In this Article, I'm going to go through, what is bookkeeping? Why you may need it and how it actually works. Further to that, I'm going to go on to explain the single entry and the double entry bookkeeping systems, and also give you a demonstration, using an online piece of accounting software as to how the accounting bookkeeping should work.

Furthermore, I'm going to give you some hints and tips as to how you can make sure you have a proper process for your business to make sure your bookkeeping is robust and your raw data and numbers is turned into meaningful information accurately and on time, keep tuned.

Well, next question is what exactly is bookkeeping? Now, please allow me to give you a short definition. Bookkeeping can be defined as the activity or process of keeping financial records for the financial affairs of your business. And effectively, there are two methods of bookkeeping. There's a single entry system and there's the double entry system. Now the single entry system is like a cash book. It's your cash coming in and your cash coming out. It's pretty straightforward. It's simplistic. And it does suit simple businesses. That double entry system is somewhat more complex and technical; it's most commonly used system, certainly amongst accountants and also accounting software.

Although a lot of software do have the single entry method too. And the double entry system involves things like debits and credits. Now you may have heard this before and it may just go over your head, but some of you could be quite familiar with that. And the beauty of a double entry system is there's always an equal and opposite, for every debit there must be a credit, and therefore you must have the books balancing.

You have something called a trial balance that falls out at the end of the day. And that trial balance must add up to zero : https://tinyurl.com/y6gfngnd . It's a brilliant system to keeping checks and balances. Now as a business, why would you actually need some bookkeeping done? Well, let me give you five good reasons as to why you would actually need bookkeeping. Now, number one is the keeping of accurate financial records for your business.

Now, this cannot be underestimated and is absolutely crucial. If you're a director or even a sole trader or in a partnership, you have a responsibility to make sure that you have up-to-date and timely records. For the most part, that you actually have the numbers that you know your numbers and you can make informed decisions off the back of those numbers. Without those numbers you just don't know where you are and where you're heading. And one thing you must be aware of as a company director is that you do have legal responsibilities. And in a worst case scenario, you can actually be banned or be disqualified from being the company director, if you don't meet those legal responsibilities and anyone can report a company director's conduct as been unfit, if it includes the following, and that includes: not keeping proper company accounting records : https://tinyurl.com/y6xe2pp8 , not sending accounts and returns to Companies House, and not paying tax owed by the company.

That information then follows on in terms of your tax calculations. So in terms of VAT, National Insurance, PAYE and Corporation Tax, if you're in a company, all of these are dependent on accurate and timely records. If there's no accuracy, all these calculations could end up being incorrect. You could be over or underpaying tax. And as I touched upon in the last point, your tax deductions. So having accurate records, allows you as well as a benefit to make sure you get the right tax deductions, right expense tax deductions.

Now, if your books aren't being maintained, or if it's not being done properly, you could then as a director or a business owner, be missing out on vital tax breaks. And if you're in a business that you want to scale, you want to then further get funding for, then having accurate information, financial information is absolutely crucial. Nobody's going to invest in your business, whether it's through debt finance, equity finance, or venture capitalism, if you don't have accurate and up-to-date financial information. And number five, is to quickly identify financial mistakes and duplications. Now more often than not, this happens accidentally and inadvertently, but when it does happen and depending on the materiality, it can have quite an impact.

And bookkeeping will actually help you and allow you to identify this as soon as possible, if it has occurred. And what's more those sneaky little subscriptions and payments on small amounts that you'd forgotten about or actually shouldn't be going through your business bank account can easily be picked up and detected. And again, you can do something about them. So what role records would you actually need to make sure that your bookkeeping is done completely and accurately? Well, the first thing that's going to be needed, are your business bank transactions.

If you are running a business, it's always, always advisable that you made sure you run your transactions through your business bank account and not your personal bank account. If you're running it through your personal bank account, you are then running the risk of opening yourself up to the HMRC audit into your private affairs. And believe me, you do not want that. If you have a business bank commercial card, for example, and you're running your expenses through there, you'll need that data too.

