Book Keeping – Manual Cash Book and Spreadsheets – An Introduction

When starting in business everyone is given advice about opening a business bank account and about the kind of paperwork and documentation they should keep.  This is all very well, but once all of this paperwork starts to build up, the next question is, “What exactly should I be doing with it?”

 These guides are a tool towards helping you understand the basic principles of bookkeeping, thus ensuring that you

  • can make sense of your records so that they act as a reliable record of your business history,
  • know exactly where you stand with regards to your available cash at any one time,
  • comply with the basic requirements by law regarding business records,
  • present your business records to your accountant in a manner that will enable them to prepare your year end accounts easily, thus keeping your bill down.

First things to consider
It’s all very well devising your own system that you can follow and that gives you all the information you need throughout the year, but that doesn’t mean that it will give your accountant all of the information they will need to prepare your accounts.  Obviously, this guide is being written from an accountant’s point of view, but a system that suits you but not your accountant will only result in your accountant having to re-invent the wheel, as it were, and your accountancy bill will soar.  So it makes sense to stick to a system that suits both your needs.

Perhaps it would help if, at this point, we explain a bit more about what your accountant needs to be able to do in order to put together your figures for the year.

 Bank transactions
The first thing that your accountant will do is put together what is called a ‘bank control account’.  This means that they need to identify everything that comes into, or is withdrawn from the bank over the year, and make sure that the final balance per your records agrees with the balance on your bank statement at your year end.  If your records already provide all of this information in a manual cash book or spreadsheet, then great, but if not, then it’s a long process of trawling through your bank statements, identifying which items are recorded in your records, picking up items on the bank statements that aren’t recorded, and more than likely coming back to you with a list of queries. This is quite costly.

 Cash transactions
Your accountant will then need to try to do the same with your cash.  This is never such a definite process as preparing the bank control.  At least, when balancing your bank figures, your accountant has a third party verification of what went on at the time, in the form of your bank statements.  With your cash, there is no such back up, so once gaps in the records appear, it is almost impossible to backtrack to get to the right answer. 

Leaving your accountant in this position, results in them having to take a judgement and treating a ‘difference’ in such a way that may not be completely accurate.  A very common example of this is that small businesses often shows that cash has come in to the business with no real explanation of how it’s all been spent.  Accountants often treat this as the ‘drawings’ figure that the proprietor or director has taken to live on throughout the period.  This makes sense as business owners must live on something and often do not record drawings as, to their thinking, they are not a business expense.  The Inland Revenue (as was) used to accept this as a valid treatment at one time, but not so much anymore.  They now prefer to see all payments out recorded as they occur; failure to do this can result in questions from a tax inspector that you could well do without.

Also, it’s worth bearing in mind, that a figure such as this could hide the fact that legitimate business expenses have not been recorded and, ultimately, these won’t be able to be claimed against your profits.

The following book keeping guides are aimed at helping you find the best way to record your business activity, depending on your requirements.  More are to follow so if you don’t see one that fits the bill, keep checking, or better still, drop us an email, and let us know what you are waiting for.

Guide to Bookkeeping – Manual Cash Book and Spreadsheets – 1
   This is a guide to bookkeeping for a business that
      a) wants to record transactions on a cash basis (i.e. at the point that items are paid for, rather that the date invoices are raised)
      b) is not registered for VAT

Guide to Bookkeeping – Manual Cash Book and Spreadsheets – 2
  This is a guide to bookkeeping for a business that
      a) want to record transactions on a cash basis (i.e. at the point that items are paid for, rather that the date invoices are raised)
      b) wants to use a manual cash book, or use computer spreadsheets, such as Excel
      c) is registered for VAT, and operates its VAT on a Cash Accounting basis

Guide to Bookkeeping – Manual Cash Book and Spreadsheets – 3
  This is a guide to bookkeeping for a business that
      a) wants to use manual daybooks and cash books, or computer spreadsheets, such as Excel
      b) want to record transactions on a standard bookkeeping basis (i.e. At the date the invoices are raised rather than at the point items are paid for)
     c) is VAT registered, and operates its VAT scheme on a Standard Accounting basis

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