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What you need to know and why you should leave it to an accountant.
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What is bookkeeping?
The term “Bookkeeping” is often generically used to describe the processes involved in the recording of financial transactions, usually it covers the following tasks:
> inputting sales invoices
> inputting purchase invoices
> reconciling bank statement rows to sales and purchase invoices
> reconciling your software bank statements to your actual bank statements
> reconciling outstanding sales to client statements
> reconciling outstanding bills to supplier statements
> inputting journals for bills paid in advance or arrears
> keeping records of your company’s transactions
Is Bookkeeping Important?
It is one of the most important processes your company will carry out. This is because all other processes depend on the quality of your bookkeeping.
> VAT returns are the result of your company inputting sales and purchase invoices.
> Annual accounts’ detail is driven by the accounts selected when inputting purchase invoices.
> Corporation tax checks are based on the accounts selected when inputting purchase invoices.
> Most accountancy systems will not produce accurate accounts without fully substantiated and robust bookkeeping processes.
Are there penalties?
There are no specific penalties for bookkeeping however, if you do not keep adequate records for your business you may incur a poor record keeping fine of up to £3,000.
In addition, inadequate bookkeeping may result in subsequent errors on other filings. As an example, while undertaking the bookkeeping you select to reclaim 20% for an invoice that is actually not tax allowable. The reclaim is subsequently reported on the VAT return and as such you may receive a fine for inaccurately reporting VAT. The same applies to other taxes and returns.
Can I do my own bookkeeping?
You could run bookkeeping yourself, but our advice is to leave it to the professionals. In the right hands, outsourcing your bookkeeping will save you a vast amount of time, ensure items are processed accurately and optimise your tax returns.
What software helps with bookkeeping?
Software can significantly reduce the amount of time it takes to get purchase invoices and receipts into your accountancy system. Using software is also a great way of ensuring you are keeping your records safe.
At Venn Accounts we use Receipt Bank and Hubdoc to streamline our processes. If you are a XERO subscriber, Hubdoc is also free.
How often should I do my bookkeeping?
Our advice is as regularly as you can. The pitfall many business owners fall into is only undertaking their bookkeeping monthly, quarterly or even annually. This creates a few problems:
> there is a mass of bookkeeping to do at once. This is incredibly boring and time consuming, unless you love paperwork and receipts.
> your accounting records will not be up to date, which may cause delays with reporting or answering basic financial questions.
> it will be harder to remember what transactions related to.
> finding invoices will be much more difficult.
> your accountant will not be able to give you reliable tax estimates because your accounts will not be up to date.
> you will not have timely information available which allows you to analyse the true performance of your company and plan for the future.