Top 5 Accounting Basics You Need To Know

You probably didn’t go into business so that you could do paperwork, make spreadsheets, or do your accounts. For many people this is one of the least enjoyable parts of running a business, but it is also one of the most important. If you want your business to be a success, you need to get the basics of accounting right.

We have five tips that will help you do that. The underlying purpose of them all is to help you run your business efficiently on a day-to-day basis. This reduces the time that you spend on accounting and bookkeeping tasks overall, makes you better informed about what is happening in your business, and reduces the possibility of making mistakes.

Accounting Basics

 1. Keep good records

If you are starting a new business it is important to begin properly, which means having your records set up from the start. If you already run a business there is no better time to get your records in order than now – it will not get any easier.

To find out exactly what you should keep, and the best format to keep them in, you should speak to your accountant. But, in general, you will need a cash book to record payments (those you receive and those you make), an invoice file to keep track of your sales, and a purchase invoice file to keep track of your purchases.

2. Keep your receipts and invoices

Get into the habit immediately of getting receipts and invoices for everything and filing them. The format and filing system is not as important as actually doing it. This means you can have some receipts that are electronic – on email for example – and some that are printed – that you receive in a shop, for example.

And remember it is always easier to get the invoice or receipt at the time of purchase, rather than trying to find it – or request it – 12 or 18 months later.

3. Business and personal finances should be separated

A mistake many small businesses and sole traders make is mixing up their personal and business finances. This might seem quick and convenient at the time, but in the long run it can cost both in terms of time and money. Plus it is easier to demonstrate to the tax authorities exactly where your business stands when there is no confusion over personal transactions.

4. Check your bank statements regularly

There are several reasons that you should check your bank account on a regular basis:

 

·         Mistakes happen, and the sooner they are caught the easier they are to fix

·         Fraud also, unfortunately, happens. Checking your bank account regularly makes it easier to spot.

·         Knowing exactly what is happening in your bank account also gives you a deeper understanding of what is going on in your business

5. Make time every week for bookkeeping

Finally, don’t let your accounting or bookkeeping jobs pile up. Putting them off makes the prospect of doing them more daunting, and it is easier to make mistakes. The most efficient way is to make time every week. This should be specifically allocated time when you won’t be distracted by anything else.

And you should consider bringing in a professional accountant, if you don’t already have one. An accountant will cost you money but they will save you time (which saves you money) and, because they understand the tax system, they will also be able to save you money.

Posted in Accounting.