WHAT IS BOOKKEEPING AND WHY YOU NEED IT
What is bookkeeping ?
Keeping proper financial records for your business transactions is known as bookkeeping. Traditionally the records of each business sale or purchase transaction would have been written into large books, called ledgers, which is where the term comes from. Although it’s possible to still keep paper records it’s far more usual (not to mention quicker) to use either a spreadsheet or an online bookkeeping service
Proper financial record keeping will help you manage your business more effectively and adhere to the legal requirement to keep your business’ financial records for a minimum of 6 years.
If you want to find out about outsourcing your bookkeeping to a qualified professional call us on 020 7111 7761 or email us to find out more
Why you need to keep good financial records
All businesses need to keep accurate records of their financial transactions. It is a legal requirement that you keep all documents relating to your tax returns for at least 6 years. But keeping good financial records will also tell you a great deal about how your business is performing.
Good bookkeeping records will tell you:
-
how much money you are making
-
how much and where you are incurring your biggest costs
-
whether your business is making a profit or a loss
-
how much cash you have in the bank
-
who owes you money, and if you owe any
-
when you can pay your bills
-
if you’re getting near the VAT threshold and therefore need to register for VAT
-
what figures to include in your company or self-assessment tax returns
-
the information you need to report to any investors or shareholders
-
how efficiently you are running your business and whether you need to make any changes to improve its performance
How to do your bookkeeping
Bookkeeping involves recording all the financial transactions of a business. Your ‘books’ or records should show details of all the money flowing into and out of your business.
Your records should be split by money coming into the business (sales revenue, shown on the 'sales ledger') and money going out of the business (purchases and other expenses, shown on the 'purchase ledger').
Recording sales
You should have a separate record for each sale you make. Each record should show the amount, the date, the customer, and your unique invoice number relating to that sale. The record should also show a summary of what the transaction was together with appropriate notes that you can refer back to at a later date should you need to.
Recording purchases and other expenses
Your purchases and other expenses should be detailed in a similar way, with a separate record for each purchase showing the amount, the date, the supplier, and the purchase receipt for that transaction. Again a summary and a more detailed note will help you understand the transaction if you need to refer to it at a later date, eg when doing your tax returns.
For expenses you need to log the amount, the date, the payee, and make sure you have a purchase receipt.
It also helps to divide your purchases and expenses into categories such as stock, rent, insurance, staff costs, travel, etc so you can analyse your business costs. When deciding how to categorise these costs, it's a good idea to use the same categories as on a tax return for allowable expenses, that way you don’t have to do any additional calculations to get to the numbers you need for your tax return.
If you have a petty cash float, you’ll need to keep receipts for every purchase you’ve made from petty cash, and transfer the details regularly into your main record keeping system.
Managing your bank balance
At least once a month, or more often if you have a lot of transactions, you should check that the amount of money in your company bank account is correct. Take the previous balance, add all the sales income you have actually received and subtract all the payments you have made, together with any other regular outgoings. The total should equal the amount in your account. It’s important to keep track of the actual money that flows into and out of your bank account as well as what your sales and purchase ledgers show. If your bank balance does not reconcile with what you think it should be you’ll need to work out where the error is and rectify it.
What a bookkeeper or bookkeeping service will do
A bookkeeper will manage the flows of money into and out of your business. They will make sure everything is logged accurately and correctly, that you are paid on time, and you pay your invoices when you should, or when you can afford to. Check your bookkeeper is registered with the International Association of Book-keepers (IAB) which indicates they are qualified and regulated to provide bookkeeping services.
A bookkeeper may do any or all of the following activities. Make sure you’re only paying your bookkeeper for the tasks you want them to do. If they’re not flexible find a different bookkeeper!
The things you’ve sold (your Sales Ledger)
- properly log each transaction
- create and send sales invoices and credit notes
- create and send customer statements
- chase unpaid invoices
The things you’ve bought (your Purchase Ledger)
- properly log each transaction
- record and file purchase invoices and credit notes
- record petty cash and employee expenses claims
- check supplier accounts and prepare payments at the appropriate time
Reconcile your bank balance
Prepare your Vat returns
Prepare your management reporting and accounts
Prepare your annual business accounts
A bookkeeper will prepare a profit and loss statement, a balance sheet, and a cash flow statement so you know exactly what your financial position is. This includes the preparation of the Ltd Company Statutory Accounts that are required by Companies House each year or, for sole traders or partnerships, the correct sales, costs and expenses figures for completing your annual Self-Assessment Tax Return.
Payroll services
A bookkeeper may also provide outsourced payroll services. See our article on Outsourcing your payroll for more information.
What if you don’t want to do your own bookkeeping?
All businesses must keep financial records for a minimum of six years, but that doesn’t mean you have to do the record keeping yourself.
If you don’t have the time, the skills, the inclination, or the right staff to ‘do the paperwork’ you might want to consider outsourcing the job to a bookkeeper. If your paperwork is in a mess and you don’t have a clear picture of your financial position, you should definitely get some help from a qualified bookkeeper, and fast.
