Basic Bookkeeping Can Save Small Business Money

Basic bookkeeping consists of recording the prime business transactions of sales, purchases and cash. The accounting documents supporting and evidencing these transactions being called prime documents which are entered into the business books by a bookkeeper.

Sales Invoices

A sales invoice is a prime document. In more advanced accounting systems technical terms such as sales day books, sales ledgers, debtors and credit control are important but at the basic level bookkeeping of sales is the act of recording those sales in the business books.

A sales day book is basically a log of sales invoices issued by the business and this level of recording financial transactions is all that may be required for a small business. A simple list of the sales invoices which would be described as part of a single entry bookkeeping system.

A basic bookkeeping system for sales invoices would be a single entry bookkeeping system with minimal analysis of the total sales value. An accountant or bookkeeper may make these entries although in smaller organisations the records are often kept by the business owner.

Larger organisations may well maintain sales day books but would certainly also enter the sales invoices into an accounting system and would usually use accounting software to do so. Within the financial accounting package the sales would not only appear as a list making up the total sales turnover but would also be entered in a sales ledger.

Each sales invoice being allocated to the various clients to whom the sales had been made. The sales ledger at this stage of the bookkeeping represents the value of goods or services sold to each customer.

Purchase Invoices

A purchase invoice is a prime document and a purchase day book is a list of purchase invoices received from suppliers. The purchase invoice day book would not normally require further financial analysis of the type of expenditure. To that extent a simple purchase day book would be a good starting point for a simple set of accounts but require a little more sophistication requiring analysis by expense type for both financial control and taxation purposes.

A basic bookkeeping system for purchase invoices would be a single entry bookkeeping system that also had columns to analyse the expenditure into the expense categories required by the particular tax rules under which the accounts were being prepared.

Medium and larger organisations require to track and control purchase invoices to control costs and payments. In a mirror of the sales ledger system purchase invoices would also be entered by supplier into a purchase ledger. The easy way is to allocate each supplier a code number so that the accounting software can collect the amounts owed to each supplier the individual supplier accounts being the purchase ledger.

Cash and Bank Transactions

Quite apart from the single entry of sales and purchases is the recording by a business in its books of cash and bank receipts and payments. The third area of prime documents is the cash receipt or bank slip, given or received. Such documents may take many forms from the till roll of a retail business to the deposit slip at a bank but all are evidence of money changing hands.

In a small business cash and bank records may be maintained separately to the records of other prime accounting records. In a simple format the cash or bank records would be similar to the bank statement but showing the names of customers and suppliers or if multiple customers for example then the source of the money being received or paid.

Larger organisations and particularly using accounting software also code each receipt and payment to the same customer and supplier codes used to produce the sales ledger and the purchase ledger. In addition to recording the cash and bank transactions in the cash and bank accounts the amounts received and paid are also recorded in the sales ledger and purchase ledger.

By recording the cash and bank transactions in the ledgers the customer and supplier records making up the accounting ledgers then show the balances on each account and the recording of the financial transactions in this way is effectively the other side of the double entry bookkeeping system.

A small business not requiring sophisticated accounting records for financial control purposes and using a single entry as opposed to a double entry bookkeeping system could simply record receipts against the list of sales invoices and the payments against the list of purchase invoices.

Basic bookkeeping using single entry of prime accounting documents would be suitable for small business, requires very little accounting knowledge and when carried out by the business owner rather than a bookkeeper or accountant can save money,

About the Author:

Terry Cartwright a qualified accountant at DIY Accounting in the UK designs Accounting Software on excel spreadsheets providing complete Small Business Accounting Software solutions with single and double entry Bookkeeping Software for both limited companies and self employed business

Article Source: Free Articles SA