What Bookkeeping Systems should I use?
Business & Company Bookkeeping
Every business owner has a responsibility to keep proper books of accounts. Most business owners hate this chore, which takes time away from the marketing and technical aspects of the business. So what are the alternatives for record-keeping? Which is best?
Company Bank Accounts
First and foremost, every business should have its own bank account. All money received for the business should be paid into the account in total. Cheque and deposit butts should be filled in with the date, amount and details of the transaction. Minimising personal transactions in this account makes your accountant's job simpler than if you frequently pay private expenses through it. (Better to transfer money on a regular basis to a personal account.)
Bank statements / cheque butts / deposit books
If you keep these basic records, plus details of non-cash transactions (H/P's, debtors, stock, creditors, etc), we can prepare accounts from these. In fact we can go one better. Through BankLink Tempeton's get bank statement transactions directly into our computer, and code as many transactions as possible (bank fees, rents, H/P payments, etc). Then each month (or every two-months) we send you a list of cheques and any other transactions we need you to identify. When you provide the details of these, we produce your GST returns and cash flow reports. At the end of the year, we use this information as the basis for producing your accounts and tax returns.
Payments
Payments
We ask clients to pay monthly by automatic payment. This means at year-end, barring unusual requirements, your accounts are paid for. The benefits of this system are minimal work for the business owner, and simple records for us to use. We also find clients tend to call us more during the year, since they know their bill is being paid. This can avoid problems which we would not otherwise detect until after the end of the year, when it is often too late.
Manual cashbook
You record all of your transactions in a multi-column cashbook. You record the date, reference, amount, GST amount and details of each transaction. You may also use extra columns for the net amounts spent on major items, with another column for sundries. It's relatively easy to make adjustments for GST returns - e.g. assets bought on H/P.
One key to this is cross-adding the columns to show that the net plus GST equals the gross. Even more important is doing a proper bank reconciliation. If either of these tasks is not done properly then we have two choices: we can try and find out where the errors are, or we can start again as we do without a cashbook.
In this case you can use the cashbook for your GST returns, and IF the cashbook and bank reconciliations are done properly, we will save a small amount of time. If they are not done properly, it will actually increase our time required. In either case it obviously requires more effort on your part.
Spreadsheet
Many business people have a computer and spreadsheet, and use that to help with the calculations in their cashbook. This has the same issues as a manual cashbook - plus those introduced by computers. These machines can save you time - but they can also introduce a range of new errors. As they say, "To err is human, to really foul things up needs a computer!". The range of potential problems in spreadsheets is so extensive that we won't detail them here. Suffice to say no-one is immune to them, and all too often we have to revert to source documents to produce accurate accounts.
Computerised cash book
These programs are specially designed to make it easy to record and analyse your receipts and payments. You still need to keep the other records (H/P's, debtors, stock, creditors, etc), but this system simplifies the maintenance of a cashbook and production of GST returns. There are still pitfalls. For example when you buy an asset on H/P, you should record the financed part of the asset cost so it is included in the GST return. Also as with a manual cashbook you MUST complete the bank reconciliations properly. You must also set up the system properly for your business.
These programs are specially designed to make it easy to record and analyse your receipts and payments. You still need to keep the other records (H/P's, debtors, stock, creditors, etc), but this system simplifies the maintenance of a cashbook and production of GST returns. There are still pitfalls. For example when you buy an asset on H/P, you should record the financed part of the asset cost so it is included in the GST return. Also as with a manual cashbook you MUST complete the bank reconciliations properly. You must also set up the system properly for your business.
There is another benefit for this effort - better information. Lack of information often means businesses don't know until too late that problems are developing. Since "cash is king" in business, cashflow reports produced by cashbook systems can help keep track of the current position, and identify trends.
Some people buy these systems and set them up themselves. We've never yet seen anyone do this and save money. Invariably we have to try and fix errors in the system. So please if you're going to buy a computerised cashbook, let us help you set it up. Also if you come across unusual transactions, call us at the time - a quick call at the time can save much more time at the end of the year.
Integrated computerised system
This is similar to a computerised cashbook - except that it also records non-cash transactions - debtors, creditors, stock, etc. This means that at year end, we can review your system, take a summary trial balance, and make adjustments to produce your accounts with minimal effort. In this case we often prefer to review your system during the year as well. This lets us pick up problems early on, and prevent them from recurring.
With the extra information, these systems can produce even more information than cashbooks. For example, they can analyse sales, debtors, stock, etc. A well-run system will give you invaluable information on your business. A poorly run system will provide misleading information, produce inaccurate GST reports, and consume large amounts of our time to fix.
Banklink
With your approval, the banks provide us with your statements each month in electronic form. The big advantage of this system is that the amounts have to agree with your bank statement.
We find that for most clients, this is the best of both worlds. Each month or GST period we code the transactions which are identified on your statement. Then we simply send you a printout (in cheque number order) of your cheques and other transactions we can't identify. You tell us what they're for, we code them, print out your GST, and if you want, send you a cashflow report. While this is after the event, it is a very efficient system - especially since the coded transactions can be fed straight into our acounting system at year end. It requires least effort on your part, freeing up your time for your business.
Conclusion
So what is the best system for you? If you have specific information needs and are prepared to make a continuous effort to maintain your system properly, then a computerised system can produce many benefits. However, if you can't be bothered with the detailed work required, then we recommend you let us process your GST returns and accounts from your bank transactions on Banklink.
This minimises one big risk to your business - penalties for getting your GST or tax returns wrong. There are so many ways to get things wrong - and the costs of getting it wrong are significant - they can break a business.
So if you want to discuss this Call us today on Kapiti 04 2986025
