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Basic Bookkeeping For Small Business Can Save Money

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Every business is required to keep a set of financial records to enable those accounts to be submitted and the tax payable calculated. Bookkeeping is the prime stage in keeping those books and at its most basic level does not require high levels of accounting knowledge and experience and accountant fees can be saved.

Sales Invoices

A sales invoice is a prime document. In more advanced accounting systems technical terms such as sales day books, sales ledgers, debtors and credit control are important but at the basic level bookkeeping of sales is the act of recording those sales in the business books.

A sales day book is basically a log of sales invoices issued by the business and this level of recording financial transactions is all that may be required for a small business. A simple bookkeeping method is a list of invoices that only require entering into the business books once.

Simple bookkeeping for sales invoices is single entry bookkeeping with manual analysis. While the accounting staff may make these entries in the small business environment the business owner usually keeps the books.

Larger companies use accounting software to produce the accounting information in a variety of formats for different financial control and reporting purposes. More sophisticated financial accounting packages produce lists of sales invoices and also update a sales ledger.

Each sales invoice being allocated to the various clients to whom the sales had been made. The sales ledger at this stage of the bookkeeping represents the value of goods or services sold to each customer.

Purchase Invoices

A purchase invoice is a prime document and a purchase day book is a list of purchase invoices received from suppliers. The purchase invoice day book would not normally require further financial analysis of the type of expenditure. To that extent a simple purchase day book would be a good starting point for a simple set of accounts but require a little more sophistication requiring analysis by expense type for both financial control and taxation purposes.

Single entry bookkeeping is sufficent for most small business with the addition of analysis columns.

Medium and larger organisations require to track and control purchase invoices to control costs and payments. In a mirror of the sales ledger system purchase invoices would also be entered by supplier into a purchase ledger. The easy way is to allocate each supplier a code number so that the accounting software can collect the amounts owed to each supplier the individual supplier accounts being the purchase ledger.

Cash and Bank Transactions

Quite apart from the single entry of sales and purchases is the recording by a business in its books of cash and bank receipts and payments. The third area of prime documents is the cash receipt or bank slip, given or received. Such documents may take many forms from the till roll of a retail business to the deposit slip at a bank but all are evidence of money changing hands.

In a small business cash and bank records may be maintained separately to the records of other prime accounting records. Cash or bank records would replicate the bank account statement with the addition of customer and supplier names or if multiple customers for example then the source of the money being received or paid.

Larger organisations and particularly using accounting software also code each receipt and payment to the same customer and supplier codes used to produce the sales ledger and the purchase ledger. Sales ledgers and purchase ledgers are updated from the cash and bank accounts to produce the accounts balances outstanding.

By recording the cash and bank transactions in the ledgers the customer and supplier records making up the accounting ledgers then show the balances on each account and the recording of the financial transactions in this way is effectively the other side of the double entry bookkeeping system.

Small business not requiring sophisticated accounting software for financial control purposes and using a simple bookkeeping system would record receipts against the list of sales invoices and payments against the list of purchase invoices.

Basic bookkeeping using single entry of prime accounting documents would be suitable for small business, requires very little accounting knowledge and when carried out by the business owner rather than a bookkeeper or accountant can save money.


About the Author

Terry Cartwright, accountant and CEO at DIY Accounting, designs accounting software http://www.diyaccounting.co.uk/ on excel spreadsheets providing complete single and double entry bookkeeping systems http://www.diyaccounting.co.uk/smallbusinessaccounting.htm


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Article Published/Sorted/Amended on Scopulus 2008-01-14 00:11:51 in Tax Articles

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