Bookkeeping Basics: How to Bookkeep Effectively

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Audit Posted on April 06, 2017

Learn bookkeeping basics

Effective bookkeeping will save you and your business time, money, and effort in the future. Learn the bookkeeping basics here.

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What does bookkeeping mean?

Bookkeeping basics and understanding how to bookkeep are a vital part of any business. Essentially, it means keeping a record of everything you do.

This allows for easy tracking of transactions, and provides proof for audit and taxation purposes. In fact, most tax office departments require you to keep records for five to seven years at least.

Which documents should you hold onto?

The documents you need to hang onto include invoices, receipts, and anything else that might be relevant, such as staff pay ledgers.

It’s particularly important for your auditors and for filing your tax return at the end of the financial year. Doing it right can save you a lot of time, money, and effort sifting through receipts and scribbled notes later on.

So what do you need to think about when you’re doing it? Here’s a quick guide to the bookkeeping basics to help you onto the right path.

How to do bookkeeping

1. Always have a record of transactions

Every transaction should leave a paper trail, so always make sure money passes through the bank account and is recorded. It’s no good receiving a cash payment inward, and immediately using that cash to buy something else, as you’ll not have a record. Always pay in, then pay out.

This also removes any possible accusations of dishonesty, or the embarrassment of asking someone for payment who’s already paid.

Business Tip: Handle every transaction separately to simplify records and prevent paper trails becoming overcomplicated.

2. Organise business documents as clearly as possible

Bookkeeping requires a well-organised filing system. When keeping records, always keep similar documents together. If you’re mostly using hard copies, transparent wallets and leaver-arch files are your friends. Make sure each type of document for each month stay together. Invoices with invoices, receipts with receipts, and statements at the top for each month. Make it as simple as possible to find things 18 months down the line.

If you don’t have somebody specifically tasked with this role, make a few minutes available at the end of each week to get everything correct. Filing can be done electronically, but it’s worth having hard copies as well.

Business Tip: Make sure your filing is organised into folders and indexed, so it can be easily found—and referenced!

3. Work in a timely fashion

Another important aspect of bookkeeping is to make sure everything’s done in a timely fashion. There’s nothing worse than being made to wait months for an invoice, so don’t do that to your customers either. The old saying of “do as you would be done to” holds true in this field, and it can be beneficial for you, too.

By providing invoices and receipts promptly, you’ll get your payments in and out in good time. If you’re short of cash it can be tempting to leave a payment until next month, but no longer. If it’s got to go, it’s got to go, and you won’t be left wondering what that strange figure is on your account.

Business Tip: Write down every transaction in a ledger or on a spreadsheet, in real time, so nothing is ever missed.

4. Review your records regularly

As bookkeeping basics, it’s good practice to keep running totals of your financial situation. Summarise your income and outgoings, total them up and subtract the latter from the former. This will keep a track of your financial state. Always write notes, too. There’s nothing worse than trying to work out much later what a sum of money was for.

Business Tip: Use “insert comment” on your spreadsheet and write an explanation, so the records are as clear as possible.

How to bookkeep

  1. Always have a record of transactions

  2. Organise business documents as clearly as possible

  3. Work in a timely fashion

  4. Review your records effectively

Setting the foundations for business growth

Accurate bookkeeping is one of the most effective ways of driving business growth. Your records will illuminate areas where your business is strong and areas where it is under-performing, hidden investment opportunities, months when you are busiest, peak times requiring more staff, and much more. This information creates opportunities for the ambitious business owner who capitalises on it.

Keeping track of the accounts efficiently is the best way to monitor the state of your business, and having everything properly ordered can leave a very satisfying feeling at the end of the day.

Clark Howes provides expert accurate bookkeeping and other accountancy services for businesses of all sizes. For award-winning chartered accountants and business advice you can trust, get in touch today — fresh thinking, future focused.

For all your bookkeeping requirements, consult our experts.