If you run a small business, you may ask what are accounting records and how do I keep them?
This article will break it down into the different accounting records that a business may need to keep, how long to keep them, and the reports they produce. The accounting source documents are the basis for all accounting and where the process starts.
What are Accounting records? – The Documents
Income – Depending on your business will depend on the income documents that the company will produce. They may consist of the following:
- Sales Invoices
- Till receipts
- Cash receipts
- Amazon, PayPal or eBay reports for online retail
Most shops and hospitality will use till receipts and an electronic point of sale system (EPOS). In addition, most EPOS will integrate directly with accounting software, making the accounts much easier to handle. Eposnow is a popular solution within the industries.
Businesses typically issue sales invoices to clients. A sales invoice is a legal document for selling a product or service; it will list all the sale descriptions and pricing. In addition, there are requirements for producing the record; further information and templates are available in our sales invoice section.
More and more businesses are setting up sales on Amazon, eBay, and other online internet sites. Each will have its reporting system, some of which integrates directly with accounting software. For example, a popular internet store uses WooCommerce on WordPress sites, which will integrate with XERO.
If you sell at a fair or a stall, you may issue a cash receipt to a customer. These are usually a duplicate book or printed out. We have created a cash receipt template in Word.
Expenditure – A business may spend money in various ways; listed below are some of the main ones.
- Purchase Invoices
- Direct Debits and Standing Orders
- Petty Cash
- Bank Statements
- Payroll reports
When you purchase goods or services from a supplier, they will issue a purchase invoice. It is the primary way that most businesses record their expenditure.
Direct debits and standing orders appear on the bank statement; you may also receive a bill from the supplier. These transactions might include payments for loans, utilities, finance, insurance and monthly subscriptions.
When businesses use small cash expenses, it is called petty cash. We have a complete section on running a petty cash system, including a free petty cash log template.
Companies use PayPal more and more as online transactions revert to this system. In addition, there are reports within Paypal to assist in recording the transactions.
Some items may appear on your bank statement where you have no over paper records. I this instance, you will use the bank statement as the document.
Accounting Records – Storage
You need to keep accounting records for six years; this is a requirement from HMRC. With having to store the records for six years, what are the options available?
- Paper-based – keep all the original documents paper-based in files or folders. If you use this technique, I suggest having separate files for customers and suppliers. Sales invoice are filed by invoice number, while supplier invoices by the supplier and then date. The main problem with paper-based documents is the storage space.
- Accounting Software – The leading accounting software packages include a feature to store your documents within the software. You either email the documents or use an integration package like DEXT or Auto Entry. One disadvantage of this system is that you may lose access to the documents if you cancel or change the accounting package.
- Cloud Storage – This is another popular option to reduce paper. There are lots of cloud storage options available, including Onedrive, Google and Dropbox. Cloud storage might include for free if you have a subscription with Google or Microsoft.
Before destroying any records, it is worth checking that they are beyond the date needed.
What are Accounting Records – Journals
Every transaction in an accounting package will report a journal. The most common accounting practice is the double entry system. It means that there will be an equal amount to balance the transaction for every debit or credit. An example is you issue a sales invoice to a customer, it will record the sale on the profit and loss account and post it to the debtors.
If you need to make any adjustments to the accounts, you will create a manual journal. You may need a manual journal for prepayments, accruals, writing off debts or making any other adjustments.
How are Accounting Records Used?
The whole process starts with the accounting records. Once everything is posted to the accounts, reports are then available for either management, accountants or submitting for year-end. The most common reports are:
Balance Sheet – This is a snapshot of the business showing assets, liabilities and Equity.
Profit and Loss (income statement) – This shows the income and expenditure for a specified period.
Trial Balance – Shows all the accounts from both the balance sheet and Profit and Loss. It is a helpful report at year-end for the accountants to use.
Debtors and Creditors – These reports show how much you owe or how much a customer owes you.
There are lots of other reports available, but these are the main ones.
Who Should enter Accounting Records?
There are several options, and it will depend on the business set-up, how much time you have and experience. For a small self-employed business, quite often, they will post all the transactions themselves.
A more significant business may employ staff for accounting, and it’s their responsibility to complete the accounts.
Another option is to employ a bookkeeper regularly, and with their knowledge, they can complete all the transactions. The advantage of a bookkeeper is that they should have qualifications, be faster, and frees up time.
The most expensive option is to get an accountant to complete everything for you. Accountants time usually is more costly than a bookkeeper or staff. The advantage of an accountant is their knowledge of taxation and submitting accounts to companies house.
Summary of What are Accounting Records?
- Accounting records are the basis of all accounts and may include: invoices, bills, cash receipts, bank statements, payroll and online transactions.
- You need to keep all accounting records for six years minimum.
- Storage is available either as paper, within an accounting package or cloud.
- Business owners, staff, bookkeepers or accountants can post the accounting documents.
For further reading on what are accounting records read our accounting source documents section.