Tag Archive for 'cash book layout'

Guide to Book Keeping – 4

This is a guide to bookkeeping for a business that

  • 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)
  • wants to use a manual cash book, or use computer spreadsheets, such as Excel
  • is registered for VAT, and operates the Flat Rate VAT scheme 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.

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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 10 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.

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 show whether that income is sales receipts or 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.  The gross amount (net plus VAT) is the amount to record.

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.

VAT

When you raise a sales invoice you have to charge VAT at the standard rate (currently 20%) regardless of which flat rate percentage you use under the Flate Rate Scheme.  So, for example you if you need to charge a customer £1,000 you will need to add VAT of £200 (20%) to the invoice and charge them £1,200 in total.

If you want to operate the Flat Rate Scheme you need to know which percentage rate you have to use for your business sector – a list of current rates can be found on http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#4

This example uses the flat rate percentage of 11%.  You have to declare output VAT at 11% of the gross amount collected.  So in this example, if you have collected £1,200 gross from a customer you have to declare £132 Output VAT.  This means you are better of by £68 in this example, but you need to be aware that this £68 will be added to you sales figure at the end of the year.  Thsi will increase profits.

The layout in Appendix 10 has a column for you to list the VAT at 11% of gross so that you can keep a total of the VAT to record on your VAT return.

It also has a column so that you can record the amount of standard VAT charged on your invoice – this isn’t obligatory but more on this later.

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,
  • show whether a receipt is sales or other income by listing it in the relevant column,
  • if a sales receipt, list the amount of flat rate VAT to declare on your VAT return.

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 11 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 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.

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.

Other Columns

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 11 shows common headings used.

You need to record the amount paid 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.

VAT

If you operate the flat rate scheme then you cannot claim back any input VAT on any of your expenses and you are not obliged to keep any records of VAT, other than the ‘Flat Rate’ column as already explained on Appendix 10.  The point of the flat rate scheme is to cut down on the paperwork for small businesses.  However, you might consider that it is only worth operating the flat rate scheme for as long as you are paying over less, on the whole, to the VAT man than if you were on a standard scheme.  The choice is yours really.  If you want to keep a tab on whether you are financially better off using the flat rate scheme, then you also need to keep a total on how much you would have to pay over each quarter if you were using the cash accounting scheme.  The simplest way to do this is as follows:

Output VAT

Appendix 10 shows a greyed out column.  As already mentioned above, this is where we can keep a record of the VAT charged on each invoice. This keeps a tally on the output VAT you would need to declare if you were using the cash accounting scheme.

Appendix 11 also shows a greyed out column.  This is where you can record the amount of VAT that you have been charged on any of your expenses.  Again, this keeps a tally on the input VAT you would need to declare if you were using the cash accounting scheme.

As demonstrated on Appendix 10 you can easily calculate each month the amount of VAT you would have to pay over by deducting the Input VAT total from the Output VAT total.  If the amount you would have to pay over on the cash accounting scheme is usually more than the flat rate amount, then you are quids in.  If the amount often comes in lower than the flat rate scheme, it might be worthwhile coming off the flat rate scheme and using the cash accounting scheme

If you choose to keep these extra records then you will need to be mindful of the following to help you keep an accurate record of input VAT.  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.  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.

This Guide was compiled by Deborah Bradley, Client Manager at Balance Accountants.