The Beginner’s Guide to Bookkeeping
January 2017 / By Charlie Howell / Contact Me
Paperwork may be the least enjoyable aspect of starting a business. Unfortunately, as much as it might seem a bane, it’s also a vital aspect. It’s easier to maintain positive cash flows when your books are in order, and it’ll help you keep out of trouble with the law. Moreover, bookkeeping enables a person to foresee potential financial problems ahead of time. Every business owner therefore needs to have a basic understanding of this function in order to manage it well.
Bookkeeping: A Quick Definition
Bookkeeping involves recording and classifying every financial transaction made by the firm using accounting techniques. Bookkeeping is the basis that your company’s accounting practices will be set on, as it is the bookkeeper’s records the accountant will analyze and interpret. A small business owner will either have to hire a bookkeeper/accountant to look over this function, or perform it themselves.
What Financial Records is the Bookkeeper Responsible for?
1) The Cashbook - The bookkeeper needs to regularly update the cashbook. This catalogues the payments being made in and out of the business’s bank account.
2) Sales Invoice File - Bookkeepers need to prepare a file that store sales invoices in sequential order.
3) Purchase Invoice File - This file stores invoices that have been paid, as well as the method of payment.
Good Bookkeeping Practices
1) Be regular with your bookkeeping. Don’t leave it aside on days you “just don’t feel like it”. Tiny mistakes have a habit of racketing up, and this could increase your accounting costs in the long term.
2) Even if you’re using a bookkeeper, know the basic terminologies and practices so you can actively manage or supervise their activities. It is important to understand the balance sheet and income statement, and all the items that go on these. Know the basic accounting equation, and monitor your bookkeeper’s work from time to time in order to ensure they’re doing an accurate job. This could also potentially save you from fraud.
3) Get an invoice for all your purchases and transactions. This practice will help if you’re ever in the middle of a tax investigation.
4) Check your bank statements regularly. It will help you catch mistakes and give you a better idea of where your money is going.
5) Set aside money for major expenses. Planning for potential business opportunities or sudden crises in the future will allow you to keep on your feet at the time. This practice will prevent business owners from spending money from the flush years and finding themselves dry later.
6) Be meticulous about paying your taxes by setting aside money for this purpose throughout the year.
7) Separate your business and personal expenses. The money belonging to a limited company is not the business owner’s, and the owner is barred from using company money to fund personal expenses. However, it is good practice for even a sole owner or partnership to keep a separate bank account for business. Separating expenses will keep your accounts clean.