Any online payments, for example, PayPal or Shopify. You will need that data too. You will need any purchase invoices, so these are invoices that are coming from your suppliers. And you'll need your sales invoices; these are invoices that you have actually issued to your clients and customers. You'll also need records of any expenses that you've incurred, i.e. business expenses, and also any expenses that you've incurred through your personal bank account.

Those transactions are vital; if you want to make sure you get a tax deduction on any legitimate expenses : https://tinyurl.com/y6fjhkmd . And all in all, pretty much that is the amount of data that you will need. So that raw data and information, needs to then to then go through the sausage machine and turn into meaningful information. So how frequently should you get your business bookkeeping done? Well, this is a very good question. So I'll use the example of washing up. Let's say you got a few dishes, you put it in the sink. You put a few cups there, a few spoons. And, days go by and you haven't got round to doing the washing up. That's all fair enough. But sooner or later, it's just going to pile up. It keeps piling up and Pete keeps piling up. And then when you look at that washing, it becomes a bigger and more painful task, just to get it done.

It needs more energy, more effort and more momentum to actually do it as a one off. However, if you put together a robust system, knowing that, okay, at a certain time, I'm going to get the washing up done, frequently is only going to be a handful of things to actually do. And it's going to take me about six to 10 minutes. And actually if I do that on a daily basis or a frequent basis, then you know what? You're going to get your washing up and you're going to keep well on top of that. Now you can get it done as a one off, but it does become a bit of a bigger job. If you get a robust system in place, where it's done on a frequent basis, I would suggest minimum quarterly, but monthly is definitely ideal.

Then actually, once you get that process, it's very, very easy to run. And also you'll get an up-to-date information, timely information, that what you will need in order to make decisions, to know how much dividends you should take, what your up-to-date tax calculations are. So you actually then can provide a provision for them as well. Should you use a piece of accounting software or can you do your bookkeeping using Excel for example.

Now just imagine, you're trying to dig a surface area of your garden, and you've got two options here. You've got to shovel, yourself and a bit of water. Or you've got a mini digger with a hydraulic arm, levers and you operating it. Now certainly the first method is a bit like using a spreadsheet. At the day of the day, you can do it. There's no doubt about it, and you'll get it done. But there's no doubt it's going to take a lot more energy, a lot more effort and a lot more time to get it done,

Not to mention the pain that you would have to go through. Or alternatively, you can use leverage like the power hydraulic mini digger.

The accounting software : https://tinyurl.com/y2wcmvfu will do that for you. It does a lot of the heavy lifting and it does a lot of the checking for you. So therefore the job becomes easier, it becomes quicker and it comes less painful. Yes, there is a cost to accounting software, but what you need to really weigh up is the cost benefit analysis of using software, as opposed to doing it manually. Now, even if you're using a double entry system for your bookkeeping, you need to decide on what basis it needs to be done.

So for example, there's a cash basis. And then there's also accrual basis. Now the cash basis is quite straight forward. It all anchors from your bank account, if something has been paid for or paid out of your bank account, then there's an equal and opposite entry, either in your income statement or your balance sheet, matches up with the entry in the bank statement. So accrual basis is when you actually recognize revenue when it's earned or an expense when it's actually incurred. So for example, let's say you've procured some services to a client and you've given them 90 days to actually pay. You've done the services, you've raised and written the invoice, and you've sent it to your client. So at that point of raising the invoice and sending it to your client, you can actually then book the revenue to your income statement, and there'll be an equal and opposite entry in your balance sheet, which won't be through the business bank account because the money has not yet been received.

And then that way you, from a timing point of view, your financial statements are more accurate because it's reflective of the actual activity of what has happened. So do you need to keep your receipts and your business records? Well, the simple answer to that is, yes you do for a certain period of time. And here in the UK, you need to keep your business receipts and records for a period of up to six years, if not 20 years. Now, I certainly don't recommend that you probably will keep it for 20 years. That's only in extreme cases. But six years is the standard and HMRC, if they ever come to audit you, will expect to see that. So therefore, that's more reason why you want to get away from a paper based system to a digital system, where you can actually store these things in the cloud, put them away, and they're not cluttering your office or your home.

