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
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.
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
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
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
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
About the Author
Terry Cartwright, accountant and CEO at DIY Accounting, designs accounting
http://www.diyaccounting.co.uk/ on excel spreadsheets providing complete
single and double entry bookkeeping systems
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Article Published/Sorted/Amended on Scopulus 2008-01-14 00:11:51 in Tax Articles