Bookkeeping Basics 101

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Bookkeeping is the unsung hero in the world of business. Every business, regardless of size, is legally required to keep a record of its financial dealings. A well-organised bookkeeping system can provide clarity on the business’s financial health, enabling informed decisions for sustainable growth.

This guide will take you through the fundamental elements of basic bookkeeping, providing a stepping stone for those who wish to understand this critical business function.

Bookkeeping Basics Tips and Advice

Small Bookkeeping Basics 101

What is Bookkeeping?

At its core, bookkeeping is all about systematically recording and organising business transactions. It’s basically like keeping the company’s financial affairs in check.

Basic bookkeeping involves tracking all transactions, including sales, purchases, income, and payments by an individual or organisation. This activity is critical in helping businesses produce financial statements and oversee their financial health.

The process ensures accurate records of financial transactions are kept, which are crucial for running day-to-day operations efficiently, meeting compliance requirements, and making strategic decisions.

Why is Bookkeeping Basics so Important?

When running a small business, it is easy to forget to complete bookkeeping basics while concerned about getting sales and delivering the goods or services on time. However, it is essential and should be kept up to date.

If you do not keep your bookkeeping up-to-date, you may miss invoicing a customer, forget to chase up a payment, or pay bank charges if you go overdrawn.

Remember, whether you are self-employed or Incorporated at Companies House, it is a legal requirement to keep accounting records and store them for a minimum of six years. You can store paperwork as a hard copy, on a hard disk or in the cloud. Most modern accounting packages allow you to upload transactions.

Bookkeeping Terms

Let’s now delve into the world of bookkeeping. Knowing the terminology is crucial to understanding your business’s financial health and making informed decisions. These terms lay the groundwork for a solid understanding of bookkeeping and accounting practices that you’ll encounter while managing your business finances.

Accounting Equation

The accounting equation is the basis of double-entry bookkeeping. This equation states that Assets = Liabilities + Equity. It’s essential to know this as it forms the foundation for all financial transactions in your business.

Accrual Accounting

Accrual accounting is the practice of recording transactions that have occurred but have not been paid or received yet. It’s used to ensure your financial records are up to date and accurately reflect your business finances.

Cash Accounting

Cash accounting is a bookkeeping method where only revenue and expenses paid in cash are recorded, with sales or purchases made on credit terms ignored until the payment is made.

Chart of Accounts (COA)

A chart of accounts (COA) lists all financial accounts used in an organisation to track income and expenses. It is essential for bookkeeping activities, as it lists all the accounts a business needs to keep track of its money.

Double Entry Bookkeeping

Double entry bookkeeping is a system where each financial transaction affects at least two accounts. This method ensures accuracy and consistency in accounting records.

Financial Statements

Financial statements are documents that summarise a business’s financial activities. They include the balance sheet, income statement, cash flow statement and other supplementary information. Financial statements provide an overview of your company’s financial health and performance.


A ledger is a book or database where all financial transactions are recorded in chronological order. It provides a record of all financial activities and is used to generate financial statements.

Financial Transaction

A financial transaction involves exchanging goods, services or money between two parties. It includes sales, purchases, payments and receipts.

Single Entry Bookkeeping

Single-entry bookkeeping is a simple system where only one account is used to record transactions. This method does not provide an accurate and comprehensive overview of your finances; however, it can help track income and expenses on a basic level.

Bookkeeping Basics: How to Get Started

If you have never done bookkeeping before, you may find some bookkeeping books that will help to get you started. Here is a selection of books we recommend to get you up to speed with all the basics:

These books are great for learning bookkeeping step by step. They are simple to read and are a useful ongoing source of reference.

Here at Business Accounting Basics, we have created a fantastic resource for small business owners who want to learn the basics of bookkeeping. Use our search box at the top to research bookkeeping topics.

How to Complete Small Business Bookkeeping

There are several ways to complete the bookkeeping. Depending on your skills and the size of the business will depend on the best option.

