Learning to look after your own bookkeeping is ideal. You’ll be able to manage your own accounts without dishing out for an accountant – simply file a tax return and you’re done, right?
Unfortunately, this isn’t quite the case.
There are a tonne of technicalities and legislation that you need to learn before you knuckle down and start penning your accounts into a big black book.
Get yourself armed with knowledge by having a read through our list of need to know terms so you can start saving yourself money and keeping your accounts in order.
Track income and outgoings
The most labour-intensive part of bookkeeping is tracking all your income and outgoings and monitoring transactions in relation to receipts.
While it might not sound like a day in a theme park, it’s vital if you want to steer clear of a HMRC investigation.
These are the accounts you’ll need to track. Not all of them will be relevant to you but you’ll need to manage the majority of them no matter what type of business you run.
- Accounts receivable
- Accounts payable
- Retained earnings
- Payroll expenses
Most of these are fairly self-explanatory, but for the ones that aren’t here’s a quick description. Accounts receivable is the money you’re owed from customers, accounts payable is money you’re yet to pay out and retained earnings are the profits you have accumulated to date.
When tracking your income and outgoings you’ll be required to monitor your receipts. This will mean retaining all receipts used for business purchases so you can input that data into either the spreadsheet or software you’re using.
The best way to manage your receipts is to keep them in an orderly fashion in a ring binder or an organised folder. This way you’ll easily be able to locate a relevant receipt if required. This will also come in handy if you’re ever subject to a HMRC investigation.
Single vs double entry bookkeeping
When doing your own bookkeeping you’ll also need to decide whether you want to manage your books with single or double entry bookkeeping.
Single entry bookkeeping is where transactions are recorded as you pay bills and make deposits into the company account. This method works best for particularly small businesses who have a minimum number of accounts to manage.
Double entry bookkeeping means that two entries are made for each transaction, as the name suggests. In one account a debit is made and in another account a credit is made. The point of this system is that when it’s time to organise financial statements, the company’s assets are equal to its liabilities plus the owner’s equity.
Any imbalance then suggests that there are errors within the accounts.
Cash vs accrual accounting
Another decision you’ll need to make when doing your own bookkeeping is whether to use cash or accrual accounting.
Cash accounting is where you record your transaction when the cash actually changes hands – so to speak. This could be physical cash or when your money is transferred from one bank to another.
Accrual accounting, on the other hand, is when a transaction is recorded as it happens. For example, if your business receives a payment in June but isn’t paid until July, under cash accounting the transaction would not be recorded until July. However, with accrual accounting, the transaction would be recorded in June.
Many businesses begin with cash accounting while they’re a small business and switch to accrual once their business starts to grow.
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