And with a lot of accounting software nowadays, you can actually just take snaps of your receipts and upload it into the cloud seamlessly and effortlessly. So should you do your own bookkeeping or should you get someone to do it for you? Well, there's absolutely no nothing to stop you from doing your own bookkeeping. And there are plenty of tools out there, to now help you. Now, as you're not a trained bookkeeper or a qualified bookkeeper, what I would suggest in order to minimize errors, mistakes and pain, is to go out and actually watch and learn from a tutorial, from one of the major accounting software providers, whether it be Xero, QuickBooks, Clear Books, or anyone else, and learn how to do it first.

That way, at least you've got a decent platform in order to go ahead and do the bookkeeping. Also, you need to bear in mind that bookkeeping can be time consuming. It can take you away from doing the thing that you should be doing, and that's running your business and earning revenue from your business and also eating into your free and leisure time, for you to spend for yourself and your family. Alternatively, if you do engage with a bookkeeping service, as I mentioned earlier, it can be as little as 15 pounds per month. And actually once you get it systemized, it's so much easier for you, and it will save you a lot of hassle and pain. We offer a comprehensive bookkeeping service by qualified bookkeepers.

And here in just one minute, is how it works. So we're going to use Xero accounting software https://tinyurl.com/y4dtbs6l for this particular demonstration. However, if you're on QuickBooks, Clear Books or other pieces of accounting software in the market, the principle is pretty much the same. I'm assuming that your bookkeeper and you, now have connectivity to your Xero accounting software, the first thing to do, is actually to set up the business bank accounts. So we'll do this by going to Accounting, Bank Accounts, and you can see the current status. You currently have no bank accounts. Click here to add one. Search for your bank. And then it will ask you some questions, in terms of agreeing to log into your bank account. Now, depending on which bank account your business bank account is with, you go through some security questions in terms of entering at least your username and some security codes in order to get that connectivity.

Now, please don't worry, because at the end of the day, this is only read access between your bank account and Xero. It does not give your bookkeeper or Xero, any other kind of access, other than to download transactions. Once your business bank account has been connected to Xero, on a read-only basis, then you can see here on the screen that it will come up in Xero, and it will show that there's a certain amount of items that need reconciling.

And that way you know, the bank transactions have actually been downloaded. In this particular view, you can see the individual transactions and on the right hand side, you can see now, the who, the why, the what. And it's all ready for your bookkeeper to start doing the booking. In this particular view, you can see each and every transaction neatly listed down and on the far right hand side, the Status, which shows unreconciled, and therefore ready for your bookkeeper to book the transactions.

Now, if you are running on an accounting piece of software, one of the things you'll need to do, is raise your own sales invoices through the software itself. That's the best way. It's relatively straight forward in any piece of software. Here, we're going to raise one to ABC Limited, Reference is Services July 20. We'll put the issue and the due date. We have the item description, quantity, the price, the amount. And if you are VAT registered, then it will automatically add in the 20% of VAT, or if it is lower than 20%, whatever the appropriate rate will be. Once that's done, you can click on Complete.

Then it's formed into an email, ready to be sent to your clients. The great thing about this system is it automatically books the sales invoice to the system, credit revenue, and debit debtors. The next step would be to give you access to Hubdoc, which is a data document management system. And this system pretty much eliminates paper trails. What it allows you to do, is if you get purchase invoices from suppliers, such as this on screen.

Then what you can do is you can just forward it straight to hubdoc.admin. Press Send, and that particular purchase invoice, will end up in your Hubdoc portal. That way your bookkeeper can then pick it up and actually do the bookkeeping, on time and very, very accurately. And with Hubdoc, you can actually upload documents directly to the portal. You can download the app to your phone, take a picture of your receipt, and it uploads it automatically to your Hubdoc portal. As always, I really hope you found this video empowering, useful and give you the ability to make informed decisions.

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