Paper Records

You can use simple bookkeeping forms if you don’t want to use a computer system.

You can buy ledger books that will help, or you could start your own books. Amazon can provide everything you need if you are after bookkeeping stationery for your manual records.

However, you will find that paper-based records are more time-consuming to complete and will not give you the same flexibility as a computer system when compiling management accounts.

Microsoft Excel

Setting up spreadsheets works well for a lot of small businesses. We have developed some free Excel templates to help you get started. The templates include cashbook, petty cash, sales invoices, balance sheet, profit and Loss, mileage log and cash forecasting.

Below is an example of our Excel cashbook template, which is free to download and use.

Double entry cash book example

Small Business Bookkeeping Software

business Accounting Software

Accounting software is a complete double entry bookkeeping system and will work for all businesses, from the small self-employed to the large companies. The problem is where to find the best solution. We advise looking at the business requirements, including stock, fixed assets, sales, purchases, etc.

Use our free tool – compare accounting software. It lists the best software in the UK and lets you compare features and pricing.

Take a free trial to see if the software has the required features. Two packages to look at are:

There are even free accounting software downloads; read our guide on the best free accounting software. Please a look at our business accounting software review section for more information.

How often should I Complete Bookkeeping?

Decide how often you require your small business bookkeeping and accounting records. You may prefer to do little and often; maybe each day, set aside some time to ensure that your records are up-to-date.

Five minutes daily can be much easier to manage than half a day of headaches at the end of each month.

If you are VAT registered, your business must provide sales and purchase history when the VAT return needs completion.

Your bookkeeping will provide business accounting basics reports – Financial statements and management accounts. These accounts will help you and others make financial decisions regarding your business. The more up-to-date your books are, the better handle you will have on your business.

Bookkeeping Examples

To help you understand bookkeeping basics, we have produced lots of bookkeeping examples. The examples include posting the double entry to sales, purchases, equity, depreciation, prepayments and accruals.

We also have an example of our simple-to-use cashbook; it is available to download.

Cash Book Template

Small Business Bookkeeping Basics Tips

If you are already up to speed with bookkeeping basics but in need of some tips to help you, here are a few bookkeeping tips to keep your books up-to-date:

Post all your business transactions regularly – ‘little and often’ is much easier than batching everything up. It will save you both time and money – especially at the year-end.

Post all your expenses, however minor they may seem. Each one will affect your profit and how much tax you pay.

Keep it simple – there are lots of tools available to help you. Simple Excel Bookkeeping templates and accounting software now make keeping your records simple and give you all the management information you need at the touch of a button. Find a system that works for you and stick with it.

Reconcile your bank – this ensures your bank transactions are posted to the ledger and helps find discrepancies.

Reconcile your petty cash – if you keep petty cash, it is so easy to forget the small amounts you have spent. If you wame help with this, download our free, simple-to-use Excel spreadsheet templates for petty cash.

If using double-entry bookkeeping – ensure that if you make an entry on one account, you will need to make another entry on a second account. One example is if you receive a payment, you will need to increase your bank and decrease your accounts receivable (customers).

Bookkeeping Source Documents

Part of bookkeeping basics is the paperwork in bookkeeping is called accounting source documents. We look at the different documents from sales invoices to cheques. There is also advice on how to store the documents and upload them to accounting software.

Bookkeeping Process and Procedures

Now we have covered the basics, let’s look at some of the processes and procedures you should consider when setting up your own small business bookkeeping system. It is essential to complete accurate bookkeeping, so implementing a process is essential to record financial transactions.

There are many small business bookkeeping tasks to complete. We have produced guides with the basics on each topic;

Accounts Payable

Learn how to record purchase invoices, run the accounts payable ledger, file supplier invoices and manage your cash flow. The Accounts payable shows how much a small business owes to its suppliers.

