Basic bookkeeping for the small business
While keeping track of business records can be a daunting activity, basic bookkeeping will help you to stay on top of your business income and expenditure – and in control of your finances. In this article, we’re going to cover bookkeeping basics such as the management of business loans, business finances, financial transactions, income tax and other assets liabilities.
What is bookkeeping?
Bookkeeping is the first part of the accounting process. It concerns the way in which financial transactions are recorded and organised into your company accounts.
For example, every time a supplier is paid or a customer makes payment this information needs to be tracked and recorded. Doing so accurately, will help you keep track of your business incomings and outgoings and, in turn, ‘balance the books’. However, unlike accounting, bookkeeping doesn’t go into reporting on and interpreting financial data.
Why is bookkeeping important?
Bookkeeping involves the organised processing and storing of your business records and financial statements. It is important to ensure that you are up-to-date with the financial affairs of your business. Such as: accounts receivables, accounts payables, corporation tax, liabilities and equity and other financial activities. There are a number of business bookkeeper guides available online for small business.
Having adequate bookkeeping systems in place will help you:
- know when to pay suppliers and when payment is due
- allow you to keep track of customers that owe you money
- process sales invoice documentation
- review the cash flow of the business – such as paying bills
- prepare profit and loss accounts and balance sheets
- prepare business finance reports
- forecast and set projections for the future.
As a business owner you are required to keep and store accounting records for a minimum of six years.

How to work with your bookkeeper
One of the benefits of hiring a freelance bookkeeper is that you can work with them remotely. Many bookkeepers work from home or online, which will help you keep your business overheads down.
Here are some tips for building a good working relationship with your bookkeeper:
1. Work out the terms of your arrangement
Whenever you start working with someone, discuss the responsibilities and expectations of both parties.
Discuss the tasks you need done and ask for an estimate of how much that will cost you. They’ll probably want set boundaries around their working conditions and how available they’ll be for your business on a weekly basis.
2. Find out how you prefer to communicate with each other
Good communication is crucial for any professional relationship to work.
Whether you prefer to communicate via email, text message or phone call is something you should discuss with your bookkeeper.
As your business grows and their role in it evolves, keeping communication open and honest will help maintain a good working relationship.
3. Have semi-regular catch ups
Even if they work from home, having face-to-face meetings, either in real life or via video call, will go a long way towards making sure you’re both on the same page.
Consider catching up every fortnight or once a month.
Top 3 takeaways
- Bookkeepers are involved in the day-to-day financial running of a business. They typically record revenue and expenses, prepare wages and maintain accounting systems.
- One way to remember the difference between bookkeepers and accountants is that bookkeepers record business data and accountants analyse the data.
- Consider hiring a bookkeeper as soon as you start your business to get your financial records right from the start.

Bookkeeping Basics for Beginners
1. Assets
Assets are the things the business owns.
Tangible and intangible assets are part of the Balance Sheet. Intangible assets include royalty and goodwill, while tangible assets include the following:
- Cash Account – This is the cash on hand and cash on banks.
- Marketable Securities Account – This covers all cash equivalents such as government or corporate bonds.
- Accounts Receivable – This is the money to be collected from customers for the products they purchase and services they purchase or avail. Bookkeepers carefully track and update this to ensure they send accurate invoices or bills on time.
- Inventory – These are the products not yet sold, which business owners should always keep track of. Previously recorded inventory should be regularly reviewed against the current inventory on hand through manual counting.
- Fixed Assets (i.e., properties and equipment)
2. Liabilities
Liabilities are what the business owes. This includes short- and long-term debts: accounts payable and loans payable (current and non-current):
- Accounts Payable – This is what the business owes to its suppliers. Bookkeepers need to work diligently to pay suppliers on time or even earlier, which can qualify the business for a discount.
- Loans Payable – This account keeps track of the current and non-current loans the business incurred. These loans are usually when the company borrows money to buy property, equipment, or vehicles necessary to operate.
Liabilities are also part of the Balance Sheet.
3. Equity
Equity refers to the ownership of the business owners and investors in the company. In the Balance Sheet, the equity accounts cover all the claims they have over the company.
Equity includes the investment the business owner/s put in as well as the other investments the company made.
Owners’ equity monitors the amount the owners and investors put into their business.
4. Single-Entry Bookkeeping
The single-entry system is one of the two main types of bookkeeping. This works for sole proprietors and small business owners who deal with minimal and uncomplicated transactions.
In single-entry bookkeeping, you record earnings and expenses upon incurring them. The following documentation also comes with this type of bookkeeping:
- Cash Disbursements Journal – Where you record the expenses the business pays for
- Cash Sales Journal – Where you record the business’ revenues
- Bank Statements – The documentation you use to check transactions to avoid error in the journal entries
5. Double-Entry Bookkeeping
The double-entry system is the second type of bookkeeping. This works for any business size with complex transactions.
In this system, each transaction has at least two entries: debit and credit. Bookkeeping software, such as QuickBooks, uses the double-entry system.

