DIY Bookkeeping Basics

Bookkeeping is the foundation stone for every other part of running the finances for your business. This is why it must be done correctly. Incorrect bookkeeping can cost hours to sort out. In order to support your choice and avoid as many mistakes as possible, we have created a DIY bookkeeping sheet to give you an understanding of the basics and help you undertake this task well.

In essence, bookkeeping is the process of tidying up the bank account. Think of it like a pile of washing. Every item in the basket has to go into its correct place. We do this by coding each transaction to what is called a nominal code, which is the term given to the accounts and codes that appear on a profit and loss or a balance sheet.

Check list

The bookkeeping process is as follows:

- Check the treatment of each receipt, ensure that the coding is correct and the VAT treatment is correct

- Categories each transaction in the bank feed on the software

- Understand the Cr/Dr transaction – to check for any errors

- Reconcile the bank account(s)

- Reconcile the aged payables

- Reconcile the aged receivables

Reactions

The other critical part of understanding is that for every action, there is a reaction. This is how we end up with balanced accounts at the end of the process. For every debit action (Dr) there is a credit action (Cr). For example, if you spend £5 from the bank to buy a pen, the accounting record of that is Cr bank account £5 (to show money has been spent) and Dr stationary £5 (to show that the money that was spent was on stationery). When we look at the profit and loss, we can then see that the bank balance has gone down by £5 and the stationary account, or nominal code, has shown the other side of that expense as £5. The result is a balanced account.

It looks like this:

Bank account		Stationery
Dr	Cr	Dr	Cr
	£5	£5

These are called T accounts. This is important because if you make a mistake and need to unpick it, you need to be mindful of where the other side of that transaction has gone. If you delete the £5 transaction from the bank account, for example, then the £5 expense in stationary will also disappear.

Reconciling the accounts

A check we carry out each month is to reconcile the bank account. The method for this is different in different software but the essence is that we must check the bank balance on the last day of the month to ensure that the balance on the bank statement is the same as the software.

The bank statement is the gold standard. Any money spent, transferred or received is showing in the bank statement. Sometimes software can have a glitch and miss or duplicate a transaction. To nip any issue in the bud, we cross-reference the bank statement ending balance with the software each month.

If the balances do not match you must go back to the last point where they did, and then slowly work forward to find the issue.

Bills to pay

The bills to pay also need to be checked each month. Sometimes transactions are categorised and a receipt is also published from receipt capture software to the accounts software, meaning that two transactions are raised – money actually paid from the bank for the bill and money expected to be paid for the bill. You will need to check that the bills to pay are correct each month. Ideally, receipts, bills and invoices need to be attached to transactions. If your company is VAT registered then this is especially important, and so the bills to pay should match transactions.

Further resources For Xero clients, further information can be found here: https://central.xero.com/s/ Free Agent clients can find more information here: https://support.freeagent.com/hc/en-gb QuickBooks clients can find more here: https://quickbooks.intuit.com/learn-support/en-uk/

Bookkeeping Services that we offer

• 1: 1 Training - £45 + VAT

• Group training for three or more people - £60 + VAT

• Fix bookkeeping issues: Hourly at £35 + VAT

• Bookkeeping services – we will manage the whole process for you:

• 1 – 25 transactions - £30 + VAT

• 26 – 50 transactions - £60 + VAT

• 51 – 75 transactions - £90 + VAT

• 76 – 100 transactions - £120 + VAT

• 101 – 150 transactions - £180 + VAT

• 151 – 200 transactions - £240 + VAT

• 200 + - on request

Written By Rachel Stewart - Blue Leaf Accounting Ltd

Photo by Susan Holt Simpson on Unsplash