How to record your Sales and Expenses for your Business
Owning and running a business is a challenging feat in itself but the financial management side is a complex and tedious aspect that can cause a lot of problems for the company. A comprehensive understanding of bookkeeping becomes more and more necessary as your business grows and your sales and expenses increase but knowing the most effective method of maintaining accurate records can be confusing.
Below, we have created a short guide with top tips on how to record your sales and expenses for your business:
- What records you must keep
You must keep records about the company itself as well as financial/accounting records; records of the company must detail:
- Directors, Shareholders and Company Secretaries
- Results of Shareholder votes/resolutions
- Transactions when someone buts shares in the company
- Loans secured against the company’s assets
Financial and accounting records must include:
- All money spent and received by the company
- Details of assets owned
- Debts the company owes/is owed
- All goods bought and sold and who they were bought from and sold to
- Stock company owns at the end of the financial year
- Cash vs. Accrual Accounting
The method of accounting you decide to use affects all the elements of bookkeeping, so it is important to ensure you have selected the best option for your business.
Cash basis accounting only recognises income and expenses when money comes into or goes out of the business – it does not count sent invoices as income or bills as expenses until they have been settled.
In the UK, you are only allowed to use cash accounting if you are a Sole Trader or self-employed business (Limited Companies cannot use it), and your turnover is less than £150,000.
Accrual accounting recognises revenue as soon as its earned and expenses when they are incurred – it accounts for income as soon as an invoice has been raised and expenses when a bill comes in.
Many accountants would suggest accrual accounting over cash, though cash basis accounting is far simpler. Accrual accounting provides an accurate picture of your business finances as well as brings far more flexibility, for example you are able to offset losses against other income and claim tax relief on debts.
- Financial Statements
Financial Statements are made up of a Balance Sheet, Profit and Loss report and a Cash Flow Statement.
A Balance Sheet is an accounting report that all companies registered with Companies House are required to complete and require an understanding of assets, liabilities, and equity. Assets are what the company owns e.g.: inventory and accounts receivables and liabilities are what the company owes such as debts and taxation. Equity is the investment a businessowner has in the firm.
The equation to know for Balance Sheets is: assets – liabilities = equity. Everything the business owns is balanced against claims against the business.
Reviewing your Balance Sheet at the end of each month offers insight into how you manage your assets and liabilities and allows you to understand if any changes need to be implemented to make you and your business more efficient.
Profit and Loss Accounts help give a clear picture of profitability of a business by showing gross and net profit/loss during a specific time period. Total income is the revenue received from sales of goods and services while expenses are the daily costs of running an organisation.
The simplest equation for calculating profit is: total income – total expenses = profit.
Reviewing your profit and loss statements allows you to gain an in-depth understanding of what your business has earned and spent as well as lets you compare to previous months or quarters, depending on how often you review them. It will provide insight into your spending habits and if you are running your business as efficiently as possible.
Though they are not legally required, Cash Flow Statements are an imperative for businessowners to monitor how much you expect to spend and make as well as your cash position for each month. They are particularly helpful for making sure you stick to business goals set out and allow you to monitor your finances and adjust accordingly to reach your goals.
Reviewing these figures on a monthly basis will provide insight on the upcoming months for example cash shortfalls or surplus and allow you to know when you will have money available to invest back in your business.
Accounts Navigator Associates has qualified Bookkeepers on hand to help take control of your sales and expenses as well as keep your files on a cloud, digital and manual format .
Knowing how to take control of your business finances to maximise profits can be difficult, especially with the current climate. Knowing the common mistakes to avoid can be difficult and can leave you feeling unsure.
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