the business needs to be recorded with as much detail as possible, this will include all income on your business bank statements plus all other cash income that relates to your business.

Each transaction recorded should have at least the following details:

  • Date of the transaction
  • A description to identify the income (e.g. Customer name, Invoice number)
  • The total amount of the income
  • Whether the income appears on the business bank statement or whether is was cash income
  • A category for the income (e.g. Sales, cash banked)

If money is received in cash and then some or all of it is paid in to the business bank account then you need to record the cash received, then you need to record the amount of cash that is then put in to the business bank account as cash going out of the cash account and in to the business bank account.

For example if you received £500.00 in cash for a sale you made and then you banked £400.00 in cash in to your business bank account then you would record it as follows.

Cash income £500.00 from a sale (Cash income) Cash payment £400.00 cash banked (Cash going out) Bank income £400.00 cash banked (Bank income)

It is important to keep all your receipts for all money paid out and invoices for all money received, generally it is advisable to keep the receipts in one folder and the invoices in another folder. It is also useful to reference all your receipts and invoices such as 1, 2, 3 etc and record that reference when recording all your income and payments, this will make it easy to find any paperwork relating to any transaction.

THE ABOVE IS THE MINIMUM REQUIREMENTS FOR BOOKKEEPING AND WILL GENERALLY BE SUFFICIENT TO PREPARE ACCOUNTS AND TO GIVE REASONABLE CONTROL OVER YOUR BUSINESS. THE FOLLOWING INFORMATION COVERS SOME MORE DETAILED POINTS.

I Give My Customers an Invoice

If you give your customers an invoice then you need to record every invoice given to your customers. This will provide you with a complete list of all sales ever made.

When your customers pay you, you then need to match that income to the invoice it relates to, you will then know were all the money that came in to the business came from and you also will be able to see which invoices have not been paid.

When you record the income the principle is the same as in the INCOME (money in) section above except you need to specifically match it to the invoice it relates to.

I Do Not Give My Customers an Invoice

If you do not give your customers an invoice then you record the income as described in the INCOME (money in) section above

I Own a Shop

There are three ways you can receive money:

  • Cash
  • Cheques
  • Directly in to the bank (e.g. Switch, credit card)

If you receive cash you would record it as cash income as you receive it.

If you receive cheques then you would record it as bank income when it is banked.

If you receive a sale by credit card, Switch etc you would record the sale as the transaction appears on your bank statement.

if you receive cash for a sale and then bank some or all of it you would record it as follows

Example - if you received £500.00 in cash for a sale you made and then you banked £400.00 in cash in to your business bank account then you would record it as follows:

  • Cash income £500.00 from a sale (Cash income)
  • Cash payment £400.00 cash banked (Cash going out)
  • Bank income £400.00 cash banked (Bank income)

You should keep all your daily till receipts for a complete record of all sales

I Am VAT Registered

The recording of Income and Payments is the same if you are VAT registered except you have to record the total amount, the VAT on the total amount and the total amount less the VAT.

Example

If a payment of £120.00 is made including VAT at 20% it would be recorded as follows

Total £120.00
VAT £20.00
Net £100.00

The same principle applies for all income received were VAT has been charged

Total £120.00
VAT £20.00
Net £100.00

You will have to complete a VAT Return usually every 3 months and the total of VAT on your Income less the VAT on your payments will be paid over to H M Customs & Excise 1 month after the VAT Return period.

If payments exceeds your VAT on your Income you will get a refund

The above is only a guide and if you require further information you should contact your professional advisor or H M Customs & Excise

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