Many businessmen say that keeping their books is very taxing. Instead of doing it, they just hire someone else to do it for them so they can focus on their operations. They tend to completely ignore even the basics in bookkeeping and just rely heavily on their bookkeeper. After all, that’s what the bookkeeper is paid for, right?
Such a wrong notion though. If left unattended for a long time, it could be detrimental to the business. Why? Possibly, the bookkeeper might be tempted to act in bad faith, knowing that everything is delegated to him or her. So there’s a possibility that the records might be manipulated, and only then will the business owner realize that the business is already on the brink of bankruptcy. The saddest part here is, the bookkeeper has already resigned long before the owner has suspected any irregularities.
No matter how pre-occupied the business owner is, the books should be monitored from time to time. In fact, it is necessary to have some knowledge even on the basics of bookkeeping in order to understand what’s going on with the business. If you run a business, even if it’s just small time at first, proper bookkeeping plays an important factor towards its success. In doing so, when the business grows, so does the bookkeeping procedures.
What are the Reasons to Keep Books?
Bookkeeping is basically part of the business core that should also be given priority for the following reasons:
- To determine the present financial aspect of the business – Are you making or losing money? How much cash on hand is left? How about cash in bank? How much are the receivables as well as the payables?
- To have a better understanding of the overall business situation – This way, you’ll be able to show to the tax preparer, bank manager, or prospect investors how things are going within your company.
- To abide with the business tax laws – All documents are required to be intact as these are the ones that form the basis of your information for your tax return. These include sales records, purchases records, and bank reconciliations.
- To know the turnover – It has to be monitored because if it’s more than the threshold in any twelve-month period, the law requires you to register for VAT purposes. Failure to comply could lead to heavy penalties. Of course, nobody wants to spend on unnecessary charges.
How to Keep Your Books?
There are many economical bookkeeping packages in the market, thus making it look like an easy task. But yes, it is actually an easy job. You may also use a simple spreadsheet or just write down the cash flows of your business under different headings. It’s as easy as that, right? As you can see, record keeping is just one thing, but interpreting it is a totally different story. If you can afford to hire a bookkeeper or an accountant, it’s much better. You can save in accounting fees if you keep a tidy and well-laid out records. Now here’s the basic flow of keeping your records.
- Make a reference number – Do this for your sales invoice then file the invoices in that particular order. Do the same thing for the purchase invoice and receipts. Keep it that way, one file for sales and another file for purchases. With this, you can quickly track the documents whenever needed for your tax or VAT inspection.
- Cash in – In your cash book, establish a section for all the cash inflows. Starting from the left page, assign a column each for the transaction date, amount received, customer’s name, and your own reference number.
- Cash out – Same with the cash inflows, make another section for all the cash outflows. Starting from the left page, assign a column each for the transaction date, check number, supplier or payee’s name, and your own reference number. Don’t forget to another column for petty cash which you withdraw from the bank too.
To make it easier, you may also keep details for each transaction. For instance, expenses can be subdivided in columns with headings like cost of sales, rent, utilities, telephone, insurance, stationery, wages, postage, travel, and so on. And at the end of the tax year, you can easily determine the total amount under each heading; hence you get a breakdown of the expenses.
- Petty cash – Keep a sheet of paper in your cash box on which you’ll note every purchase. Make sure that each item is given with a receipt and attach it to the paper. If you add more money into the petty cash, update your balance on a new sheet of paper. Then transfer the old paper together with the receipts to your purchases folder. Basically, there’s a ceiling as to how much should be allotted for petty cash. But don’t let it zero balance. Spare some, then replenish it to its original maximum amount.
- Bank reconciliation – It is advisable to do this on a monthly basis. How is it done? Using the ending balance on your previous month’s bank statement, add all the payments you received and deduct all the payments you made. The new balance should be reflected in your current bank statement ending balance. If there’s a discrepancy, either you or the bank committed the error. Often times, interest and withholding tax are the reasons for the inconsistency. Other than that, it has to be carefully checked who really made the erroneous entry.
In keeping your books, you don’t need to have any special knowledge. It’s actually simple and an easy task, far from what you use to believe. It’s just a matter of common sense and requires a bit of organization. The only hard part here is to have and maintain the discipline in doing it on a regular basis.
What are the Benefits of Hiring a Bookkeeper?
While it’s better if you personally keep your records, hiring someone to do it can give you more time to focus on what you’re good at, making profit instead of worrying about the paper works. Bookkeepers will see to it that your records are neat and in order, so your accountant will have less work. In addition, bookkeepers charge less than that of some accountants. With an independent bookkeeper doing your books, you no longer need find, train, and maintain your accounting staff. How to choose the right bookkeeper? Stay tuned to America Top 10 and we’ll help you find one!