Bookkeeping and accounting services are services that are easy and practical to outsource if you don’t want to do the record keeping yourself. Check your bookkeeper is registered with the International Association of Book-keepers (IAB) which indicates they are qualified and regulated to provide bookkeeping services.
If you want to find out about outsourcing your bookkeeping to a qualified professional call us on 0207 111 7761 or email us to find out more
The difference between bookkeeping services and accounting services
Don’t confuse bookkeeping and accounting services; they are two different but complimentary processes. Your bookkeeper (or you) will make sure all your financial transactions are properly logged and recorded. Your accountant can then review your financial position and make the appropriate recommendations on how to run your business more profitably.
The benefits of using a qualified bookkeeper
You would benefit from the services of a qualified bookkeeper if:
- you’ve lost track of what you’re spending and what you’re earning
- your receipts have been in that shoe box for so long you’ve forgotten what they’re for!
- your cash flow is suffering because you’re taking too much time to issue invoices, let alone chasing for their payment
- you have a backlog of paperwork
- your paperwork is taking up too much of your time
- you struggle getting the right figures for your tax return or VAT returns
- you just don't like doing the paperwork
A qualified bookkeeper will:
- save you time
- help you avoid mistakes
- give you peace of mind knowing your paperwork is being done properly
- give you accurate and up to date information on your business performance
- speed up the completion of your vat returns, annual accounts and tax returns
- help you avoid late filing penalties with HMRC and Companies House
- provide you with a reliable and confidential service
How to choose the right bookkeeper
If you’re thinking of using a bookkeeper be aware that anyone can call themselves a bookkeeper, even if they don’t have any bookkeeping qualifications. For all the benefits that using a bookkeeper brings, your business could be seriously exposed if you trust your company records and finances, including access to your bank accounts, to just anyone.
When choosing a bookkeeper for your business, look for someone with relevant experience and qualifications, such as being a member of the International Association of Book-keepers (IAB), or a registered accountancy firm. As bookkeeping and accounting are so closely linked it would make sense to go to an accountancy firm to see what bookkeeping services they offer. Accountancy firms that are regulated by their professional body will have to adhere to strict codes of ethics and make sure that they are completely up to date with all the latest rules and regulations. Accountants are not just number crunchers, they are business advisers (see our article What an accountant can do for your business) and so can help you as your business grows. You also have the added advantage of knowing that you are not being charged full accountancy rates for simply organising your records, so you will be saving yourself some money too!
If you want to find out more about using a bookkeeper for your business call us on 0207 111 7761 or email us to find out more.
What is bookkeeping ?
Keeping proper financial records for your business transactions is known as bookkeeping. Traditionally the records of each business sale or purchase transaction would have been written into large books, called ledgers, which is where the term comes from. Although it’s possible to still keep paper records it’s far more usual (not to mention quicker) to use either a spreadsheet or an online bookkeeping service
Proper financial record keeping will help you manage your business more effectively and adhere to the legal requirement to keep your business’ financial records for a minimum of 6 years.
If you want to find out about outsourcing your bookkeeping to a qualified professional call us on 020 7111 7761 or email us to find out more
Why you need to keep good financial records
All businesses need to keep accurate records of their financial transactions. It is a legal requirement that you keep all documents relating to your tax returns for at least 6 years. But keeping good financial records will also tell you a great deal about how your business is performing.
Good bookkeeping records will tell you:
-
how much money you are making
-
how much and where you are incurring your biggest costs
-
whether your business is making a profit or a loss
-
how much cash you have in the bank
-
who owes you money, and if you owe any
-
when you can pay your bills
-
if you’re getting near the VAT threshold and therefore need to register for VAT
-
what figures to include in your company or self-assessment tax returns
-
the information you need to report to any investors or shareholders
-
how efficiently you are running your business and whether you need to make any changes to improve its performance
How to do your bookkeeping
Bookkeeping involves recording all the financial transactions of a business. Your ‘books’ or records should show details of all the money flowing into and out of your business.
Your records should be split by money coming into the business (sales revenue, shown on the 'sales ledger') and money going out of the business (purchases and other expenses, shown on the 'purchase ledger').
Recording sales
You should have a separate record for each sale you make. Each record should show the amount, the date, the customer, and your unique invoice number relating to that sale. The record should also show a summary of what the transaction was together with appropriate notes that you can refer back to at a later date should you need to.
Recording purchases and other expenses
Your purchases and other expenses should be detailed in a similar way, with a separate record for each purchase showing the amount, the date, the supplier, and the purchase receipt for that transaction. Again a summary and a more detailed note will help you understand the transaction if you need to refer to it at a later date, eg when doing your tax returns.
For expenses you need to log the amount, the date, the payee, and make sure you have a purchase receipt.
It also helps to divide your purchases and expenses into categories such as stock, rent, insurance, staff costs, travel, etc so you can analyse your business costs. When deciding how to categorise these costs, it's a good idea to use the same categories as on a tax return for allowable expenses, that way you don’t have to do any additional calculations to get to the numbers you need for your tax return.
