What do Bookkeeping Records consist of?
It is a requirement of law that you keep adequate business records from which the IRS can confirm whether the tax you are paying is the correct figure based on the correct profit you have stated in your business tax return. Good records mean the accounts at the end of the year will be correct and the profits arrived at accurate.
Poor records means your accountant will have to spend more time arriving at your final figures. This converts to higher fees. Many business owners nowadays choose to use a computerised accounting package. That can be a huge advantage because it cuts away the time spent on laborious, repetitive tasks. It also does away with spending long hours working hand completing manual records such as cashbooks etc.
The accounting records you will need to keep will record:
- All your money going in and going out. This is known as the cash book.
- All your sales including when they have been paid for. This is the sales ledger.
- All your purchases including details of when you have paid for them. This is the purchases ledger.
- Smaller expenses that you pay for by cash. This is the petty cash book.
Examples of some Basic Records
The following example of the basic records required are the purchases journal, sales journal, the cash receipts book, cash payments book, general journal, general ledger and the debtors and creditors ledger.
Note: GST as it applies to some countries are used in the following examples. The corresponding tax for your country may be VAT or Sales Tax or other etc.
Purchases Journal
This records the amount of every suppliers invoice and the expenditure related to that invoice. This is then posted to the appropriate accounts in the general ledger. The details of the suppliers are posted to the suppliers account in the creditor's ledger.
Sales Journal
This journal records the value of every sale made by the business and the details of who the sales have been made to. It can also include an analysis of the sales by product or territories etc which would be useful to the business owner. The totals of the sales journals are posted to the appropriate accounts in the general ledger. The details of the customers (or debtors) are posted to the debtors account in the debtor's ledger.
Cash Receipts Book
The cash receipts book records transactions relating to all income received by the business. This is the receipts side of the business. It is usually broken up into columns which show the type of income that has come into the business and banked into the bank account. The totals are posted to the respective accounts in the general ledger of the business while the cash actually received is transferred to the debtor's ledger and credited to the accounts of the various debtors.
Cash Payments Book
This is the opposite of the cash receipts book and records all cash that is paid out. Once again, they form part of the payments side of the cash book and are split up into columns with each column analysed to show the type of payment expenditure occurred. The totals of each column are posted to the appropriate account in the general ledger so that all payments are grouped under the various accounts. This is for ease of recording and to enable financial accounts to be drafted easily by working on totals of expenses rather than an individual expense transaction.
