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  • Writer's pictureMatt Atkinson

Bookkeeping Basics for Start-Ups and Small Businesses

Bookkeeping is an essential part of running a business. It helps you keep track of your income and expenses, helps you understand your cash flow, and is an important tool for making decisions about the future of your business. This guide provides an introduction to bookkeeping basics for start-ups and small businesses.

Calculator and Bookkeeping forms

How to Record Transactions

Bookkeeping is the process of recording financial transactions in a company’s books. Transactions include purchases, sales, receipts, and payments of money by an individual or organization. All transactions are recorded in the proper accounts and the correct amounts.

For each transaction, the following steps should be taken to properly record it:

  1. Analyse the transaction: Make sure all the information is complete and accurate.

  2. Choose the appropriate accounts: Decide which accounts the transaction should be recorded in.

  3. Prepare the journal entry: Record the transaction information in the journal, including the date, accounts affected, and amounts.

  4. Post the entry to the ledger: Enter the information from the journal into the ledger.

  5. Prepare a trial balance: Create a trial balance to confirm that the total debits equal the total credits.

  6. Make adjusting entries and close the books: If necessary, make any necessary adjusting entries. Once all entries are made, the books are closed.

  7. Produce financial statements: Generate the necessary financial statements, such as an income statement and balance sheet, to report the financial performance of the company.

Bookkeeping: Recording Transactions Manually

You may choose to record your bookkeeping transactions manually on a spreadsheet. However, this is not recommended unless you have a very small business. Manual bookkeeping can be time-consuming and error-prone. It is generally better to use an accounting software package to record transactions, generate reports, and prepare financial statements.

Bookkeeping: Recording Transactions with Accounting Software

Using accounting software to record your bookkeeping transactions is the most efficient and accurate way to manage your finances. Accounting software can automate many of the tedious processes involved in bookkeeping, such as entering data and generating reports. It can also help you track and analyse your finances, set up budgets, and generate financial statements.

Bookkeeping: Hiring an Accountant to Record Transactions

An accountant can help you ensure accuracy, provide valuable advice, and ensure that all of your financial transactions are handled properly. An accountant can also help you with filing taxes and other important financial tasks.

Do I need to Hire an Accountant?

It is not necessary to hire an accountant to do bookkeeping. However, an accountant can help you ensure accuracy, provide valuable advice, and ensure that all of your financial transactions are handled properly. If you have a small business, it may be wise to hire an accountant to help manage your finances. An accountant can also help you with filing taxes and other important financial tasks.

Should I use Accrual or Cash Accounting?

The choice of whether to use cash or accrual accounting depends on the type of business and the desired level of detail. Generally, cash accounting is best for small businesses with few transactions, while accrual accounting is better for larger businesses with more complex transactions.

What are Debits and Credits?

Debits and credits are the two sides of a bookkeeping transaction. A debit is an entry on the left side of an accounting ledger and represents an increase in asset or expense accounts. A credit is an entry on the right side of the ledger and represents an increase in liability, equity, or income accounts.

What are Accounts Payable and Accounts Receivable?

Accounts payable is the amount of money a business owes to its suppliers for goods or services purchased on credit. Accounts receivable is the amount of money a business is owed from customers for goods or services sold on credit.

How do I File my Business Accounts and Taxes in the UK?

In the UK, businesses must file Accounts and Taxes to HMRC (Her Majesty's Revenue and Customs) on an annual basis. To do this, sole traders must register for self-assessment and limited companies must register for corporation tax, submit the relevant forms, and pay any taxes owed. HMRC also provides guidance on filing Accounts and Taxes for businesses.

How do I Lower my Business's Tax Liability?

There are various ways to lower a business’s tax liability. Making contributions to a pension scheme and claiming capital allowances are two ways to do this. Other strategies include claiming tax relief on research and development and taking advantage of tax breaks for small businesses. Additionally, businesses can reduce their tax liability by keeping their expenses down and taking advantage of any tax credits or deductions available.

What can trigger an HMRC Audit?

HMRC audits can be triggered by a variety of factors. These can include discrepancies between the company’s financial statements and the tax returns submitted to HMRC, high levels of deductions claimed, or discrepancies between the company’s income and expenses. Additionally, HMRC may audit a business if they suspect fraudulent activity or if the business has not submitted its tax returns on time.

Do I need to Create Sales Invoices?

Yes. Sales invoices are important documents that record the sale of goods or services to customers. They provide proof of the sale and should include the date of the sale, the customer’s name and address, the items sold, and the amount due. Sales invoices are also used to track customer payments and can be used to prepare financial statements.

How much should I charge for Products / Services?

The amount you charge for products or services depends on a variety of factors, including the cost of the materials and labour, the demand for the item, and the competition. It is important to research the market and consider these factors when setting prices. Additionally, you should review your pricing regularly to ensure you are charging a fair and competitive price.

How can I get Customers to Pay on Time?

To encourage customers to pay on time, you can set clear payment terms and include them in your sales invoices and contracts. You should also send out invoices promptly, set up payment reminders, and offer incentives for customers who pay on time, such as discounts. Additionally, you can use a third-party payment provider to make it easier for customers to pay.

Do I need to register my business for VAT?

Whether or not you need to register your business for VAT depends on the type of business and the amount of income it is generating. Generally, businesses that have a turnover of more than £85,000 in any 12-month period must register for VAT. Additionally, businesses that sell digital services to customers in the EU must register for VAT.

How Do I Calculate my Business's Profits?

Business profits are calculated by subtracting all business expenses from the total revenue generated by the business. The expenses include costs such as materials, labour, rent, utilities, and marketing. It is important to keep accurate records of all expenses and revenue to ensure an accurate calculation of profits.

Use the following formula to calculate profits:

Revenue - Cost of Sales - Expenses = Net Profit

Reporting Profits on my Profit & Loss Statement

Profits are reported on a profit and loss statement (P&L). A P&L statement is a financial document that summarizes the income and expenses of a business for a given period. Profits are reported as the difference between total revenue and total expenses. The statement also includes details about the sources of revenue and the types of expenses incurred.


Need help with your bookkeeping or company accounts? Get in touch today for a no-obligation chat.

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