Bookkeeping for Small Businesses
This webpage is designed to help business Start Ups
and students to understand the basics of accounting and bookkeeping.
The good news is that there is some great Accounting Software
to help, or we will do your Bookkeeping
Small Business Records
A business makes sales and purchases almost every day. Money goes into and out of Bank Accounts. Bills come in from suppliers and get paid. Bills are sent to customers and usually get paid.
Sometimes products are bought to sell, but they are not sold immediately, and are therefore in stock. Consequently some products are sold today which could have been bought some time ago.
The business owner needs to keep records of all this coming and going for quite a few reasons. The main and best reason is to keep track of the businesses profit (or loss), which is very important.
It is also a legal requirement to keep records, especially for HMRC
and Companies House
for Limited Companies
Other people who are interested will be anyone who has lent money to the business, especially a bank.
Small Business Reporting
Some questions to ask a business owner:
1. Where do you stand today?
This is all about assets and liabilities. How much is in the bank? How much do people owe you? How much do you owe?
2. How has the business performed over a period of time?
This is all about sales and expenses, and calculating profit. A sale is recorded on the day of the sale, not the day the money comes in (unless you opt for the new Cash Basis
3. Can you explain where the cash has come from and where it has gone?
This is all about cash flow. You might have sold something, so it’s a sale, but did you get the money? Or money might go out this month from something you bought two months ago, so that’s money out this month, but an expense two months ago.
From these three questions you can see that different answers are required.
The first question requires a fixed position
, the other two require a report which covers a period of time
So how does this translate into Accounting reports?
The Profit & Loss Account and Balance Sheet
There are two main accounting reports. Most other reports supply further detail on these two:
• The Profit and Loss Account
is the summary of the Sales
, over a period of time, based on the dates of the bills
• The Balance Sheet
shows what is left after all the 'Ins and Outs', eg. sales, purchases, loans, investments, dividends, salaries etc. It is a snapshot of the balances, after all of these transactions, at a fixed point in time
• The Cash Flow Statement
is a summary of the movement of money from the Sales
, over a period of time, based on the dates of the payments
. Not surprisingly, this report is easier to understand for the owner of a small business, but for good reasons this report is not basis of financial accounts.