If you have a petty cash float, you’ll need to keep receipts for every purchase you’ve made from petty cash, and transfer the details regularly into your main record keeping system.
Managing your bank balance
At least once a month, or more often if you have a lot of transactions, you should check that the amount of money in your company bank account is correct. Take the previous balance, add all the sales income you have actually received and subtract all the payments you have made, together with any other regular outgoings. The total should equal the amount in your account. It’s important to keep track of the actual money that flows into and out of your bank account as well as what your sales and purchase ledgers show. If your bank balance does not reconcile with what you think it should be you’ll need to work out where the error is and rectify it.
What a bookkeeper or bookkeeping service will do
A bookkeeper will manage the flows of money into and out of your business. They will make sure everything is logged accurately and correctly, that you are paid on time, and you pay your invoices when you should, or when you can afford to. Check your bookkeeper is registered with the International Association of Book-keepers (IAB) which indicates they are qualified and regulated to provide bookkeeping services.
A bookkeeper may do any or all of the following activities. Make sure you’re only paying your bookkeeper for the tasks you want them to do. If they’re not flexible find a different bookkeeper!
The things you’ve sold (your Sales Ledger)
- properly log each transaction
- create and send sales invoices and credit notes
- create and send customer statements
- chase unpaid invoices
The things you’ve bought (your Purchase Ledger)
- properly log each transaction
- record and file purchase invoices and credit notes
- record petty cash and employee expenses claims
- check supplier accounts and prepare payments at the appropriate time
Reconcile your bank balance
Prepare your Vat returns
Prepare your management reporting and accounts
Prepare your annual business accounts
A bookkeeper will prepare a profit and loss statement, a balance sheet, and a cash flow statement so you know exactly what your financial position is. This includes the preparation of the Ltd Company Statutory Accounts that are required by Companies House each year or, for sole traders or partnerships, the correct sales, costs and expenses figures for completing your annual Self-Assessment Tax Return.
Payroll services
A bookkeeper may also provide outsourced payroll services. See our article on Outsourcing your payroll for more information.
What if you don’t want to do your own bookkeeping?
All businesses must keep financial records for a minimum of six years, but that doesn’t mean you have to do the record keeping yourself.
If you don’t have the time, the skills, the inclination, or the right staff to ‘do the paperwork’ you might want to consider outsourcing the job to a bookkeeper. If your paperwork is in a mess and you don’t have a clear picture of your financial position, you should definitely get some help from a qualified bookkeeper, and fast.
Bookkeeping and accounting services are services that are easy and practical to outsource if you don’t want to do the record keeping yourself. Check your bookkeeper is registered with the International Association of Book-keepers (IAB) which indicates they are qualified and regulated to provide bookkeeping services.
If you want to find out about outsourcing your bookkeeping to a qualified professional call us on 0207 111 7761 or email us to find out more
The difference between bookkeeping services and accounting services
Don’t confuse bookkeeping and accounting services; they are two different but complimentary processes. Your bookkeeper (or you) will make sure all your financial transactions are properly logged and recorded. Your accountant can then review your financial position and make the appropriate recommendations on how to run your business more profitably.
The benefits of using a qualified bookkeeper
You would benefit from the services of a qualified bookkeeper if:
- you’ve lost track of what you’re spending and what you’re earning
- your receipts have been in that shoe box for so long you’ve forgotten what they’re for!
- your cash flow is suffering because you’re taking too much time to issue invoices, let alone chasing for their payment
- you have a backlog of paperwork
- your paperwork is taking up too much of your time
- you struggle getting the right figures for your tax return or VAT returns
- you just don't like doing the paperwork
A qualified bookkeeper will:
- save you time
- help you avoid mistakes
- give you peace of mind knowing your paperwork is being done properly
- give you accurate and up to date information on your business performance
- speed up the completion of your vat returns, annual accounts and tax returns
- help you avoid late filing penalties with HMRC and Companies House
- provide you with a reliable and confidential service
How to choose the right bookkeeper
If you’re thinking of using a bookkeeper be aware that anyone can call themselves a bookkeeper, even if they don’t have any bookkeeping qualifications. For all the benefits that using a bookkeeper brings, your business could be seriously exposed if you trust your company records and finances, including access to your bank accounts, to just anyone.
When choosing a bookkeeper for your business, look for someone with relevant experience and qualifications, such as being a member of the International Association of Book-keepers (IAB), or a registered accountancy firm. As bookkeeping and accounting are so closely linked it would make sense to go to an accountancy firm to see what bookkeeping services they offer. Accountancy firms that are regulated by their professional body will have to adhere to strict codes of ethics and make sure that they are completely up to date with all the latest rules and regulations. Accountants are not just number crunchers, they are business advisers (see our article What an accountant can do for your business) and so can help you as your business grows. You also have the added advantage of knowing that you are not being charged full accountancy rates for simply organising your records, so you will be saving yourself some money too!
If you want to find out more about using a bookkeeper for your business call us on 0207 111 7761 or email us to find out more.
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