Bookkeeping- What is it and how can it benefit you

Embroidery Artwork by Inge Jacobsen, Giclee print of Cross-Stitched White Magazine Cover, 2011- currently on sale

Article by Ben Dunster, Tax Associate

Bookkeeping is the record-keeping of financial transactions, whether that be as a sole trader, a business, or simply an individual who needs to keep tabs of their income and outgoings. Bookkeeping is not just helpful in terms of organisation, it is also a legal requirement for businesses to keep financial records for their annual trading period.

The benefits of bookkeeping

Bookkeeping isn’t just a way of record-keeping, it comes with many benefits beyond that - The first and most obvious benefit to bookkeeping is the organisation element. Having well kept and detailed record of your transaction history for the year makes looking for information a breeze, this is extremely useful when information on your business is requested by approved parties, which leads well onto the next benefit, Tax preparation.

Your tax preparation for a financial year can be sped up drastically by keeping detailed records for your year, this is not just a time benefit but also a financial benefit. If you submit unkept records to a tax accountant for a return, you will also be charged for the time taken on preparing your books. Thus, keeping good, detailed records for the year not only saves time but also money.

Decision making and planning is also made a lot easier with bookkeeping. If you want to see how certain aspects of your business are running in order to plan for the future, having records to inspect and look back on is detrimental. This also goes for investors, anyone who is looking into adding capital will want to see some form of records in order to calculate their investment. Don’t miss out on opportunities by overlooking the importance of bookkeeping.

Bookkeeping legal Compliance

In the UK, companies are required to keep records of their yearly income and outgoings, you have free-reign on how you decide to do this and what software, etc, but it is mandatory to keep these records.

Once you have recorded these transactions for the year, you are required to keep them for a minimum of 6 years from the end of the year date.

How records can be kept

Traditional bookkeeping was done in physical books, however as we move forward into a more digital age, more and more things can be done digitally, bookkeeping is no exception. The two main systems of bookkeeping are ‘Single-entry bookkeeping’ and ‘Double-entry bookkeeping’. These two systems are still prevalent and used in digital bookkeeping, but it is considered much simpler to do your books digitally. If you wish, you can still opt to keep physical books!

The Single Entry System - This system is a simplified version of bookkeeping and suits businesses or individuals with fewer transactions or uncomplicated transactions. Simply put, the Single Entry System is a record of all expenses or income, recorded on the day that they are incurred. This system means that all entries do not come with an entry in a corresponding account. For example, you will note a sale that is made but will not make an entry in your cash account to show the money coming in. This can make it difficult to trace certain transactions if needs be.

The Double Entry System - This system is best suited to businesses or individuals who have more complex transactions regularly. For example, businesses that generate some of their income through accounts receivable, these types of transactions benefit from having entries with corresponding accounts as it makes it a lot easier to trace and reconcile. This system posts the entries of income and expenditure much like the single entry system, but each entry will also need another entry in the corresponding account, hence the name, Double Entry. An example of this would be recording your rent expenditure in your rent account, you would then create the double entry in either your cash account or bank account, depending on the payment method.

Recording expenses for sole traders

When recording expenses, it can make a lot of sense to sort your expenses into categories that you’re allowed to claim for rather than just leaving it as a list of expenses. This helps save time and keep you organises for future reference. The categories include;

●     Travel Expenses

●     Office Equipment

●     Subscriptions

●     Training

●     Legal Costs

●     Staff Costs

●     Advertisement

●     Clothing

ANY QUESTIONS?

We are very happy to help with any tax questions on moving to the UK and we can run through how to file your UK self-assessment tax return.

Our friendly team of qualified tax advisers and accountants have specialised tax preparation experience to help international clients, non-domiciled and dual resident individuals in London, across the UK and will walk you through what the next steps are – contact us today.