There is currently a lot of talk about Making Tax Digital and software but the basics behind this is bookkeeping.
What is bookkeeping?
Bookkeeping is simply keeping tabs of all of your financial transactions that relate to your business. There are several methods of bookkeeping, such as manual ledger bookkeeping system, spreadsheet or using a bookkeeping software, however, any process that involves the recording of financial transactions is a bookkeeping process.
There are many software’s that you can use for bookkeeping. The most common ones that we use as accountants are Quickbooks, Sage, Xero or Kashflow. However there are many different software’s out there that you can use which both have its own benefits and drawbacks.
You can also conduct Bookkeeping on a spreadsheet, however with Making Tax Digital coming in, if you meet the requirements you will have to be on a software (see our A digital revolution Blog).
Why is Bookkeeping Important to a Business?
Bookkeeping can be an essential part of a successful business. Every successful business keeps tabs of their financial transactions whether this be through an accountant or them physically doing it themselves.
Bookkeeping is important for a business, as due to you keeping track of the transactions that go through the business you will be able come up with simple figures of where the business is or heading. This will then aid in business decision making.
What are the Benefits of a Good Bookkeeping System?
Claim the right amount of tax deductions
Good bookkeeping can ensure that the business does not overlook any allowable expenses. By recording every payment made to suppliers, together with matching receipts or invoice numbers, bookkeeping can help businesses make sure they never forget to claim a business expense that should have been tax deductible.
Improves the efficiency of the business in receiving money.
With good bookkeeping you will be able to see which customers often do not pay. As a result of this you will be able to see which customers need a slight reminder to pay. As a result of this it may make the process more efficient and you will not miss a payment from your customers as you will be able to see how much each customer owes.
Never pay too much VAT
With the new MTD regulations most VAT-registered businesses have an obligation to keep records of all their sales and purchases digitally, as well as file VAT Returns with HMRC using software. For those VAT registered businesses not required to file under MTD it is still a requirement to keep VAT records and a good bookkeeping system will assist with this.
Accounts Trainee at Grafton Jones Jake is currently working towards completing his AAT level 2