On this page, we are going to look at the reason for preserving accounting records and by the conclusion of this article, you will have the knowledge each day to keep a set of books in their simplest form for small companies.
What we need to look at before deciding which bookkeeping method is best for our business are definitely the following: –
Why do we should keep accounting records,
Is usually our Business as a Small Dollars Based Business
3, Can our Business offer Credit history Terms to Our Customers
Can we get Credit Terms via our Suppliers
You may not be familiar with the above terms yet therefore let’s look at each product in detail: –
1 Why do some of us need to keep accounting records-
The first reason we must maintain accounting records is that it is really a statutory requirement. At the end of our own financial year, we have to create a set of accounts in order to complete a personal tax return, or even in the case of a limited company document a set of accounts with the Deliberate Of Companies. And if we have been registered for VAT we want the information from our data to complete Vat Returns.
Next and the most important as far as we have been concerned is so that we will keep track of where our company is going: –
Are all of us making a profit or a reduction?
Which products within our company are making a profit as well as which are making a loss?
Tend to be we in line with the business plan all of us put together before we began our business and do our initial business investigation?
We may have put together a company Plan which we took to the Bank in order to get a loan to begin our business. If we do the chances are that the financial institution is going to want to see if our company is in line with that intention on a regular basis. In other words, the lender may ask you to produce Month-to-month Management Accounts”
2 . Is actually our Business a Small Money Based Business?
If we possess only just started our company, maybe it’s a small work-from-home business, we probably begin by only selling products to the people who have paid us very first. Similarly, because we have only started our business many of us probably cannot get credit history facilities from our manufacturers so we have to pay the cash beforehand to get our products. If this sounds the case we only need an easy bookkeeping system. All we should do is keep track of each of our Cash Receipts and Dollars Payments. All we need just for this is what Accountants call some sort of Cash Book.
3, Can our Business offer Credit history Terms to Our Customers?
Once we have products or give a service whereby we let our customers or consumers pay for our product or service at some future date we are going to need to keep a number of records of who has an outstanding loan for our money. For example, Therefore I’m an Accountant and although almost all of my business is money based if I were to maintain your accounting records, I would need to spend time writing up your publications and then producing your trading accounts which I would then evaluate with you. I would have at first spent time on generating those documents which I might keep a record of and then generate an invoice for you that you would then pay possibly now or in between the future. Therefore what I might do is have a guide to keep a record of the purchase. Accountancy Term: – Product sales Day Book And also a document of when you paid me personally for that sale. Accountancy Phrase: – Sales Ledger
four. Do we get Credit Conditions from our Suppliers?
This is actually the reverse of item three above. If our providers allow us to have goods that people pay for at a later date then we need to keep a record of- What we have purchased. Accountancy Term: – Buy Day Book and who else we owe money in order to. Accountancy Term: – Buy Ledger
So how do we maintain these business records?
To properly answer this question since it will vary for different types of companies and it is one of the most difficult items to learn as an Accountant when you begin from scratch to put someone’s data together in order to produce a group of accounts in the quickest period possible.
Once you understand this procedure it is really quite simple. If you want to00 keep your records and let your registrar put your year finish accounts together for you. In case you at least understand the following you will lay aside a lot of money on your accountancy charges because your accountant will charge a person base on the time it requires to analyze your publications in order to put those last accounts together.
So this is actually where we are going to start.
We will start at What info do we need at the end of the day?
We will start by looking at this process by assuming that you keep the simplest group of books discussed in area 1 above (i. electronic. a Cash Book. Document of Receipts and Payments) When we say Cash Reserve we mean a record involving Receipts into your Bank Account along with Payments from your Bank Account. Each business will have a dollar book no matter what its dimensions and it is where your Purse bearer will start when he produces your own personal year-end accounts or maybe does your bookkeeping for you.
Precisely why?
Because your Bank Statements are definitely the only independent check that your own personal records are correct. With that, I mean that your Bank Phrases are the another (wait for doing it another) Accountancy Term: rapid Double Entry to your Dollars Book. This term Two times Entry is the one almost all feared by anyone commencing to learn accountancy and take that bookkeeping stage to Trial run Balance stage. You don’t need to concern yourself with it so much as a bookkeeper because you are just working on a single record at a time. So what could be the end result that we are hoping for?
Simple. Another Accountancy Expression: – Income and Expenses Account.
