Bookkeeping for Small Businesses

Simple steps to becoming a confident bookkeeper

Andy Lymer, Nick Rowbottom

• Publisher: Teach Yourself
• Year: 2015
• Print ISBN: 9781473609143
• eBook ISBN: 9781473609150
• Topic: Business
• Subtopic: Small Business
• Index: Business

Is this the right book for me?Book keeping is neither dull nor mysterious - its rules are logical and straightforward and are readily mastered by practice. Successful Bookkeeping for Small Business is a substantial yet easy to follow introduction to the principles of bookkeeping and the practical skills of recording transactions, posting the ledgers and preparing final accounts.Written by finance and accounting experts from the University of Birmingham this book: - Explains the purpose and use of books of original entry as the basis of the double-entry system.
- Describes the processes of recording purchases, sales and cash transactions.
- Shows how these records are used to prepare the final accounts, the manufacturing, trading and profit and loss accounts and the balance sheet to provide accurate financial statements.
- Explores petty cash, depreciation, partnership, company law, business documents and the effect of changes in IT.Worked examples throughout allow you to put the theory into practice. There is also a wide range of carefully graded questions and exercises with sample answers. In short, it demystifies the art of bookkeeping and gives you the confidence you need to tackle your books. Successful Bookkeeping for Small Business includes: Chapter 1: What is book keeping?
Chapter 2: Business documents
Chapter 3: The business transaction, purchases and sales
Chapter 4: Purchase and sales transactions and ledger accounts
Chapter 5: Cash transactions
Chapter 6: The bank reconciliation
Chapter 7: Petty cash
Chapter 8: The (general) journal
Chapter 9: Writing up the books
Chapter 10: The trial balance
Chapter 11: What is profit or loss?
Chapter 12: The revenue account: the trading, profit and loss and appropriation accounts
Chapter 13: The balance sheet
Chapter 14: Adjustments in the final accounts
Chapter 15: Depreciation
Chapter 16: Clubs, societies and charities book keeping
Chapter 17: Information technology and book keeping
Chapter 18: Partnerships
Chapter 19: Limited companies
Chapter 20: The analysis and interpretations of accountsLearn effortlessly with a new easy-to-read page design and added features: Not got much time?
One, five and ten-minute introductions to key principles to get you started.Author insights
Lots of instant help with common problems and quick tips for success, based on the authors' many years of experience.Test yourself
Tests in the book and online to keep track of your progress.Extend your knowledge
Extra online articles to give you a richer understanding of bookkeeping.Try this
Innovative exercises illustrate what you've learnt and how to use it.

1

What is bookkeeping?

In this chapter you will learn:

• About Books of Prime Entry

• About double entry bookkeeping

• That detailed records are essential

Objective

This chapter introduces you to the basics of bookkeeping in the form of a conversation between two people, one of whom is familiar with the process of Double Entry bookkeeping.

Question What is bookkeeping?

Answer The process of correctly recording in Books of Account cash, credit and other transactions.

Question What are Books of Account?

Answer The primary Book of Account is called the Ledger, so called because all transactions, after first being recorded in subsidiary books, are afterwards grouped or summarized in Accounts in the Ledger.

Question Why should goods or services be bought or sold on ‘credit’?

Answer Almost all business dealings are conducted on a credit basis to avoid the inconvenience and danger of carrying large amounts of cash. The supplier of goods or services is usually content to accept payment at some future date. The main exception is the retail trade for a private individual.

Question Why is it necessary to record these transactions?

Answer Even in the smallest business the proprietor or manager will want to have accurate and up-to-date information about how much has been bought and sold, how much money has been received for sales, how much has been paid away for purchases, etc. Private individuals often find it convenient to have the same information for their cash receipts and payments. You can imagine that with a very large business, chaos would quickly result without this information.

Question So bookkeeping really involves analysing in some way or another these various transactions?

Answer You could say it involves recording these transactions so as to permit analysis in a systematic fashion, in a way that can be applied to all businesses of whatever kind, and that is intelligible not only now but at any future time.