Bank Reconciliation Basics

Completing a bank reconciliation ensures that all the transactions from the bank statements appear in the accounting system. Learn the basics of bank reconciliation, why it is so essential, and how to complete it.

Cash Book

A cash book is an important part of a business to record the bank and cash accounSeveralent types of cash books are available, including a simple single-entry book and a double-entry. We explain what a cash book is and the differences between them.

Claiming Business Expenses

Claiming business expenses helps small businesses reduce profits and, therefore, taxation. Learn which business expenses you can reclaim and download our free Excel expense form template.

Credit Control Basics

Credit control is essential for any small business; learn how to request money from customers. Good credit control systems will help improve your business’s cash flow.

Depreciation Accounting

If the business owns fixed assets, then depreciation will need to be accounted for. Learn the basics of how to calculate depreciation and the different methods to depreciate fixed assets.

Fixed Asset Basics

Includes fixed asset accounting, software, tracking, and how to value fixed assets. There are several different categories of assets, including computers, fixtures and fittings, buildings and equipment.

How to Account for Payroll

If you employ staff, a payroll system is required. A guide on how to account for payroll, including double-entry bookkeeping and options available for running salaries in your business.

Journal Entry in Accounting

Double entry bookkeeping requires two entries to the accounts. If a correction needs completing, a journal entry will be required. Examples and templates for journals, including accruals and prepayments, are available.

Petty Cash Basics

Most Businesses use Petty Cash. The guide includes the basics of petty cash, implementing procedures, and filling in vouchers, books and forms. It also includes a free Microsoft Excel petty cash template.

Purchase Order

A business may require a purchase order to order goods or services. Our article looks at purchase order procedures and includes a free template.

Sales Invoice

How to set up Sales Invoices, the basics to include on a customer invoice, how to file your sales invoices and free Excel invoice templates / free Word invoice templates. If there is a query with a sales invoice, a credit note may need to be issued.

Statement of Account

Sending a statement of account to customers allows them to check that they have received all the invoices and credit notes. Download our free template and read the information.

What is Stock Control?

A guide on how to record, track and value stock. Download our free Microsoft Excel stock control sheet.

Where can I Learn Bookkeeping Basics?

If you wish to learn the basics of bookkeeping, there are a few alternatives: reading books and running through training exercises is an excellent way to quickly get you up to speed with the basics. An excellent online course is Accounting Coach.

Alternatively, several bookkeeping courses are available – from bookkeeping for beginners, A-level Accounting or the more advanced accounting qualifications such as ACCA or CIMA.

Talk to your local college or look in your local library for bookkeeping and accounting courses. In the long run, if you are planning to do all your bookkeeping yourself, this may save you time and money.

Even if you are not planning to do your small business bookkeeping yourself, it is worth spending time learning the simple bookkeeping basics yourself to understand the basics of the bookkeeping records created for your business.

Should I hand my Bookkeeping to Someone else?

Handing your small business bookkeeping to a professional bookkeeper or accounting technician can be helpful for freeing up your time and getting an expert to provide you with your management accounting information.

There are lots of people out there who could assist you with your business bookkeeping. Read our guide on what does a bookkeeper do? To find out their duties and how to find a good one.

Starting a Home-Based Bookkeeping Business?

We have written a free simple guide to help people considering starting a home-based bookkeeping business.

They are written by a qualified accounting technician who has run a home-based bookkeeping business. The guide looks at the benefits and disadvantages of running your own bookkeeping business, how to find customers, and how to price yourself correctly. Please read our guide on how to start a bookkeeping business.

Bookkeeping Basics Conclusion

Bookkeeping is an essential part of every business; understanding the basics of bookkeeping can help you to manage your finances more effectively. Many resources are available to help you learn bookkeeping, from online courses and free templates to books.

Whether you want to do it yourself or outsource it, reading this article will give you a better understanding of the basics and help you make the right decisions. Good luck with your small business bookkeeping!

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