What is this? Simple: :
A List of our Income Coming from our Cashbook Statements
And a list of our Expenses From our Cash Publication Payments
So an Income and also Expenditure Account will look like this type of thing: –
Joe Blogs Revenue and Expenditure Account For The season Ended 30th April the year 2010
Income A
Expenditure Immediately Related To Sales: –
Acquisitions B
Carriage C
Overall Direct Expenditure B+C=D Deb
Net Income Directly Related to Revenue A-D=E
Other Expenses: :
Rent and Rates N
Heat and Light G
Advertising and marketing H
Printing and Stationary I
Telephone J
Many K
Sundry Expenses D
Bank Charges M
Lender Interest N
Total Additional Expenses Total F to help N= P P
Net gain E-P
Financed by: instructions
Fixed Assets
Cash on Bank Q
Capital Launched R
Fewer Drawings
(I use letters in the case-in point so that you will see below how totals are used from the income books)
* NOTE: instructions EXPENDITURE ITEMS CLAIMED NEXT TO BUSINESS INCOME MUST SPECIFICALLY RELATE TO THE BUSINESS.
So if you include or rent an office to your business you can claim often the headings marked with a 3. If however if you work from your home. You will not be able to claim your residence Rent, Heat, and Light as well as your Telephone bills. You could however claim apart on your household bills as a ratio of the time and space familiar with running your business from home. As well as the business-related expenditure on your Telephone calls.
The Rent in addition to Rates and Heat and lightweight proportion would be claimed beneath the heading: –
Use of Household as Office.
For this ratio, it is best to get advice from an accountant. Topics such as this usually are out of the scope of this article.
Now we know the basic layout for the Cash Book. We will work with two books, one to get receipts and another to learn columns for our payments.
INCOME BOOK RECEIPTS Layout: instructions
Date______Received From__Total___Sales___Other Receipts
just one July 10________Mr A__________100_____100
5 July 10 _______Mr B___________ 25______25
6 July__________ Mr. C__________ 50______ 50
6 July _________Company D ____250_____ 250
14 July ________Company E____ 100 _____100
20 September Cash Introduced _______1000 __________________1000
Month Total________________ 1525 (Q) ___525 (A) ______1000 (R)
Notice here I have unveiled a heading here that isn’t in the Income and Output Account. This is because these are of a capital nature and are members of the Balance Sheet Part of Your personal Final Accounts. Again it might confuse you and you might require the assistance of an accountant here.
Even so JUST TAKE NOTE OF THE VERY SIMPLE BOOKKEEPING LAYOUT AND TECHNIQUE.
Also notice that when we overall each individual column because we certainly have analyzed our individual invoices across the cash book titles. If we add together the particular totals of each individual vertebral column they should equal the total inside the total receipts column. (i. e. 1000 + 525 = 1525) This is named X casting. It makes positive our book balanced.
Also. And by the way, add these kinds of totals up at the end of monthly. That way it is easier to get back together your cash book with your lender statements.
CASH BOOK OBLIGATIONS Layout: –
Date ___Supplier_____Cheque
___________________Number___Total___Purchases__Carriage__Rent and Rates___ and so on
6 July ____Company X_____100010____100________100
14 July___Company Z_____100011______30___________________ fifty
etc.
Month Total ______________________130 (Q) _______(F)_______ (G) _________ (H)
I think you get the theory.
Don’t forget that when you add up the particular “Total Column”: – a hundred + 30 = 140 (and of course you will have a lot more entries than this) Your current check is to make sure that the whole of each of the analysis copy adds across to the very same figure.
i. e. N + G + They would + etc . = 140 Great we X solid.
So to summarize.
You now learn how to keep business records in the simplest form. You know experience keeping them. When you first create your business this is probably all you have to start with. When you take these kinds of books to your Accountant all your financial year just about all he needs to do will be balance the cash book and develop Bank Statements. And then put together the Income and Expenses Account.
You can see how effortless that is for him to accomplish now. He has all the results that just slot in place.. Hey, you can likely do it yourself now! Of course, the item gets more complicated than that when we start introducing Gross sales Day Books and Purchase Morning Books.
See you next time.
Let’s hope I have been helpful.
Adrian Jesus is dedicated to helping corporations and those who wish to start a new customer. He is an Accountant with more than 19 years in the profession and has helped most people start their own small businesses.
