As previously mentioned, simple bookkeeping falls into three main areas: sales, purchases and bank/cash transactions.
Therefore, you need three basic “books” (or ledgers):
– a cashbook to record all cash/cheques/bank transfers going in and out of your business
– a purchase ledger, to record details of all the purchases that you make
– a sales ledger to record details of all the sales that you make. If you are a retail outlet, you will obviously not write out individual invoices for each customer. Retailers can record total daily takings instead.
These “books” can be manual, handwritten records or spreadsheets. If you are using computer bookkeeping software, the program will handle this automatically – if you are using it correctly.
1) As soon as you raise (send/give someone) an invoice, record this in your sales ledger
2) As soon as you receive an invoice, record this in your purchase ledger
3) Record payments received in the sales ledger and cashbook
4) Record payments made out in the purchase ledger and cashbook
5) Chase all your outstanding payments (credit control) from your customers.
5) Reconcile your sales and purchase ledger and your bank statements monthly, checking your cashbook against all three.
Even though you have recorded all your invoices and receipts in your bookkeeping, you still need to keep these “prime” documents. You’ll need to hold on to them for six years after your year-end. Split your invoices into sales and purchases and file them monthly. File your bank statements, too. To help you find the original documents, consider numbering them and cross-referencing this number to your sales and purchase ledgers.