It’s important to remember that, over and above meeting legal requirements, day-to-day accounts are there to serve the business and not the other way round.
It is not always appropriate to keep full double-entry accounting records. Indeed, for many businesses, it would be a mistake that would be costly in time and effort for very little return. Furthermore, for many more businesses, it would be more economical to pay a bookkeeper and/or accountant rather than attempt to do it themselves.
Also, much meaningful information about a business can be found from simple single entry systems. As with anything, it’s a question of finding a system that gives the most return for the least amount of time, effort and cost.
It’s also important to recognise that things change over time, so what might have worked a year or two ago could need updating if things are getting unwieldy. Don’t be afraid to make changes.
Hi Louise,
I just came across your blog this evening and have found it very useful already. I recently set up as a sole trader in Ireland making websites, and I am trying putting the book keeping / accounting I learned at school and college into practice at last! I am preparing my annual return at the moment, and I was just wondering what would be the appropriate way of accounting for the income tax I will pay. Should I just have a general ledger a/c called tax and treat it like any other expense?? My hunch is that it should be entered differently so that I end up with gross profit – expenses = net profit – tax = profit after tax? I am using a double entry accounts package, so I am trying to set up my accounts the right way so that the reports will end up looking right. I may be back to using paper ledgers and lots of red pen before long
Thanks for the helpful info!
Hi there,
I’m glad you’re finding my blog useful
sorry for the delay answering your query.
You are going along the right lines.
However, remember that tax may appear as a short term liability on your balance sheet as well as in your P&L (reducing your profit).
Depending on the accounts package, a standard “chart of accounts” normally has the relevant tax ledger codes. If not ensure, that you have a tax liability balance sheet code and possibly a tax code in the P&L range of codes (however, a few packages may allow you to credit direct to the P&L account). You do have to be careful to place the new codes correctly in the “numbering sequence” of the general ledger codes, as otherwise, you are quite right – your reports won’t be right if you make a mistake.
Persevere with the accounts package for a bit longer. Setting it all up is the worst part.
(although I do sympathise re the red pen!)