The importance of accounting in a business
If you have your own business, no matter the size, bookkeeping is a legal requirement of HM Revenue and Customs.
Basic Records You Should Keep
Your basic records will typically include:
- a record of all your sales, with copies of any invoices you have issued
- a record of all your business purchases and expenses
- invoices of all purchases and expenses of your business
- details of any amounts you personally pay or take from the business
- copies of business bank statements
You or your accountant will use these records to create a profit and loss account, which shows the sales revenue you’ve received and the expenses you’ve paid, and what profit/loss you’ve actually made. Your tax liability will be based on this.
Other Records You Must Keep
All businesses are different, and there are many specific types of detailed records that may need to be retained. Some examples of records you should keep include:
- pay book
- petty cash book
- order notes and invoices
- copy sales invoices
- details of any other business income received
- details of any private money brought into the business
- cash rolls or other form of electronic sales record
- details of any other income
- any cash taken out of the till to pay small business expenses
- receipts and invoices for purchases and expenses
- a record of stocks available at the end of the year
- all bank and building society statements, savings books, check stubs and pay stubs that include business transaction details
If you do not keep accurate and complete records, you may end up paying more tax than you should due to lack of evidence of tax-deductible expenses or/and inaccurate sales records, causing HM Revenue and Customs to assess your expected sales. If you pay an accountant to prepare your accounts, they will charge you based on the time it takes them. If their records are more accurate, this will reduce the time needed and therefore reduce the amount they charge.
The above reasons are enough to make sure you keep good books and records, but the most important reason is to make sure you are in control of your business and able to assess your profitability and cash flow situation, so you will make sure you are made aware of any potential issues as soon as possible. as possible and can make business decisions with all the information available at hand.