Article written by Alan PANDEY
I am attempting to write this article basically to my clients in order to make our & clients' life easier in accounting through improved Bookkeeping or at least I hope so it may happen.
What is bookkeeping?
Bookkeeping is the basis of accounting, financial reporting, taxation and auditing. Whenever a transaction takes place, it must be recorded by proper bookkeeping to ensure the proper financial functioning of a business.
Bookkeeping also serves a strong purpose, as a tool for decision making, a requirement of regulatory compliance, alongside the balance sheet to report the financial situation of a company to (potential) investors.
Why is bookkeeping important?
The whole of accounting is based on bookkeeping, it may be either management reporting or financial accounting.
Effective bookkeeping depends on the accuracy of the data that should be entered. Different types of payments following different accounting principles; therefore, it is essential to ensure that transactions are recorded precisely and in the right categories. Proper bookkeeping serves any business in understanding their financial situation, this allows businesses to assess future plans and correct high-cost sectors that may be made cheaper. It is therefore essential for any company that is looking to grow to keep a close eye on their finances. Our experience shows that most clients are unable to accurately ascertain their creditors and debtors mainly due to weaker bookkeeping, which is crucial for the cashflow of the business.
The HMRC has already implemented Making Tax Digital (MTD) on VAT, which means the accounting reports are based on live bookkeeping, which is directly reported to the Tax Authority. HMRC is also planning income tax to be under MTD from 2023, i.e., income is reported & paid every quarter. Basically, the basic requirement is that all invoices, bills and bank transactions for the quarter is recorded accurately. Some clients says that they do not want to bother with regular bookkeeping, which is left for us to sort out at the end of the year, naturally we can take care of this but we have to charge our time, which becomes costly at the end and sometime leads to clients unsatisfaction for the charges.
Common mistake in bookkeeping
It’s important to be organised in your bookkeeping, it’s also advisable to switch to digital by using proper accounting software to avoid losing any documents.
People starting their business tend to mistake revenue and profit. It isn’t uncommon to see new one person companies mix up their personal finances with their business finances. It’s very important to properly classify your personal and business finances as any mistake could cause issues regarding tax legislations and may results in a fine.
Another common mistake is that accruals and prepayment are often not recorded in the books, portraying an incorrect picture of the financial situation of a business.
One of the most frequent error we have seen in the clients’ bookkeeping is that they do not account for the tax provision on time, resulting illusive portray of the business position.
Nowadays, accounting software has been growing exponentially. A variety of different accounting platforms are available online at various prices. Using this sort of software has multiple benefits. Firstly, automating accounting work will help your firm save time and effort on basic tasks such as bookkeeping which is very time consuming yet uninteresting. This will allow you to focus on other tasks that may be more enticing and pertinent.
Another great aspect of automating your bookkeeping is the organisational benefits for your firm. You will be able to hold all your documents in a single digital space avoiding you to lose documents and mixing up various papers resulting in another waste of time.
Finally, digital bookkeeping is much safer than holding documents that can be seized and lost. With digital files, only the accountant and the client will have access to the files which will be password encrypted ensuring an extra layer of security. Of course, it isn’t impossible that documents may be hacked, however the chances of that happening are extremely slim.
Bookkeeping is the financial basis of any business; records should be transparent and follow regulations in place in the country or region. Many of the accounting tasks can now be inhouse, as the government itself has been providing tools to complete such tasks and meet their compliance but for the obvious reason they do not give business advices. Business advisory on the other hand is an element still looked over by too many businesses even though it is essential for determining the future of the firm and setting up proper growth objectives. We therefore always recommend to obtain a proper business advisory services before any major business decision making. The business advisory is based on clients’ planning and requirements, for example our most business advices are related to investment business activities and tax consulting at the moment using various management tools.
About the author Alan PANDAY: Accountant at Asmita & Associates, it's an accountancy firm with over 15 years experience based in 114-116 Plumstead High Street, SE18 1SJ London, United Kingdom. He provide your expertise and services to businesses all across the UK.