Many people who start up their own business view accounting and bookkeeping as something of a black box, but technological and software advances are making in-house financial management more viable, which means visits to the accountants can be reserved for more complex and specialised tasks.
Here we look at bookkeeping and cash versus accrual accounting.
Q Should I do my own book keeping?
A This is one of the first questions to consider when going into business. On the one hand, doing your own books will keep costs down, on the other outsourcing it can be a huge time-saver. Outsourcing the job will also give you a degree of security – your accountant knows which expenses are tax deductible and you can be confident that you will meet your compliance obligations with Companies House and HMRC. Having a solidly put-together set of accounts can also help you see how your company is doing. You can produce management accounts that help you analyse your most and least profitable areas and track your business expenses.
Q I’m happy doing my own books using Excel for the time being, but I’m concerned about not having enough time to keep up as the business gets busier. What are my options?
A There are two main choices. You can use a desktop-accounting package and pay a one-off license fee, or go for a cloud-based service; these charge a monthly fee. Desktop solutions are generally cost-effective, but people increasingly like cloud-based options for their versatility. For instance, you can extract information about purchases for a VAT return or sync your bank account with the accounting system so that transactions are automatically flagged and organised into the correct category in your accounts.
Q What’s the difference between cash accounting and accrual accounting?
A With cash accounting, you record a transaction once cash is actually exchanged between you and another party. With accrual accounting, you record a transaction as it is set up. That way your accounts ‘anticipate’ expenses or payments, which makes this a safer approach. So, for instance, if a supplier provides you with an estimate for work over a period of time, but doesn’t submit an invoice straightaway, then your accounts will reflect your full financial picture taking into account that expense.
Q My accounting profit doesn’t match my cash position. What’s the problem?
A Under accrual accounting, there are likely to be timing differences between your accounting profit and your cash position. For instance, say you buy a tablet for £1,200 and expect to use it for work for a two-year period. Under UK accounting rules you are allowed to capitalise it within your accounts and depreciate it over its useful life. So instead of expensing £1,200 in your accounts when you purchase the tablet, you record a £50 depreciation expense in your profit and loss account each month over the two years, but your cash records will show you have £1,200 less in cash.
MarketInvoice have teamed up with Xero cloud accounting software and Receipt Bank – two businesses leading the way in this field – to bring you advice on finding the right accountant and streamlining your paperwork. In partnership with KPMG Small Business Accounting- whose fixed price accounting packages embrace this ‘value added’ philosophy- we’ve brought you The Accountancy Clinic: an access all areas troubleshooting ebook with answers to the most common accounting questions.
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