Guide to Bookkeeping 1

           This guide to book keeping is for a business that

  • wants to record transactions on a cash basis (i.e. at the point that items are paid for, rather than the date invoices are raised)
  • wants to use a manual cash book, or use computer spreadsheets, such as Excel
  • is not registered for VAT

If you have not done so already, it would be worth reading our Introduction to Book Keeping article, before progressing further.

It will also help to follow the instructions and explanations if you can print off the appendices referred to.

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Bank and Cash transactions can be recorded on the same page of a manual cash book or on the same spreadsheet.  The best way to split them is to show bank and cash receipts together, and bank and cash payments together.

INCOME

Appendix 1 shows a fairly typical layout for recording the income for a business.  It is usual for income to be split month by month, but not essential, however, it does lend itself more readily to helping you balance your bank and cash each month.

Explanations of each column header are given below.  Obviously, each page needs to be titled with the month and year in question and with the fact that it is Income that is being listed.

Date
It helps to specify the date on which amounts are received.  It also helps to list them in date order.

Detail
Here list the person, business, or other entity that has paid you the money and/or a brief explanation of what the receipt is for, if considered necessary.

Reference
This example lists the invoice numbers of the invoices being paid by the amounts received.  For amounts received that do not relate to sales invoices, the reference has been left blank and a brief description used in the ‘Detail’ column instead.

Bank
Here list all amounts received that are paid into the bank.  This column should contain all of the deposits that show up on your bank statements.

Cash
Here list all amounts that are received in cash that you do not put into your bank account.

 Once a receipt has been listed in either the Bank or Cash columns it then helps to split income into sales receipts and other receipts.

Sales receipts
List receipts here if they relate to one of your sales invoices, or some other paid work that you have done.

Other Income
List all other income here.  Your accountant will be able to analyse the items in this column over the year, and treat them accordingly in your accounts.

So, to recap, for each receipt you will need to

  • state the date it was received and provide some detail for it,
  • determine whether it should be shown as being paid into your bank account or held in your cash in hand,
  • split the overall income between whether it is a receipt generated by sales or whether it has come from elsewhere.

At the end of each month you can add up the columns to get totals for the month.  The best check to see if you’ve got the basic arithmetic right is to understand that the totals of the ‘Bank’ and ‘Cash’ columns should equal the totals of the ‘Sales Receipts’ and ‘Other Income’ columns.

 EXPENDITURE

Appendix 2 shows a fairly typical layout for recording the expenditure for a business.  Again, it is usual for expenditure to be split month by month, but not essential, however, it does lend itself more readily to helping you balance your bank and cash each month.

Explanations of each column header is given below.  Obviously, each page needs to be titled with the month and year in question and with the fact that it is Expenditure that is being listed.

Date
It helps to specify the date on which payments are made.  It also helps to list them in date order.

Detail
Here list the person, business, or other entity that you have paid the money to.

Reference
It is common for people to file their purchase invoices and receipts on a file, giving each one a reference, usually just in simple numerical order.  This example lists the given ‘number reference’ applied to each invoice/receipt.

For amounts that are paid by standing order and do not relate to a specific invoice, we suggest the abbreviation ‘SO’ be used.

Bank
Here list all amounts that are paid out of the bank.  This column should contain all of the withdrawals that show up on your bank statements.

Cash
Here list all amounts that are paid in cash and not from your bank.

Once a payment has been listed in either the Bank or Cash columns it then helps to split the expenditure into the various types of expenditure that you incur.  This is achieved by creating a series of columns with headings relevant to your business.  Appendix 2 shows common headings used.  Choose a column that best suits the expense you are ‘analysing out’ and list the amount there. 

It will also be useful, especially to your accountant, if you could give additional information for some expenses in the column to the far right.  For example, it’s great seeing that this business paid £458 to Aviva and that it is analysed under ‘Insurance’, but in order to know that the transaction is accounted for properly in your year accounts, your accountant will need to know what type of insurance it is and what period was covered by the insurance. 

This additional info isn’t vital if you give all of your purchase invoices to your accountant at the year end as they will be able to find this detail on the relevant invoice.  However, if you send your accounts records to your accountant via email, and do not send in the original documentation, then this additional information will help no end.

Again, once the month has been completed the total of the columns needs to be calculated.  And again, the sum of the ‘Bank’ and ‘Cash’ columns should equal the sum of all the other columns.

Now learn more about Bank and Cash Controls and Reconciliations.

Any feedback on the usefulness of this guide will be much appreciated.

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