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If you’re starting a brand new company, then needs for bookkeeping won’t be top of your list of priorities. Once your business is growing it is time to think about keeping up-to-date and complete accounting information of your expenses and income. What type of records should you keep? Beyond a simple legal requirement, bookkeeping is an integral part of being able to run your business efficiently. Each year, your company accounts must be completed.
Need of approval of your company’s account from higher companies houses is required if you are operating a limited firm. If you’re self-employed your business account can be utilized to determine the tax liability for self-assessment.
The bookkeeping data you keep will be the foundation of these financial statements that are statutory. They must contain information related to the sales you make, expenses, your salaries, and your employees, as well as any other transactions made by banks. It could sound complicated at first, but just simply take one step at a stretch and you’ll find it quite doable.
If you’re having a hard time trying to keep track of everything, there are plenty of small-business accountants as well as professional bookkeeping services that are glad to help. Even if you’re scared of numbers, there’s a solution for you.
How do you define bookkeeping?
Bookkeeping is the process of recording and classifying the financial transactions that occur in your business. It is the process of keeping track of the amount your company spends as well as the money your company earns.
The tasks were performed using ledgers and books and hence the term ‘bookkeeping’. In the beginning, transactions were written down in cashbooks, daybooks journals, or other journals. After that, the written data is moved into the ledger.
The software for bookkeeping has now nearly completely eliminated the requirement of physically bound books.
What are the reasons small-scale companies need bookkeeping?
A clean, well-organized book collection is an excellent starting point to creating a successful business. Here’s why:
- You can determine if you’re earning more money than you’re paying for.
- You’ll have accurate financial information to make budgetary and planning decisions.
- You can determine whether a cash shortage is imminent and make the necessary preparations to prevent it from happening, by keeping track of when you have to pay suppliers and when you can anticipate payments from your customers.
- There is a greater chance of finding errors in your payment (or maybe even fraud) which could result in a loss of money.
- Tax returns can be completed with accuracy.
- Organizing your financial data will make it easier to collaborate with other people like investors, lenders as well as accountants.
How to manage your bookkeeping
The two main tasks of a well-organized small business bookkeeping are reconciliation and recording. Let’s take them apart.
1. Recording each transaction
Record your sales. It was usually done by recording them in the cashbook or inserting them into the spreadsheet. Businesses are more inclined to download sales data directly into their accounting systems using point-of-sale software or invoice software.
Keep track of your transactions. Each purchase for business needs to be recorded. Also, you should keep the receipt if you intend to claim the expense as an income tax deduction. You can also write this information into an excel spreadsheet or book. It is also possible to automate the task to ensure that all debits from your company bank account flow to your software for bookkeeping.
It is possible to record your expenses and income at various dates based on whether you are using accrual or cash accounting.
2. Conciliating every transaction
Reconciliation is the process of periodically checking your company’s books against your bank statements in order to ensure that your balances and transactions match and then identifying the reason when they aren’t. A lot of times, bank charges or deposits, interest, and other payments that haven’t yet been credited to your bank account must be recorded.
It is possible to perform bank reconciliation regularly, every week or monthly, or even less frequently, depending on the volume of transactions running through your company. However, you’ll probably have to reconcile your accounts prior to filing tax returns at the very minimum.
The faster you reconcile your transactions, the more quickly errors are discovered and rectified. It’s best to perform it frequently, even daily, so it doesn’t get too much work. Learn more about it in our tutorial on how to perform reconciliations with your bank.
Other bookkeeping and bookkeeping jobs for small businesses
If you’re the bookkeeper for a small-sized business, you could also be accountable for:
- account receivable (issuing invoicing and ensuring they’re paid)
- Accounts to be paid (paying invoices on time)
- Payroll (paying the employees)
Professional bookkeepers also offer additional services, such as helping to prepare financial documents (profit-and-loss and balance sheet and the cash flow statement) and evaluating the business’s performance. Bookkeepers can also be BAS agents who can assist you to prepare your tax returns.
Small business bookkeeping outsourcing
If you’re not able to handle the bookkeeping aspect of your small-scale business, you can hire someone to handle it for you. Bookkeepers typically permit you to select different services depending on the budget you have set. You can begin with basic bookkeeping services at a low cost and then move to more advanced services as your business expands. Bookkeepers can be found in the advisor directory for Xero.
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