Many UK businesses are losing money as a result of poor accounting practices; however, by mastering the core elements of bookkeeping, you can take control of your finances.
Do you need an accountant?
Basic bookkeeping should not be too overwhelming, so you may be able to manage it yourself; however, it is time-consuming, and your time may be better spent elsewhere. An accountant can take on this task and may find ways to save you money. An internet search relevant to your area, such as ‘accountants Chippenham’, will produce results such as https://chippendaleandclark.com/.
Core elements
There are nine key concepts for you to understand in bookkeeping:
- Assets are what your business owns, such as cash, inventory, and fixed assets, including property and vehicles.
- Liabilities are financial obligations owed to other parties, such as supplier invoices, business loans, and business tax.
- Equity is what remains after the liabilities have been subtracted from the assets. This is known as the business’s remaining ownership stake.
- Single-entry bookkeeping records transactions only once as either expenses or income. It is commonly used by small businesses and sole traders.
- Double-entry bookkeeping is used for more complex businesses. This records each transaction as a debt in one account and a credit in another.
- The cash basis of accounting only records transactions when cash is spent or received. It is often used by sole traders and small businesses that prefer the simple approach.
- The accrual basis of accounting is a method that records transactions when they occur, so a payment will be recorded when the work is done rather than when the payment is received.
- The income statement provides a snapshot of the business’s performance over time. It includes three elements: revenue, cost of goods sold, and operating expenses. This helps you identify trends and areas for improvement.
- Retained earnings are the cumulative profits that the business keeps rather than those that have been paid to shareholders.
If this list sounds overwhelming, take time to understand the concepts or consider investing in professional accounting.