A Simple Way to Record Your Bookkeeping
Starting a new business is very time consuming. Often there is only you, so everything is down to you. You are legally required to keep appropriate records and it’s recommended you keep all your financial records and paperwork for a minimum of 6 years.
If you decide not to use a computerised accounting system, start with a simple bookkeeping system so that it doesn’t become a chore to keep up to date. Your system can grow with your business.
The simplest system is an exercise book, or a spreadsheet, to record the transactions and lever arch files for invoices and receipts. In accounting terms the exercise book, or spreadsheet, is known as the Cash Book.
Use a page or a sheet to record all money received. Divide the page into columns; date, details, amount, VAT (if VAT registered) and transaction total . Always start with the balance brought forward, which will be £0.00 on the first page of a new business. Enter any transactions that bring money into your business in date order. For example, the first transaction maybe a personal investment. Then next one could be income received from a sale.
Use a separate sheet or page to record all money paid out from your business. Again, divide the page into columns; date, details, amount, VAT (if VAT registered) and transaction total. Start with the amount brought forward. List, in date order items you have purchased or any other money that has been taken from the business.
For each purchase you should have proof of purchase, such as a receipt. You may want to number each receipt and file them in this order, making a note of the number in the Cash Book so that you can easily find it if required.
If you use a fresh page for each month you begin to have an easy to see record of how well your business is doing each month.
If you’re a sole trader, it is not a legal requirement to have a separate bank account for your business, but it makes everything much more straightforward if you do.
If you take cash payments, it makes the bookkeeping easier if you bank all the money received then withdraw any cash required in a separate transaction. Initially it seems easier to withhold any cash required from the amounts paid to you but this quickly gets confusing when you are trying to balance your books.
It’s a good idea, when setting up your system, is to make it so that a complete stranger could easily understand everything you’ve recorded without any explanations.
When you receive your bank statement, or download it from your internet banking, tick off each transaction in the Cash Book against each transaction on the statement. Enter any missing transactions such as bank charges/interest or direct debits. The balance at the end of the month on your bank statement should match the balance in your Cash Book (money received minus money paid out).
Note: Cheques you may have recorded in your Cash Book towards the end of the month may not yet be showing on your bank statement. These amounts should be taken into consideration when checking to see if the final balances match.
Any money taken from the business for personal use, as a sole trader, is called Drawings and must be recorded as such in your Cash Book. The easiest way to do this is to transfer money from your business bank account to your personal account. Do not start using your business cheque book or debit card to pay for personal items as the bookkeeping will become very messy and confusing.
A director taking money from a business should be taken as a salary or dividends, otherwise it is classed as a loan and recorded as a Director’s Loan.
- Keep it simple
- Keep your Cash Book up to date, if not daily, no less than weekly
- Keep your personal accounts and business accounts completely separate
Jul 1, 2014