Below are the small business accounting records you should keep:
- Cheques Journal
- Cash Receipts Book
- Sales Day Book
- Purchases Day Book
- Creditors Book
- Sales Invoices
- Purchases Invoices
- Bank Statements
- Stocks Records
- Cash flow
- Director’s Account
Have you ever stopped to think what will happen should fire or other natural disaster hits your business?. What if the insurance company asks you to provide evidence of things or property owned by your business? Or there is a disagreement between you and your customer that results in a law suit?
Therefore, this is where keeping accurate financial records of your business come in. Moreover, keeping accurate financial records of your business should help you in many ways, including to:
- Prepare yearly accounts for your business
- Know the financial health of your business
- See whether your business is making profits and, if so, at what rate
- Know if your business is operating at a loss and, if so, at what rate
- Plan better for the growth of your business
- Know how much your business is worth
- Determine the assets and liabilities of your business
- Help you to identify your business expenses
- Identify your strengths and weaknesses
- Keep records that tax authorities will need.
Therefore, because of the important roles documentary evidences can play in certain circumstances, your record keeping system whether on paper or on computer should be:
- Simple to use,
- Easy to understand,
- Consistent and
- Designed to provide information on a timely basis.
The following are the basic financial accounting records you should keep for your business:
You should maintain a journal showing all payments made through your bank account. If you have several accounts, you should keep separate journal for each account.
Small Business Records: Cash Book
The cash book should show all cash received from all sources, including money realized from sale of fixed assets, debtors, loans, grants and so on. In other words, all cash coming into your business must pass through the cash book.
Sales Day Book
Sales Day Book is where you record all your sales, stating invoice numbers, amounts and dates.
Furthermore, you can go further to analyze the cash book to show how much money you received from the sale of each product.
Beyond that, from this book you can identify products that are selling fast and those that do not..
Purchases Day Book
All the purchases you made for your business should be recorded in this book. Later the entries should be transferred to the appropriate ledgers.
You need to maintain Debtors Book which should the names and amount your customers owe your business. This book should be updated each time a customer buys more goods or pays some money to you for previous supplies.
Similarly, you should create Creditors’ Book which should record all debts your business owes to suppliers, banks, business partners and so on.
Therefore, this book should be updated each time you buy things on credit. It should also be updated whenever you pay money to your creditors.
Small Business Records: Payroll
This book is where you record the salaries and ways you pay to your employees. This record is very important because it should show how much tax you have deducted from your employees.
On the other hand, it should record how much money you have remitted to the relevant tax authorities. It is an offence to deduct tax from employees and fail to remit the money to the tax authorities.
Copies of all your sales invoices should be recorded and filed away for future reference. For example, if there is a disagreement in figures between you and a customer, you should fall back on the sales invoices to help you resolve the issue.
You also need to keep copies of all your purchase invoices. After processing and posting them to the appropriate ledgers, they should be filled away. Should there arise any issue, your purchase invoices should help you to sort out the problem.
The type of stock records you keep should depend on the nature of your business. In any case, your bookkeeper or accountant should be able to tell you the records that you need to keep. In fact, he should be able to help you to design a suitable system for your business.
Financial Records: Bank Statements
At the end of every month, you should obtain certified bank statements in respect of each of your bank accounts. You will need them when you want to prepare your monthly bank reconciliation statements. Bank statements should be kept for a period not less than seven years, according to Company Law.
Cash flow should help you to plan for future events and likely changes in your industry. Failure to prepare cash flow and cash budgets are two of the commonest causes of small business failures. Related: How To Manage Insufficient Capital In Business
Director’s Current Account
You need to create Director’s current account. Firstly, this account should record all financial transactions between you and your business.
Secondly, this account is important so that you can tell how much you are owing the business. Similarly, it should show how much the business is owing you.
In conclusion, I know that not everybody is endowed with the love for figures. However, you should not be lazy or disregard the need to keep accurate financial records of your business.
Therefore, if you cannot keep these records yourself, you should hire a bookkeeper or an accountant to keep them on part-time basis. If you do not keep records of your financial transactions, you are like a pilot flying without a compass.
Moreover, stats from your financial records should show you the way, the truth and the light.