How To Keep Your Accounting Records

We’ve looked at why you need to keep business records; now we’ll see how these records could be kept.

As we have seen, the type of records you need will depend very much on the type and size of your business. There is no point in starting a complicated bookkeeping system in a tiny business that doesn’t need such a system. It will only become a chore and the bookkeeping will soon become counter-productive.

We’ll start with the very smallest business and watch it grow. The business of some readers may have already passed this stage but it will still be useful to read this as we introduce the basic bookkeeping principles. The suggested routines should be enough for most small businesses and you should use those parts that apply to your business. Some businesses will need to develop their records in a slightly different order, and so you may have to tailor things accordingly. Everyone does things slightly differently. Although some things in bookkeeping are definitely wrong there is often more than one right way of doing things.

Keeping Records To Suit Your Business

For example, rather than using the basic cash book described in this chapter and in Chapter 4, you may wish to consider the use of one of the specialised cash books as described in Chapter 7. These are very useful for small shops or other small businesses where sales or purchase ledgers as such are not really needed. In a larger business you may want to consider computerised record-keeping or the use of one of the carbon-copy integrated ledger systems also described in Chapter 7.

If you have any employees you’ll need some sort of wages system to record their wages (see Chapter 6).

Various other records are often used to record the transactions of a business. These could include, for example:

• job costing records
• continuous stock recording
• equipment registers.

 

As these and other similar records are of a specialised nature they must be designed to best suit the needs of the individual user. Indeed you may want to develop your own. If you need more information about this have a word with an accountant first.

Using Just A Cash Book

At the smallest level there is no need for expensive books to record the transactions. A cheap exercise book from Woolworths is probably all you need to record the transactions in the form of a basic cash book.

Keeping A Separate Bank Account

It would, however, be wise to open a separate bank account for your business. This will in itself form a useful permanent record of your business. It will help settle any queries from the Inland Revenue or other government agencies. Also, by separating the business banking transactions from your personal banking transactions you’ll help yourself (or your accountant) to produce your year-end accounts. The bank will provide you with weekly or monthly bank statements, paying-in books and cheque books.

Invoices

Apart from the bank details and the exercise book the only other records you’ll need to start with are the original purchase and copy sales invoices. We’ll look at these in more detail below.

Starting Your Cash Book

The phrase cash book just means the book where you record cash and bank transactions (cheques, etc.). Normally the cash transactions and bank transactions are recorded in separate books although more complex systems are sometimes used to combine these in one book using separate columns for each. For anyone new to book-keeping this combined book can be confusing, and it’s best avoided if possible.

Figure 2 shows the typical ruling of the simplest cash book. This book is only used to record the bank transactions: a simple way to incorporate cash transactions is described on page 32. Here are a few simple rules to follow when writing up the cash book:

 

• By tradition, your receipts should be on the left and your payments on the right. Technically, the left-hand receipts page is called the debit whereas the right-hand payments page is called the credit. But you don’t need to remember these names.

 

• Do remember to enter the year at the top of the date column. It can be very difficult at times, when looking back, to work out which year you are looking at!

 

• When you enter the items in your cash book it is useful to record, as in the example, what the items are for. A brief note will help you (and your accountant) when checking back to see what expenses you paid.

 

• If you take money out of the business for your own use, or pay for some private item from the business bank account, then this should be recorded as drawings. Likewise if you put your own money into the business it should be recorded as a receipt marked Capital introduced and its source (e.g. your name) written beside it.

 

• When you receive money for sales in cash (notes, coins) it’s good practice to bank it intact without keeping any back to pay other bills. If you hold some back your records become far more complicated and there is the danger that part of the transaction will not be recorded, with complications and expense later on.

 

Each month check out the amounts received and paid against your statements (see below) and add them up (see Figure 2). Then record the difference between your receipts and payments. This represents the amount of money that the business has in its bank account. If the receipts (including the balance brought forward from the previous month) exceed the payments, then you have cash at the bank; in this case the balance should be ‘carried down’ as shown.

 

If on the other hand your payments exceed the receipts then you’ll have a bank overdraft and the balance should be entered at the start of the payments column for the following month.