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Small Business Bookkeeping and Record Keeping

Simple Alliance, Kenya Limited


Bookkeeping

Bookkeeping enables you to keep your accounting books in order. Consequently, tax agencies can efficiently evaluate your business. You also benefit from proper bookkeeping by being able to better manage your business. The maintenance and expansion of your business is partly dependent on proper bookkeeping.  Ideally, your bookkeeping needs to be as simple as possible. To determine whether to use the accrual- or cash-based bookkeeping system, consult with your tax advisor.  

Preliminaries

Different business types require varied bookkeeping procedures. You would thus do well to consult your tax preparer or accountant before making bookkeeping decisions.   

Hiring an Accountant

You need to be thoroughly well-versed with bookkeeping essentials. You could however let your accountant handle certain bookkeeping tasks. This way, you free up your time. You could use that time to attend to important business issues such as expansion drives.      

Using Bookkeeping Software

You could use certain software to monitor various business aspects.  The rule of thumb is that the chosen software should be time saving. It needs to afford you more time to handle other important business tasks. You need to be careful so as to avoid using up time installing software to handle tasks that are better handled manually.

Manual Bookkeeping    

Your analysis could show that handling bookkeeping tasks manually is the best option. In such a case, obtain bookkeeping forms from local stationery stores.     

Record-Keeping

You need to maintain certain records for your business. The major ones include:

  • Expenses and income
  • Inventory
  • Cash expenses
  • Accounts receivable
  • Accounts payable

Cash Expenses

To record all your business expenses for a given trading period, you could follow each of two methods, namely:

  • Maintaining a petty cash record
  • Writing yourself reimbursable checks

Keep Petty Cash Record

You could write a check to petty cash.  You then record all expenditures paid out via your petty cash.

Maintain a Petty Cash Record

You may record all cash receipts for a trading period and then add them up. For efficient tax administration, maintain a record of all expenditure categories.  Add the expenses up and write yourself a check for them. So as to distinguish taxable revenue from reimbursable cash, identify cash reimbursable within your check register.   

Expenses and Income

Your income and expenditure records show your cash receipts, your expenditures, and their destinations. To determine the suitable recordkeeping type, seek counsel from your accountant.  For expense and income recording, you could use two tools, namely:

  • Ledger
  • Income and expense journal

Ledger

A ledger records every one of your activities twice, as a credit and a debit entry.  This is basically a double-entry accounting system. The underlying philosophy is that every transaction has two sides that impact on your business. For instance, a purchase transaction would cause an outflow of cash (credit) an increase in inventory (debit).  With double-entry accounting, you could employ a bookkeeper or a computer program.

Double-Entry Accounting Software

Computer programs that perform double-entry accounting tasks include:

  • Peachtree Accounting
  • M.Y.O.B
  • Quickbooks

Income and Expense Journal

Majority of small businesses use the Income and expense journal to record their expenditures and revenues.  The journal represents single-entry accounting in that only expenditure and revenue items are recorded. You could either execute a computer or paper-based single-entry accounting task.

Single-Entry Accounting Software   

Computer programs that you could use to execute single-entry accounting include:

  • Microsoft Money
  • Quicken     

Accounts Payable

You record the debts owed by your business for received services and goods in the accounts payable account. This way, you appropriately stagger your payments and also establish good credit.  the major date that you record includes:

  • Invoice number
  • Amount
  • Invoice date
  • Date paid
  • Terms
  • Amount paid
  • Client’s name and address
  • Balance

The type of accounts payable records you keep depends on your size of business. you could fall in any of three business categories; small, medium, or large.

Small Firms

If you have few accounts payable items, you could monitor your accounts by using folders that are organised based on dates. Alternatively, you may simply settle your bills twice every month. You then keep every bill within a ‘To Pay’ folder.

Large Firms  

If your business is larger, you could employ accounts payable records organised by creditor.

Accounts Receivable

If your clients receive services or goods and make payments at a later date, you need to keep accounts receivable records. The receivables records monitor what is owed to you. Otherwise, such records are unnecessary of you receive payments immediately after rendering services or providing goods. You have two avenues of monitoring your receivables, namely:

  • Maintaining accounts receivable records  
  • Keeping a copy of every invoice you issue    

With both methods, the crucial data that is captured includes:

  • Invoice date
  • Date paid
  • Invoice number
  • Terms
  • Invoice amount
  • Amount paid
  • The identity of the entity being billed

Software Programs

You could use various accounts receivable programs to monitor hours and the expenditure going to every client as. The software also help you to create invoices.  Before incorporating software, you need to consider if the program will facilitate faster collection of monies or if it will show where your revenue is originating from. Major software include:

  • QuickInvoice
  • WinInvoice
  • PerForm Pro Plus
  • Timeslips

You benefit from using such programs in two main ways, namely:

  • Getting professional looking invoices
  • Saving time     

 Inventory Records

Proper inventory records give you control over your inventory. The records capture inventory data such as:

  • Purchase date
  • Purchase price
  • Item stock number
  • Sale price
  • Sale date

Depending on your type of business, you could settle for paper-based or computerised inventory record keeping. If you deal in big ticket merchandise such as tractors, you could use paper-based inventory recordkeeping. For smaller ticket items such as in a retail store, you could choose from two options, namely:

  • Linking your sales with your computer system by installing a point of sale inventory system
  • Using a computer system to monitor your inventory

The maintenance and expansion of your small businesses is to a great extent hinged on proper record and book keeping. In case you fail to correctly keep records and maintain the books you could face various challenges, for instance, certain statutory bodies require the documentation for assessing the status of a business. Taxation is also based on the records and accounts your business makes available. Consequently, you need to set up solid record keeping and book keeping systems. You could use various bookkeeping software. Alternatively, you could seek the services of a bookkeeper. This strategy allows you ample time to concentrate on expanding your venture. You also need to keep a number of simple records. Through revenue and expense records, you document your business expenditure and income. Accounts perceivable records show the monies your small business is owed by debtors. Cash expense records show the monies that have gone into the business operations. Accounts payable accounts display the monies your business owes to creditors. Inventory records track incoming and outgoing stock as well as related expenses. So as to effectively handle business operations, you need to be well-versed with basic recordkeeping and bookkeeping basics.

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MACHARIA MAINGI, NAIROBI, Kenya  |  April 15, 2015
We need also to promote locally developed small business accounting software eg. Barba Business Suite by Busytech Computer Systems ltd and Uhasibu by peopleplus