Checklist: How to do basic bookkeeping

Keeping accurate financial records is not only a legal requirement but also a valuable small business management tool. Financial records enable a business to monitor income and expenditure, track budgets, and take action if problems arise. The systems and methods used to record information may vary from business to business, but the principles are the same. You must record all monies coming into and going out of the business.

This checklist will help you to identify the type of information you need to record and how to best accomplish the recording.

Identify financial transactions

Look at how the business operates and identify how financial transactions are processed. Check how customers are invoiced and how goods or services are purchased. Make a list of the different transactions that take place and the paperwork that supports them.

Financial transactions identified

Put record keeping systems in place

• Set up and operate a bookkeeping system that includes the following books or journals:
• Sales: used to record all invoices relating to sales
• Purchases: used to record all invoices relating to purchases
• Cash Transactions: used to record all cash payments and receipts
• Returns: used to record all credit notes given to customers for goods returned
• General: used to record all other transactions (e.g. purchase of fixed assets)
• Record keeping system set up

Identify paid and unpaid items

For each of the books or journals, set up two separate files. One file should be used to store the paid items and the other to store the unpaid items. Partially paid items should be processed as follows:

• Record the amount paid along with the date in the appropriate book or journal
• Keep a copy in the unpaid file
• Put a second copy with the amount and date clearly marked into the paid file
• When final payment is made, record the amount and date and mark the item paid in full
• At this point, remove the duplicate copy from the unpaid file
• Paid and unpaid items identified

Set up a procedure for recording entries

Information should be recorded methodically and at set times. Ideally this should be daily; however, depending on the volume of transactions, you may adopt a weekly or monthly cycle. It is advisable to update your cashbook daily. If your business processes predominantly cash transactions, you should retain all supporting documentation, such as cash register rolls, and store them securely.

• Recording entry timing cycle established

Set up an internal reference system

Give all invoices, both incoming and outgoing, a reference number. Record both the transaction details and the reference number in the appropriate journal or book. When payment is made, the amount and date should also be recorded in the relevant journal or book.

• Internal reference system set up

Establish procedures for recording miscellaneous transactions

Enter all personal expenses into the relevant journal or book. Also keep a separate personal copy. Identify any non-sales income and enter it into the cashbook. Examples of this type of income include:

• Money coming into the business as a loan or grant
• Money from the proceeds of a sale of a business asset other than stock (e.g. building and equipment)
• System for recording miscellaneous transactions defined

Monitor record keeping systems

Set up and operate a check and balance system to monitor the recording of financial information. Check for the following:

• An invoice is issued for every transaction
• A receipt is requested and obtained for every purchase
• A receipt for any cash purchases clearly shows what it was for. If it doesn’t state the item on the receipt, write it on
• If no receipt is available for a transaction then the date, amount and the item must be recorded immediately
• Monitoring system set up for record keeping

Carry out frequent reconciliations

Once a month, reconcile the petty cash against the receipts and, if necessary, top up the balance to the fixed amount that you want on hand. Reconcile bank statements against your cashbook and paid invoices. This will enable you to check that all payments have reached your account. Remember to account for amounts that have been paid but not yet cleared. Check your bank statement to see if payments by standing order or direct debit have been processed. They should appear on your statement. When you have checked them, enter the amount and date into the cashbook so that your books balance.

• Reconciliation procedures defined

To help you spend more time focusing on your business and not your accounting, keep the recording of financial transactions simple by using an accounting software solution to manage your cash flow, cost containment, invoicing and billing.