15 Basic Accounting Records You Need To Keep For Your Business

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There are 15 Basic Accounting Records You Need To Keep For Your Business.

You need to keep  accounting books and records to track all your business transactions.

For example, it is possible for you to forget some expenses you made for and on behalf of your business.

This is one of the many reasons why you need to keep accounting records for your business.

I recall that not too long ago, fire gutted the business of a friend of mine.

A journalist asked him what was the net worth of the business before the incident.

He had no answer to the question because he had no accounting records.

Similarly, have you ever imagined how it should feel if you were asked by an insurance company to provide accounting records to enable them determine the premium payable by you for an insurance coverage?

Have you ever had an encounter with tax  authorities because you failed to provide them with accounting records they need to assess your business to tax?

This article, therefore, seeks to show and explain to you the importance of some of the accounting records you need to keep for your business.

Cheques Journal

You need to keep a journal where you can record, on daily basis, all payments made through your business 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 records: Cash  Book

The cash book is the most important book you need to keep for your business.

It is book where you need to record the very first expenses of your business such as the rent you paid for your shop.

The cash book is where you should debit all the money your business receives from all sources.

Similarly, all payments made by your business should be credited in the cash book.

Beyond that, there are many other reasons why you need to keep a cash book.

For instance, 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.

Most 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.

Accounting  records: 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,
  • Dates
  • Amounts
  • 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 accounts in the ledgers.

From there, they will find their way to the Trading, Profit and Loss Accounts at the end of the year.

Purchases Day Book

Purchases day book is another important book you should keep for your business.

It is important because that is where you will record all your daily purchases.

It does not matter whether you paid cash immediately or promised to pay later.

Therefore,  it should show the following details:

  • Names of the customers
  • Invoice numbers,
  • Dates
  • Amounts
  • Description of goods or service provided.

At the end of the period, the totals should be transferred to appropriate ledgers for further processing.

Accounting Records: Debtors Book

Debtors Book is a very important accounting book you should keep for your business.

It is important because it will show you how much money customers owe your business.

In addition, it should contain all the names and accounts of those who are owe your business.

Furthermore, for maximum benefits, debtors book should be correctly updated after every single transaction.

Most importantly, it should be properly maintained such that even if you drop dead, it should be an easy task for the administrator of your estates to collect the money.

Accounting records: Creditors Book

Creditors Book is yet another important accounting book you should keep for your business.

This book is very important because it should contain all information about the debts your business owes to suppliers, business partners and lenders.

For example, Creditors Book should show, among others, the following information:

  • 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 more.

Therefore, it is very important that you update creditors book after every single transaction.

Payroll 

This book is where you should record the salaries and wages you pay to your employees.

Consequently, it should contain details of the pay as you earn (PAYE) deducted from your employees.

From this book it will 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.

Unfortunately, some unscrupulous employers deduct the PAYE from the their employees and spend the money.

In most cases, you could be sanctioned for failing to remit the PAYE to the relevant tax authorities within 7 days of deduction.

In other words, you can be required to pay interest on the amount for as long as you keep the money.

Sales Invoices

It is very necessary for you to  keep, in a safe and secure place, copies of all your sales invoices.

This is because you might need to refer to them in the future.

For example, a customer can disagree with the account balance you sent to him.

You can easily fall back on the copy invoices and get details you need to resolve the issue.

Furthermore, the tax authorities might also have reasons to look at your sales invoices when checking your tax returns.

If you have them handy you will make their tasks a bit easier and quicker.

Purchase Invoices

Similarly, 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 update themselves with the latest cost prices.

After doing everything you want to do with the purchase invoices, you should file them away in a safe and secure place.

Do not shred them until after a reasonable period of time.

You never can tell when you will need them.

Accounting records: Stock Records

You need to keep accurate records of your stocks and inventory.

You need to keep accurate records of your stocks and inventory.

The stock records could be kept manually or on a computer software.

In any case, your bookkeeper or accountant should be able to advise you on the best method 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 cost prices as well as their selling prices.
  • They can be categorized.

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
  • slow selling products
  • estimate buffer stocks
  • calculate economic re-order Quantity [EOQ]

Bank Statements

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

Most importantly, it can even enable you to prevent or detect frauds on the part of your employees.

Cash Flow

Cash flow statement can help you to track your business incomes and expenses in a coordinated manner.

For example, cash flow statement should show:

  • cash inflow into your business
  • Cash outflow out of the business.
  • Track all your business incomes and expenses.

Related: 10 Ways Poor Financial Management Can Hurt Your Small Business

Accounting records: Director’s Capital Account

You need to create Director’s capital account.

Your initial investment in your business should be recorded in the Director’s Capital Account.

Additionally, if you bring in more money, that fact must be recorded in the Director’s Capital Account.

Director’s Current Account

Similarly, you will need to create Director’s Current Account that will  record all financial transactions between you and your business.

Thus, the current account will record, among others:

  • any monies you may take as drawings from the business
  • the value of all goods you take from the business for your personal use
  • short term loan[s] you may give to the business
  • Record how much your business owe you, if any
  • or how much you  owe your business.

Your financial record keeping, whether on paper or on a computer software, should meet the following criteria:

  • Simple and clear
  • Easy to understand,
  • Reliable,
  • Accurate,
  • 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, who can write up the books.

Furthermore, when it is time to prepare the annual financial statements of your business,  you will pay less audit and accountancy fees to external auditors.

This is because because you already have some records that can facilitate their tasks

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 and records for your business

 

 

 

By Samuel Ijenhi

B. Sc. According, (University of Benin),

Benin City, Nigeria.

info@samuelijenhi.com.ng

 

 

 

 

 

 

About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
View all posts by Samuel Ijenhi →