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It’s not the most exciting or glamorous duties for a small business owner, but it’s absolutely essential for keeping a company afloat and what’s more the law requires it – financial accounts and any documentation relating to tax declarations must be held by a company for at least six years. If you don’t have a system for recording purchases, sales, payments and receipts, you’ll soon lose track of your company’s financial situation and you won’t be able to plan effectively, and even if you don’t need to have your accounts audited, you’ll still need evidence for the tax inspector that everything is above board. You could otherwise face tax investigations or fines or higher taxes than necessary. Your system needn’t be complicated, though, especially if you run a small business. It’s essentially a matter of keeping a record of all items sold and purchased and all expenditure including receipts. There are no requirements as to how you keep your records – you may prefer either paper or electronic accounts. However, computer spreadsheets can be much easier to maintain. Review and update your records on at least a monthly basis to keep track of your company’s debtors and creditors. Below are some of the basic bookkeeping methods for small businesses. Cash ledger – this will let you know how much cash is going into and coming out of your bank account and how much petty cash you have. You should have a section for both cash receipts and cash payments. In the receipts section, you’ll need columns for the payment date, the invoice number that has been paid, the amount of the payment, who made the payment, and the amount you paid into the bank. For the payments section, record the date you made the payment, the number of the cheque you paid with, your reference number for the invoice from the payee, the amount of the payment and the name of the payee. Tally up your cash book against your bank statement once a month to ensure they agree, and if not, check why. Perhaps cheques you have paid haven’t been cashed, or cheques you have received haven’t yet cleared, or perhaps there have been bank charges. Keep all your cheque books, deposit books and bank statements to back up your records. Also keep your own invoices and those of your suppliers, as well as receipts for all purchases and expenses and delivery notes. If your business is quite straightforward and you deal mainly in cash, a cash ledger alone may be a sufficient accounting system. However, if many of your sales and purchases are paid by other methods, you’ll need a means of keeping tabs on who owes you money and when it is due. Having separate sales and purchase ledgers may make accounting easier and will help you to chase your debtors and estimate your future cashflow. Sales ledger – for everything you sell, you should create a numbered invoice and file it accordingly. The total amount of sales that you invoice is known as your turnover. It’s wise to have two separate files, for paid and unpaid invoices, to make your bookkeeping easier. When you receive payment, attach the relevant documentation to the invoice and transfer it to the paid file. Also record everything in your sales book, with columns for: invoice date, invoice number, customer name, sale amount including VAT if you are VAT registered, plus VAT amount and total excluding VAT, and date of payment. Purchase ledger – this will help you keep track of what your business has purchased in terms of supplies, raw materials and goods or services from other companies so that you know what you owe and how much you are spending with your suppliers. Every time you purchase something, number the receipt or invoice that you receive with your own numbering system and file it appropriately so that you can find it easily in the future if necessary. Then record all the details in a purchase book, with columns for date of receipt of invoice, your invoice reference number, supplier name, date of payment, invoice amount, including VAT, and if you are VAT registered also columns for the VAT amount and the total excluding VAT. Salary book – if you have a workforce, you’ll be required by HM Customs and Revenue to keep detailed information on your employees, including salaries as well as income tax and National Insurance contributions deducted. There’s a whole section on employing people later in this guide, where you’ll find information on payroll systems and keeping wages records. This article is copyright protected and is not for republishing
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