The following are the 13 Most Important Accounting Books You Should Keep For Your Small Business:
- 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 imagined how it should feel for fire or any other natural destroy your business?
And you have no accounting books to show the networth of your business?
Similarly, have you imagined how it should feel if you were asked by an insurance company to provide accounting books and records to enable them determine the premium payable by you for insurance coverage?
Have you ever fallen into trouble with the tax authorities and they asked you to provide accounting books to enable them determine your tax reliefs and liabilities?
Because of the above and many more reasons, there is every need for you to keep accounting books of your business.
This article is, therefore, looking at a few of the basic accounting books and records you need keep for your small business.
You need to keep a journal where you record, on daily basis, all payments made through your bank account.
If you have several accounts, you should keep separate journal for each account.
This book is important because if there is any misunderstanding between you and any of your customers or suppliers, you can easily refer to this journal to find the details you need to resolve the issue.
Accounting books: Cash Book
The cash book is where you should record all the money your small business receives from all sources.
Similarly, all payments made by your business should be recorded in the cash book.
Moreover, the cash book is very important because it is the book where you record even the very first expenses of your business; [also known as preliminary expenses].
Furthermore, suppose there is a fire out break that destroyed your entire business and that it is only the cash book that was salvaged.
It is possible for an accountant or an experienced bookkeeper to write up all relevant subsidiary accounting books from the cash book.
The cash book is also called a book of “original entry”.
It is so called because all other accounting books take their root from the cash book.
More importantly, the cash book should be updated and balanced on daily basis so that, at any point in time, you will be able to know how much cash you have at hand.
At the end of the year the balance should appear as current assets in the Balance Sheet.
Sales Day Book
Sales Day Book is where you record all your daily sales.
All daily sales must be recorded in this book, whether customers paid for them immediately or promised to pay later.
Therefore, it should contain the following details, among others:
- Names of the customers
- Invoice numbers,
- Description of goods or services
At the end of each day the totals of each item in this book should be transferred to the appropriate ledgers.
From there, they will find their way to the Trading, Profit and Loss Accounts.
Purchases Day Book
Purchases day book is another important book you should keep for your small business.
It is important because that is where you will record all your daily purchases.
It does not matter whether you have paid for the items or not.
Therefore, it should show the following details:
- Names of the customers
- Invoice numbers,
- Description of goods or service
At the end of the period, the totals should be transferred to appropriate ledgers for further processing.
Accounting Books: Debtors Book
Debtors Book is an important accounting book you should keep for your business.
Debtors form an important part of the current assets of your business.
It is important because it should show you how much money customers owe your business.
Moreover, it should contain all the names and accounts of those who are owing your business.
Therefore, debtors book should be correctly updated after every transaction.
When you prepare the annual financial statements of your business, the grand total of debtors will appear as current asset in the Balance Sheet.
Most importantly, if you drop dead, the administrators of your estates will be able to collect them.
Creditors Book is another important accounting book you should keep for your business.
This book is very important you record all the amounts your business owes to suppliers, business partners and lenders.
For example, Creditors Book should show, among others the followings:
- Names and particulars of all your creditors.
- bank overdrafts
- Accrued business expenses, such as rents, wages and so on.
- Dividends not yet paid
- Taxes not yet paid, and
- Lots of more.
If it is accurately kept, it will be easy for you to know how much debt your business owes.
Therefore, it is very important that creditors book should be updated after every transaction.
This book is where you should record the salaries and wages you pay to your employees.
Furthermore, it should contain details of the pay as you earn (PAYE) deducted from your employees.
From this book it should be easy for you to compile a list of all the PAYE deducted from your employees.
At the end of the month, you should remit to the relevant tax authority, within 7 days, the PAYE taxes you have deducted from your employees.
In most cases, you could be sanctioned for failing to remit the PAYE to the relevant tax authorities within 7 days of deduction.
It is very important that you keep, in a safe and secure place, copies of all your sales invoices.
This is because, you might have reasons to refer to them in the future.
Furthermore, the tax authorities might also have reasons to look at your sales invoices when checking your tax returns.
Futhermore, for instance, if there is a disagreement in figures between you and a customer, you can easily fall back on the sales invoices to get the info you need to help you sort out the problem.
You also need to keep copies of all your purchase invoices.
Purchase invoices are important because, your sales personnel might want to refer to them to check the cost prices of some items, in case they forget.
After doing everything you want to do with the purchases invoices, you should file them away in a safe place.
Accounting books: Stock Records
Stock Record is yet another important accounting book you should keep for your business.
You need to keep accurate records of your stocks because stocks might take a large chunk of your business capital.
The stock records could be kept manually or on a computer software.
In any case, your bookkeeper or accountant should be able advise you on which method will be best for your business.
The stock Records should show:
- all the items of stocks you have in your shop
- the balance of each item of stock.
- Their selling prices
- Sometimes, cost prices.
Furthermore, the stock records should be updated after every transaction.
The best part is that from the stock records, you can easily:
- identify fast selling products
- slows selling stocks
- estimate buffer stocks
- calculate economic re-order Quantity [EOQ]
At the end of every month, you should obtain bank statements in respect of each of your bank accounts.
The bank statements will enable you to:
- compare the balance in your bank account with the balance in the cash book
- prepare bank reconciliation statement
- Investigate any differrencs
Most importantly, it can even enable you to prevent or detect fraud on the part of your employee.
Cash flow should help you to track your business incomes and expenses.
For example, cash flow statement will enable you to know know:
- cash inflow into your business
- Cash outflow out of business.
- know your expenses so that you will plan how to track them.
You can, therefore, see that cash flow statement is an important tool that can help you to track your business transactions.
Accounting books: Director’s Current Account
You need to create Director’s capital account.
This account will record the money you invested in the business.
Similarly, you will need to create Director’s current account to show:
- All the financial transactions between you and your business
- Record how much your business is owing you.
- The amount you are owing your business
Your accounting and records keeping system, whether on paper or on a computer software, should be:
- Easy to understand,
- Consistent and
- Designed to provide information on a timely basis.
If you cannot do it yourself, you should hire a bookkeeper or an accountant, on part-time basis, to keep the records for you.
The best part is that stats from the accounting books will enable you to make better decisions for your business.
Furthermore, when it is time to prepare the final accounts of your business, you will pay less audit and accounting fees.
Most importantly, keeping accounting records will enable auditors to finish their work quickly and file your tax papers.
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 accounting books for your business
B. Sc. According