Question Do you mean by this ‘the Double Entry System of bookkeeping’?

Answer Yes.

Question Why is it called ‘Double Entry’.

Answer Every transaction has at least two effects, or aspects. We describe one aspect as a debit and one aspect as a credit.

Question So it does not mean recording the same transaction twice?

Answer No, not at all. If I have bought goods worth £100 from Smith which are payable in 30 days’ time, the first part of the transaction is that my business has received goods which it hopes to resell at a profit; the second part of the transaction is that Smith, my supplier, has become my creditor, and has a claim on me for £100.

Question Would it be the same if you had bought the goods and paid for them at once, instead of getting them on credit?

Answer Yes, that would be a cash purchase. But instead of Smith becoming my creditor, I would have to record the £100 reduction in cash held by the business.

Question What is the real advantage of the Double Entry System?

Answer For the reason that every transaction can be looked at from its twofold aspect; the record made is complete instead of being only partial.

The practical advantage is that you put the whole of the facts on record. These are:

• The business has gained £100 worth of goods (this is described as a debit).

• Smith has a claim on you for £100 (this is described as a credit).

Obviously, to know these facts is of importance in any business.

Question Well, does this hold good with situations other than buying transactions? Would the same state of affairs exist with the selling of goods?

Answer In exactly the same way. The first aspect in the selling transaction is that your business has given up £100 worth of goods as an ordinary sale. The second is that the person who has received them has become your debtor, i.e. they are indebted to you, on the assumption that you, in this case, are giving credit, because you are the supplier.

Question Does the Double Entry System stop at this?

Answer No. It goes much further. Because of this twofold aspect I have been talking about, it enables you to compare the proceeds of the sales you have made with the cost to you of the goods you have bought, and so obtain your profit or loss on trading.

Similarly, as it shows the claims other people have on you (your creditors or accounts payable), and the claims you have on other people (your debtors or accounts receivable) you can tell very quickly what is the position of affairs of your business at any particular date so far as these people are concerned.

Question Is this important?

Answer Yes. If the amount of accounts payable of the business exceed its accounts receivable, any goods which it hopes to sell and the ‘ready’ money it has available, it may be insolvent, that is to say, it cannot pay its debts as they become due.

Question When we began talking, you said the Ledger was the Book of Account, and that all transactions were first recorded in what you called ‘Subsidiary Books’. What are these Subsidiary Books, and why are they kept in addition to the Ledger?

Answer The Subsidiary Books are termed Journals or Day Books because, very much like a journal or diary, they are completed daily (or should be).

They are designed to relieve the various accounts in the Ledger of a great amount of detail which, while indispensable to the business, can better be given in a subsidiary book than in the Ledger itself.

If you take, for example, the purchasing side of a business, a very great amount of detail may have to be recorded as to the supplier, the quantity, quality and price per unit of the goods, total amount payable and so on.

But, so far as the double entry or twofold aspect of all the buying transactions is concerned, they are all in the first place purchases of goods for the business. In the second place, credit must be given to all the various suppliers from whom the pur...

Table of contents

• Cover 
• Title
• Contents 
• Introduction
• 1 What is bookkeeping?
• 2 Business documents
• 3 The business transaction, purchases and sales
• 4 Purchase and sales transactions and ledger accounts
• 5 Cash transactions
• 6 The bank reconciliation
• 7 Petty cash
• 8 The (general) journal
• 9 Writing up the books
• 10 The trial balance
• 11 What is profit or loss?
• 12 The revenue account: the trading, profit and loss and appropriation accounts
• 13 The Statement of Financial Position
• 14 Adjustments in the final accounts
• 15 Depreciation
• 16 Clubs, societies and charities bookkeeping
• 17 Information technology and bookkeeping
• 18 Partnership
• 19 Limited companies
• 20 The analysis and interpretation of accounts
• Taking it further
• Answers to questions
• Examination papers and sample solutions
• Copyright