Every day in your business you will be making financial transactions, such as selling your goods / services and paying expenses. Because of all this active financial activity, you will need to set up an effective record keeping system.

It is a legal obligation to keep accurate financial records, in terms of VAT, tax etc.You will therefore need to set up an accounting system which covers all of your financial transactions. You can either do this manually i.e. by hand, or on a computerized package.

If you are starting out small and want to keep your costs down, you may decide to do your book-keeping yourself. Alternatively, consider employing the services of a Book-keeper or Accountant, as this can be a time consuming and complicated activity.

The following are benefits from keeping accurate financial records:-

  • If you need funding, lenders will want to see your records.

  • If you have partners or other shareholders, they will want regular reports on how the business is doing.

  • If you are going to use an Accountant, you can reduce costs by handing over accurate and organized accounts.

  • You will be able to see how your business is doing and if you are making a profit.

  • Establishing financial systems and controls minimize theft and fraud by employees.

Accounting Practices and Procedures
Before you can start managing your day to day financial transactions, or prepare your monthly or year end financial statements, you need to understand the basics of Accounting.

Accounting can be defined as:
“The method and processes followed to gather, process and summaries the financial transactions of a business”.

Key points to remember about accounting procedures:
Every transaction must be recorded in the following way:

Sales Journal – used to record all invoices issued.
Cash Sheet – this records cash in and out of your business.
Purchases Journal – used to record all purchases / expenses.

A General Ledger can be kept, which details all of the journal entries.
This will be used to compile a Trial Balance which details all the account balances in your General Ledger.

Cash or Accrual?
You need to decide whether you are going to use a cash or accrual system when setting up your accounting system. This will have an impact on how your business will report revenues.

Cash Accounting
This records income and expenses only when it is received or disbursed.

Accrual Accounting
This records income and expenses when the sale or transaction takes place, not when you receive the money. This gives a more accurate picture of how your business is performing month on month or year on year. It is also more effective in converting income to expenses. Private Companies with income over a certain amount are required to use the accrual method.

Double Entry Accounting
A basic rule of accounting is the double entry rule of thumb i.e. for every debit there must be a credit.
A Debit is an increase in assets or a decrease in liabilities / equity.
A Credit is a decrease in assets or an increase in liabilities / equity.

Some people believe in hiding their cash under their mattresses, but in the business world, you need a much safer way of keeping track of your money! This is where banking comes in.

Finance is a key factor in your business and you will need to open and operate a banking account in order to manage your finances. A bank account is used as a control measure over cash and it also helps as a record of transactions. You will not be able to operate your business without opening a bank account.

Cash, cheques or electronic transfers can be deposited into the account and payments can be made out of the account.

Opening a Bank Account
Opening up a bank account is fairly easy depending on which type of bank account you decide on.

Types of accounts
First you will need to decide what type of bank account you want to open, as there are many different types. Each type has its advantages and disadvantages, so you must decide according to the needs of your business.

  • Savings Account

  • Cheques Account

  • Transmission Account

  • Credit Card Account

  • Call Account

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