Bookkeeping involves recording and tracking all financial transactions within your business. It monitors all the money your business spends and receives.

Historically, bookkeeping was done using ledgers and books. Transactions were recorded in journals, cashbooks, or daybooks and then transferred to a ledger.

Today, with advances in technology, accounting software like Xero is used instead of physical books, making the process more efficient and accurate.

Maintaining precise, well-organized books is essential for running a successful business. Here’s why:

• You will have accurate financial information for budgeting and planning decisions.
• You can verify that your income exceeds your expenses.
• You will anticipate cash flow issues and take steps to prevent them by tracking customer payments and supplier obligations.
• You can file accurate tax returns.
• You are more likely to spot incorrect payments or fraudulent transactions that could cost you money.
• Well-organized financial records make it easier to work with investors and lenders.

To achieve accurate small business bookkeeping, you must properly record and reconcile transactions.

Record Every Transaction

1. Record All Sales:
   • Traditionally, sales were listed in a cash book or entered into a spreadsheet. Nowadays, business owners can easily download sales data from invoicing software or point-of-sale systems and store this information in their books.
2. Record All Purchases:
   • All business-related purchases must be noted, and proof of purchase should be kept if you plan to claim the expense as a tax deduction. This can be done using a spreadsheet or book, or automated by sending all debits from your business bank account into bookkeeping software.
3. Income and Expenses:
   • These can be recorded differently depending on whether you use cash or accrual accounting.

Reconciliation of Transactions

Reconciliation involves cross-referencing your bank statements with your business books to ensure the balances and transactions match. If discrepancies are found, you must determine the reasons. Often, deposits, bank fees, payments, and interest payments not yet recorded in your bank accounts must be accounted for.

• Reconciliation can be done monthly, weekly, daily, or less often, depending on the volume of transactions.
• It's crucial to reconcile your books before submitting tax returns.
• Frequent reconciliation helps you discover and correct mistakes quickly, preventing work from piling up. Daily reconciliation is ideal for maintaining accuracy.

Additional Small Business Bookkeeping Duties

If you handle bookkeeping for your small business, you may also be responsible for:

• Accounts Payable: Paying bills on time.
• Accounts Receivable: Issuing invoices and ensuring they are paid.
• Payroll: Calculating and paying employee salaries.

Professional bookkeepers can also assist with financial reports such as balance sheets, profit-and-loss statements, and cash flow reports, helping you gauge your business performance. Whether for a new company or an established business, professional bookkeepers offer valuable services to ensure accurate and efficient bookkeeping.

Many small businesses use online bookkeeping software to efficiently handle tasks and reduce human data-entry errors. Software can help you with:

• Speeding up bank reconciliation
• Extracting transaction data directly from banks, invoicing software, and point-of-sale (POS) systems
• Automatically paying your bills
• Notifying you when sales invoices are paid
• Automatically sending invoice reminders to those who owe you money
• Allowing you to check cash flow using your phone
• Producing financial reports

To comply with Making Tax Digital, you need to use online software like Xero for your bookkeeping. Xero allows bank feeds to pull directly into your account, and many of these features are available through Xero’s mobile app.

If you find yourself too busy to manage your small business bookkeeping, consider hiring a professional to do it for you.

Having an accountancy professional handle your bookkeeping ensures that your accounts are accurate and every transaction is recorded in the most tax-efficient way possible.

If you choose The Accountant Point for your bookkeeping needs, you can generate an instant quote online. We offer a combined bookkeeping and accountancy service for a more cost-effective and comprehensive solution.