So, you’ve started a business and now you need to make sure all your bookkeeping is done, but you’re not sure what you need to do. In this article, I will explain what you need to record in your accounts and why this will help make things quicker and easier when it is time to complete your tax self-assessment.
What are bookkeeping accounts for?
Your accounts are the financial story of your business. Anyone who looks at them should be able to see what you buy and sell and understand what your income and expenses are and where they come from.
If you’re not recording everything that you need to, then the story is incomplete. It’s a bit like a murder mystery that your sibling or pet has got hold of and torn some of the pages out so you don’t know who did it. It’s frustrating to those who need to read your business story, such as your accountant, if they produce your Financial Statements or HMRC should you be chosen for an audit, as they have to try and fill in the gaps and work out what’s missing.
The better your accounts records are, the easier they are to read and the fewer questions will be asked about your day to day activity. Well documented accounts will also make it easier for you to calculate the figures you need for your tax self-assessment and you’ll spend much less time completing this when it is time to submit.
What should you be recording in your business accounts?
To start with it is helpful to record the date for each record, brief details to describe the transaction and any reference numbers, such as invoice numbers. This will help you match records with receipts and invoices, so you can easily see if there are any discrepancies or records missing.
Recording income in your accounts
Here you can see those details on the left. To the right of this is the Gross income and if you are VAT registered, you will need to also break this down into Net and VAT. Finally, on the very right, income is categorised by type of income. This is optional but may be useful to you for monitoring trends. These categories can be anything relevant to your business. You may choose to use product types instead of or as well as sales types.
The figures highlighted yellow and green should match. The green and blue figures are copied to the year-end summary.
Recording expenses in your accounts
Again, there the details are on the left, followed by which account the expense was paid from, most likely this will be your bank account. Again, if you are VAT registered, you need to record the VAT. This is then followed by a series of expense accounts, which separate your expenses into categories. These can be tailored to your business, but it’s a good idea to align them with the categories in the ‘Self Employed’ section of the tax self-assessment. These are:
- Costs of goods bought for resale or goods used (i.e. your Inventory)
- Car, van and travel expenses (not including private use)
- Wages, salaries and other staff costs
- Rent, rates, power and insurance costs
- Repairs and maintenance of property and equipment
- Accountancy, legal and other professional fees
- Interest and bank and credit card etc financial charges
- Phone, fax, stationery and other office costs
- Other allowable business expenses
You will also want to record your drawings too.
The figures highlighted yellow and green should match. The green figure is copied to the year-end summary.
Recording information from your Bank Account
Again, we have the details on the left, followed by whether this was money into or out of the bank account. This is then separated into Sales, Expenses, Interest and other categories relevant to your business. The total in green should match your income minus your expenses. In this example, it does not, as the Bank interest has not been included on the income spreadsheet.
Income £45 – Expenses £395 = -£350
Bank Account = -£346
Difference = £4
Recording your bank account information in this way allows you to compare those records against your income and expense records. This is known as a bank reconciliation. If the total in green matches your income minus your expenses figure, then you know you have recorded everything correctly in your income and expenses records. If it doesn’t match then you need to investigate where the discrepancy is.
You may need more than one of these logs if you have multiple bank accounts or you have a petty cash account.
Recording information for your Year End Summary
The year-end summary is a log of the subtotals for each month for Income, Expenses and the Bank Account(s).
The total figures highlighted in green and yellow should match. They should also be the same as the carry forward total at the bottom of the last month in the financial year. These will be the figures you need to enter into your self-assessment.
It’s not essential to have this, as you can add up the totals from your monthly income and expense sheets, but it will make things easier and acts as a double check to ensure you’ve recorded everything and done so correctly.
What else might you need to record?
If you have other income, such as renting out rooms, you will need to keep records of this. You will also need to have your P60 to hand if you are employed by someone else.
Other things to remember when completing your bookkeeping!
Bookkeeping records need to be kept for 6 years plus the current financial year. They don’t need to be in hard copy, you can save them to your computer. However, you need to ensure that it is easy to find them and match them to your accounts records. Good practice would be to save them with the date of the document at the beginning of the title in the format ‘yyyy-mm-dd document name and reference’, as this will store them in date order.
You will also need to ensure that you have a backup of your files and keep this either on the cloud or if on an external hard drive, in a different room to the computer you use for your business. That way if something should happen to your computer, the backup is less likely to have the same fate.
How can I help you with your bookkeeping?
If you have any questions, I am always happy to answer them for you.
If you would like help setting up your accounts for the year you can book a 1-hour Help and Advice session with me.
I can also create bookkeeping spreadsheets for you, specifically tailored to your business which will help get your bookkeeping off to the right start and help you with your self-assessment tax return.