What follows is a basic overview of what bookkeeping for a small business entails:
- Prepare source documents for all transactions, operations, and other events of the business.
Source documents are the starting point in the bookkeeping process.
- Determine and enter in source documents the financial effects of the transactions and other events of the business.
Transactions have financial effects that must be recorded — the business is better off, worse off, or at least “different off,” as the result of its transactions. The bookkeeping process begins by determining the relevant information about each transaction.
- Make original entries of financial effects into journals and accounts, with appropriate references to source documents.
Using the source document(s) for every transaction, the bookkeeper makes the first, or original, entry into a journal and then into the business’s accounts. The journal entry records the whole transaction in one place; then each piece is recorded in the two or more accounts that are affected by the transaction.
- Perform end-of-period procedures.
These procedures are the critical steps for getting the accounting records up-to-date and ready for the preparation of management accounting reports, tax returns, and financial statements.
- Compile the adjusted trial balance.
This balance (a complete listing of all accounts) is the basis for preparing reports, tax returns and financial statements.
- Close the books.
Bring the bookkeeping for the fiscal year just ended to a close and get things ready to begin the bookkeeping process for the coming fiscal year.
Whether you do your bookkeeping yourself or hire someone else to do it, here are a few useful tips:
Hold on to your receipts and invoices
HMRC requires you to keep them for up to 6 years. Keep them safely and securely for your own records as well, in case you have a disagreement with a client or a customer.
Do your job
Even if you don’t do your bookkeeping yourself, you will still need to do a minimum of filing. Invoicing your customers or clients and gathering all proof of your expenses is part of your job.
Number your invoices and receipts
This will make things easier to track down, especially if you do your bookkeeping yourself.
Photocopies can help with organisation
Although it is not exactly environmentally friendly, photocopying receipts and statements to put them in different filing categories could save you time in the future if you are looking for them.
Put aside time to do your bookkeeping
It can be an hour per week or 10 minutes per day. Whatever way suits you best, reserve some time on a regular basis to do some basic bookkeeping. This will both ensure your accounts’ accuracy and avoid having them snowball into an unmanageable heap by the year’s end. When it comes to accounting, procrastination is definitely not your friend.
Separate your personal banking from your business one
Open a business account which will only handle your business transactions. Use a business credit card and a business cheque book. This way your bank reconciliation will be easier and faster and you will never mix your personal finances with your business ones. It will also give you a clear idea of how your business is doing.
Keep track of cash payments
They can be easy to forget and a nightmare when it’s bank reconciliation time. Even if it is in manual format, register your cash payments.
If you use an accountant, send them all invoices the moment you issue them. This means you won’t have a massive list of unregistered invoices at the end of the financial year. And it also means that you will have reported all your income, thus avoiding being accused of tax evasion.