Book keeping requirements

Book keeping for small businesses

The keeping of financial records will aid a business to monitor its own performance, but it is also a legal necessity . The maintaining of sets of books or records enables the owner/partner/directors to establish at any given time the state of profitability of the company. It allows the monitoring of actual sales (as against targeted sales), of the amount of money owed to the business, and of the amount of money owing by the business. The entrepreneur can know at any given time the state of the bank balance, or of the level of borrowing by the business perhaps in summary, of its relative liquidity at that particular time.

Legal Requirements

The legal necessity will arise in the first place so that the business can be assessed for Income Tax and Corporation Tax. Secondly, if its turnover exceeds a certain limit – currently £20,000 per annum for the supply of services and £40,000 for the supply of goods – the business must be registered for VAT. Proper records need to be kept, therefore, in order that VAT returns may be made at the required time. Finally, if the business is a legal entity – a limited company for example  it is required to make Annual Returns, together with the accounts of the company, to the Registrar of Companies, as well as submit audited accounts to the Inspector of Taxes in support of the profit or loss shown on the tax return

Financial Returns

Even the smallest of businesses will automatically generate a basic minimum of financial records. It will issue and receive invoices and statements for goods supplied and for goods purchased by the business. It will hold a Bank account, for which it will receive Statements at given intervals. It will write cheques, for which it will have the cheque stubs as a record. It will receive cheques and cash which it will pay into the back account, the record for which will be in the business lodgement book. These are the basic documents from which a set of books can be made up.

Sales Book

In the first place, a Sales (Day) Book  should be kept. This will record all the sales made by the business, showing also the amount of VAT charged on each sale if the business is registered for VAT, and therefore the amount in turn payable to the Revenue. From this book a Sales Ledger can be built up, which will in addition show when each sale has been paid for, and what customers need to be reminded that their accounts are overdue for payment.

Purchases Book

Similarly, a Purchases (Day) Book/Purchases Ledger will show the purchases of goods and services by the business, and when these have been paid for or need to be paid. It will also show the amount of VAT paid on each purchase, which if the business is registered for VAT can be deducted from the VAT payable to the Revenue on sales.

Cash Receipts Book

A Cash Book will record the receipts of money to the business. This book will be of fundamental importance in keeping a regular check on income.

Cheque Payments Book

A Cheque Payments Book will record and analyse all cheque payments made by the business and together with the Cash Receipts Book will facilitate preparing regular bank reconciliations

Petty Cash Book

A Petty Cash Book also needs to be kept to record all the smaller outgoings within the business.

Wages and Salaries

Finally, a separate record needs to be kept of the wages and Salaries paid by the business, in order that eturns and Payments of Income Tax and PRSI may be made to the Inspector of Taxes at the required times.

Auditing and Accountancy

Everyone running a business is obliged to keep proper books and records. In addition, a limited company is required to appoint auditors unless the turnover is under €7.3 million and qualifies for Audit Exemption.
See Companies Registration Office Website for more details. www.cro.ie
While a sole trader or partnership is not obliged by law to do so, it is advisable for such a business to employ the services  an Accountant. From the records enumerated  above, the accountant will be able to prepare all the necessary financial statements (Profit and Loss Account, Balance Sheet etc.) that the business will require, together with annual Tax Computations etc. and returns for the Companies Office for Limited Companies. Consideration should be given to using the various software packages that have been specially developed to assist proper financial management.