Bookkeeping, Accounting And Spreadsheet - Why It's So Important For Your Business

Published: 11th May 2011
Views: N/A

Accurate bookkeeping is important for two reasons; to help you manage and grow your business and to comply with tax requirements. In a small business it is paramount that you keep in control of the finances. Obviously a lot of it is common-sense but accurate bookkeeping is also legally required by H M Revenue and Customs.

Your Basic Records will Include:

* A record of all your sales, with copies of any invoices you've issued

* Receipts for all your business purchases and expenses

* Details of any amounts you personally pay into or take from the business

* Copies of business bank statements

You will use these records to create a profit and loss account, which will show the sales income you've received, and the expenses you've paid, and what profit or loss you've actually made. What you need to pay in tax will be based on these figures.

Other Details you must Keep:

* Petty cash - any cash taken out of the business to pay small business expenses

* Details of any other business income received

* Details of any private money brought into the business

* All bank statements, cheque stubs and paying-in slips which include details of business transactions

If you pay an Accountant to prepare you're accounts then they will charge you based on how long it takes them, so the more you can do yourself the less you will have to pay them. Also If you do not keep accurate and complete records you may end up paying more tax than is due, because in order for HMRC to assess your tax they will base it on expected sales if there is a lack of evidence of tax deductible expenditure and/or inaccurate sales records. These reasons should be enough to prompt you into action and make sure you keep on top of your books. Also if you are serious about being successful in business then knowing how much money you bring in and how much you pay out is crucial to ensure you can assess the profitability of the business and your cash flow situation. Likewise this means you are fully aware of any potential problems as soon as possible and you can quickly spring into action and make crucial business decisions with all the available information at hand.

Tax Requirements and Bookkeeping:

* You need to be able to show any investors, the HMRC and bank manager, how things stand financially in your business

* There are certain minimum periods for which you must keep your financial business records that are required to complete your tax return or make claims, e.g. six years for VAT or five years from the latest date for filing your return for Self-Assessment

Accurate Bookkeeping allows you to:

* Compare your forecasted figures with your actual monthly figures to be able to evaluate your business's financial health

* Analyse your expenses to determine how to operate your business more cost-effectively

* Discover which are your most profitable customers and/or products and find ways to increase your profit per customer

* Receive an early warning sign when you may be straying into cash flow difficulties, so you can act quickly to avert a crisis

There are Several Ways to Keep Financial Records:

* Use a spread sheet on your computer by using Microsoft Excel. Try to learn as much as you can to ensure your spreadsheet self-checks and enables you to completely analysis and run varies reports on your business model

* Hire a Bookkeeper. This saves you time as well as the need to learn bookkeeping but the downside is that it can be expense

* Give your bookkeeping to your Accountant. This is not something that I would recommend - you may only end up seeing your books very little, so you may never get to grips with the dynamics of your business

* Use a dedicated computer accounting package such as Sage or QuickBooks. These can be a bit complicated as they do go into a lot of depth plus you will have to pay for it

Here is my brief guide of how to set-up a Simple Bookkeeping System:

* Keep all your invoices and receipts in two sets of files, one for sales and one for purchases

* Allocate a unique reference number to every invoice in and out and note it in your spreadsheet or your computer system

* File the invoices in to their relevant folder in order. Keep all your paperwork to hand in case you have a tax or VAT inspection

* Keep records of expenses. You can only offset expenses against profits that are wholly incurred for the business (your accountant will give you the low-down on what is acceptable). Make sure you always ask for receipts and keep hold of them

* When you are VAT-registered, it is essential to keep VAT receipts. Without these, you cannot reclaim the VAT

You can create an Excel Spreadsheet to use which includes columns for:

* Supplier's name or employee's name if you are paying wages

* Transaction date

* Amount

* Your own reference number

* Cheque or BACs number

* Income: Money you receive in

* Expenses: Divide up into columns such as utilities, insurance, wages, rent, stationary, advertising and so on

* Drawings: Your wages

* VAT: If applicable

* Petty cash: Everyday small business expenses

The spreadsheet adds up the totals of each column at the end of the month. Start a new spreadsheet for the new month by bringing forward last month's totals into the columns for this month. At the end of the tax year, you will have a breakdown of your income and expenses for HMRC and you will be able to see how your business is performing month by month. It's important to Control your petty cash by keeping the float at a constant level, e.g. 50 or 100, either in cash, or cash plus receipts. When you need to top up the cash, remove all the receipts and enter them into your books. Reconcile your bank account at the end of each month. This means taking the previous balance of your last bank statement, adding up all monies that have come in and subtracting payments you have made. Remember to make allowances for any un-cleared or un-presented amounts that haven't yet shown up. The new balance should be exactly the same as your new bank balance. If it isn't then either you or the bank has made a mistake somewhere.


Karleh Light has put together a simple Bookkeeping pack for small

businesses. No need to buy accounting software or spend days putting

together your own system as Karleh has done it for you! All formatting

has been completed and formulas have been entered into the cells. They

are live working documents which automatically populate when you add

your information. Go to for more


Report this article Ask About This Article

More to Explore