Have you been wondering how to do bookkeeping? I’m not just talking about how to enter the business transactions into the books, which you can find elsewhere on this site, but about the must-do’s and don’ts from day to day. These are guidelines that ensure your bookkeeping runs smoothly and your business does well.
Keeping the documentation for all business transactions is a high priority. They are called accounting source documents. Keeping them enables:-
Most tax departments require businesses to keep the documents that back up their tax claims for a minimum of 5 and often 7 years. These are documents such as invoices, receipts, wage records, etc. Search the internet for your local tax department website and type in something like ‘how long to keep records’.
The only way to keep the records is to have a very well-organised filing and archiving system. A box or basket full of randomly placed papers makes it much harder to locate what is needed, and will cause an unnecessary waste of time not to mention frustration.
There are three basic filing options available -
i) the paper system,
ii) the electronic system on your computer's hard-drive,
iii) online documentation storage.
It can be tempting to take the cash right away to purchase supplies but this might cause a mess in the bookkeeping system.
For example, the bookkeeper/owner might:-
Being forgetful about the above will result in the bookkeeping system not reflecting a true record of what has occurred.
Keep personal and business funds separate.
A sole trader will most likely withdraw funds from the business account for personal use (drawings). This can be done in place of paying themselves a salary.
A good practice is to transfer one amount on a regular basis, such as once a week, from the business account into the personal account. The personal account is then used to buy the groceries, books, toys etc.
The business account can remain nice and tidy with only business transactions and the one regular drawing amount. This will also avoid the temptation to allocate a private expense to the business.
A business owner needs to know and recognise what type of expenses can be claimed (to reduce tax), and what can’t be.
If in doubt about whether or not to claim an expense, contact your accountant or tax department.
Sometimes the owner will use their personal funds for business purchases. These can and should be brought into the business bookkeeping system through bookkeeping journals so that all the expenses are being claimed and so reducing the amount of tax to pay at the end of the year.
There is nothing worse than having a job done by someone, like a plumber, and then waiting for months for an invoice. Most conscientious people would like to get the bill paid. It is extremely annoying having to call up a supplier to ask where the bill is. This appears as dis-organisation to the customer, and from the plumber’s perspective can be detrimental to the cash flow. A clear sign that the plumber does not know how to do bookkeeping.
As soon as a job is complete, or at least by month’s end, prepare and send out the customer invoices so that the income can start rolling in, thus keeping the bank balance healthy and enabling payments to suppliers to be made when due.
The importance of invoicing customers in good time is a lifeline for the business because this brings in the income. Keep at it!
Of course, this does not apply if the business is operating on a cash basis without extending credit to the customers because the cash will be coming in at the time of sale.
These are just a few great guidelines and are a good base to start from when learning how to do bookkeeping for your business.
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