A Beginners' Guide To Book-Keeping

The process of book-keeping is essential for any business because it allows the owner or manager to make sound decisions. Many people find book-keeping a daunting task and try to avoid it because it involves numbers, and numbers are naturally complicated. In reality, the book-keeping process is easily learned.

What Is Book-Keeping?

In its plainest terms, book-keeping is simply keeping financial records. You need to know how well your business is doing, who owes you money, who you owe money to and how much cash you have. It is a legal requirement to keep a record of your transactions so you can show the taxman, your bank manager or even an investor what is happening within the business. You also need to know your precise revenue (total income of the business) for VAT and tax return reasons.

Getting Started

Book-keeping requires a very efficient filing system. There are many software packages on the market that do a lot of the hard work for you, but most people simply opt for a spreadsheet or an actual book.

The most fundamental part of book-keeping is categorising your income (money coming in) and expenditures (money going out). This will most likely be your sales and purchases. Be sure to have two clearly defined sections in your book or spreadsheet for these two categories. Give each sales invoice a reference number and do the same for every purchase receipt (you should file them in this order). When recording a transaction, include the date, payee or customer’s name, cheque numbers and the amount paid. Your expenses should include wages, insurance, cost of sales, rent and rates, utilities and anything else that your business requires.

Petty Cash

Most businesses require the presence of cash. It is important that you keep a track of how much cash you have in your petty cash float, till, register or cash box. Keep a receipt of every cash transaction when it comes in. Many businesses will have a float, which is a constant level of cash (such as £100). Any surplus will be deposited in a bank.

Cash Flow

It is recommended that you perform a ‘bank reconciliation’ every month, which simply involves taking your previous month’s bank balance then adding up your income and subtracting your payments to see if it corresponds with your records. This also acts as a tool to see what profits you are making and whether you are spending too much money.

Book-keeping is a process that simply requires organisational skills and common sense. However, interpreting your figures may take extra qualifications and if you are worried about your business’ financial health you should consider speaking to an accountant.