This is a guide to bookkeeping for a business that
- 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)
- wants to use a manual cash book, or use computer spreadsheets, such as Excel
- is registered for VAT, and operates its VAT on a Cash Accounting basis
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.
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.
Appendix 4 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 (more on this later).
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.
It helps to specify the date on which amounts are received. It also helps to list them in date order.
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.
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.
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.
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 VAT, sales receipts and other receipts.
The VAT that is included in the amount received needs to be recorded in the VAT column.
When you raised your sales invoices they will most likely have shown the amount that you charged your customer for goods or services before VAT, then the amount of VAT charged, and then the total. The amount of VAT shown on your sales invoice needs to be recorded here.
List receipts here if they relate to one of your sales invoices, or some other paid work that you have done. The net before VAT is the amount to record.
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, 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 VAT, 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 ‘VAT’, ‘Sales Receipts’ and ‘Other Income’ columns.
Appendix 5 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 (more on this later).
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 Expenditure that is being listed.
It helps to specify the date on which payments are made. It also helps to list them in date order.
Here list the person, business, or other entity that you have paid the money to.
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.
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.
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 5 shows common headings used.
The VAT included in any of the payments you make needs to be recorded in this column, so that you can claim it back on your VAT return. Remember that you can only claim back input VAT if you have a supporting VAT invoice or receipt from your supplier. A VAT invoice or receipt must always have your supplier’s VAT registration number printed or written on it.
Most VAT invoices or receipts will have the amount that you have been charged for goods or services before VAT, the amount of VAT you have been charged, and the grand total. The VAT charged is the amount to record in the VAT column.
If you have been given a receipt that just shows the amount you have charged, but does not separate out the VAT, then you need to work out how much VAT to claim back. VAT is currently 20%, therefore, you will need to divide the full amount paid by 6. For example, if you have paid £30 for petrol and need to work out what VAT is included, then divide £30 by 6. This gives you £5, and this can be claimed back as input VAT. You have been charged £25 before VAT for your petrol. For more information on this click here. Also remember, that when there is a change in the rate of VAT, the calculation you need to apply to work out the VAT this way will change.
Once you have recorded the VAT in the VAT column you need to record the ‘net’ (before VAT) expense in one of the other columns. 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 end 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.
Appendix 3 shows examples of a bank and cash controls and reconciliations.