Bookkeeping, What is it?
Definition:
noun: bookkeeping [ boo k-kee-ping ] : The work or skill of keeping account books or systematic records of money transactions (distinguished from accounting).
What does that mean:
It is the recording if your sales, purchase, receipts and payments transactions forming the basis of the accounting process of a business.
How does it work?
There are two types of Bookkeeping - Single-Entry and Double-Entry - neither is the right or wrong way and both have their pros and cons.
Single-entry bookkeeping:
It involves the recording of transactions in a simple single log system, it is easy to operate not requiring an Accounting background and doesn't need expensive software packages. A cashbook or simple spreadsheet will get you started.
the Pro - It's simplicity. It is most useful for Cash Accounting or for monitoring cashflow.
The Con - If you have a lot of transactions it can be time consuming and importantly for business owners it doesn't allow a business to see it's overall financial position.
Double-entry bookkeeping:
All transactions are recorded twice with a debit entry and a credit entry, which helps pick up any errors as at all times the Debits should equal the Credits. It enable you to focus on you profit (from your income and expenses) and the value of your business (your assets and liabilities). It can be used with a ledger style cashbook or a spreadsheet format but most commonly it is used with computerised accounting packages.
The Pro - In addition to being able to see your profit and financial position, if you are a public registered company you need to provide and register your annual accounts and the system offers the best support.
The Con - You do need to have a background in Accounting to understand how the system works, and there will be a higher financial cost to setup.
So which system should you use?
Neither system is right or wrong, your decision should be based on what is best for your business but the double-entry system will give you more information to help you run your business.
Why should you do it?
As a business owner it's important for you to understand your numbers - that is your Sales, Expenses and Profit - to help you plan and grow your business.
By keeping track of these 3 numbers regularly you are able to plan and budget your spending and be full prepared for your Annual Taxes (Self-Employed Income Tax or Business Corporation Tax).
My recommendation to you would be to keep track of your income and spending, at least on a monthly basis -(weekly is even better if possible) - it means you have all the information fresh in your memory making it easy to allocate your costs. With the added advantage that at the end of year when you hand over your paperwork to your Accountant to prepare your Tax Return you don't have the pain of trying to remember what you spend a year down the line and so reducing stress of meeting the filing deadlines.
How I can help you?
As a your Bookkeeper, working virtually with a cloud-based accountancy system I would manage your data-entry keeping track of your income and expenditure and help you understand your results and finances, so that you can continue to offer your clients your best services and grow your business.
For more information
Contact me on hello@accountit-4.co.uk
