This is part 2 of The Definitive Free Guide To Bookkeeping.
If you’ve not read the first part, click below:The Definitive Free Guide to Bookkeeping Part 1
In part 1 we touched on the 3 reasons people want to learn bookkeeping:
So far we’re concentrating on the first option – becoming a self-employed or sole trader bookkeeper.
Once your bookkeeping business starts to grow, there will come a time when you will have a choice to expand and take on employees.
But to make that happen, you first need to successfully market your bookkeeping business.
And in part 1, we’d just got to the point where you were having a conversation with a prospect, and how to handle that so your prospective client learns to trust you.
We’d come to the point where you’d discovered where they were right now in life, and the next part is to start to paint a picture of how their life would change in a good way were they to pick you to become their professional trusted adviser.
In every aspect of selling, this is the most crucial. That’s because our vision of the future is always based on hope (since no one can successfully predict what will happen).
We hope we can get all we want to get. We hope we can help our families, friends, and those less fortunate than ourselves.
We hope we will have successful relationships and live a long and happy life.
We hope that we will have enough money so we never fall seriously into debt or are forced to struggle to make ends meet.
We hope that we will be secure both now and especially in the future.
These are the basic hopes 99% of all humans live by.
So if you can demonstrate that even some of the above is likely to happen should your prospect become a client, then you are more than half way there.
There are of course no guarantees, and all reasonable human being understand this, but nevertheless, you can still make promises you can keep that will also impress your prospects.
A friend of mine runs an accountancy business in Peterborough, United Kingdom.
He has an outrageous guarantee. He says that if you are not 100% satisfied in the work that his firm does, he invites you to pay only what you believe the work is worth – even if that turns out to be zero.
He started with absolutely nothing. Took on a mortgage to buy his house turned office once he had generated enough income, and some 7 years later drives around in a top spec. Range Rover (and I mean top spec. – it cost over £138,000).
Although it is an accountancy firm, like all accountants, he started with bookkeeping and first principles. You can do exactly the same thing if that’s what you want.
If you take apart what I’ve just written, you will realise I’ve just given you a perfect example of spelling out a possible future.
And best of all, I’ve backed it with a true story.
Following a simple blueprint like this will help you convert more clients than anyone who does not understand the sales process (and that in my experience is most people).
But you need to know that there is no way you can help people uncover a good future for themselves if you don’t first know what it is they are after.
That’s why you always need to be listening as deeply as you can, followed up by relevant questions about where they want to be (NOT where you want them to be).
Take a deep interest in your clients’ businesses and they will take a deep interest in yours.
Whether you want to be a self-employed bookkeeper, do the bookkeeping for your small business, or be employed as a bookkeeper, this simple guide to bookkeeping will point you in the right direction.
And it will not waste one minute of your valuable time. I want to stress that now so you know that everything you read below will help you get what you want (I’ve founded 6 businesses over the last 39 years including a successful and accredited bookkeeping service – so I understand what a big step this may be for you).
This guide is aimed at 3 groups of people:
There are many things shared in common with these three groups, so I will only point out differences where absolutely necessary.
For example, if you want to start a career as a bookkeeper, it’s a good idea to know what sort of salary you can expect (if you’re in the UK, the UK Government reckons it’s about £17-£25k, and if you’re in the USA, the last figure I have is $36k from the Bureau of Labor Statistics).
Whereas if you want to start your own bookkeeping business, you will also want to know what the current salary levels are in case you want to grow your business and take on qualified bookkeepers.
And if you want to learn bookkeeping as a business owner, then knowing what it would cost if you were to hire someone instead will help you make the decision of whether it is really worth your time.
On that last point, all businesses depend on marketing for survival. And marketing is all about time and budgets. If no budget is set for marketing a business (including bookkeeping businesses!) then it is very unlikely a new business will thrive.
Established businesses often get by with word of mouth marketing, but eventually they will decline as other rivals with a marketing plan and budget to match will move into their market.
And understanding what that budget might be just also happens to be a part of the bookkeepers set of skills. We’ll get to that later on, but for now, you will be able to see just how important the work of a bookkeeper really is.
It’s not just about adding up numbers and deciding where a particular transaction needs to be recorded in the books, it’s all about knowing how much money in the business can be used in other areas that need it.
Since the bookkeeper is the one person with their finger on the financial pulse of the business at all times, the amount of power a good bookkeeper really has becomes apparent.
This skill set has been overlooked for years by the accountancy profession as a whole, and even more so by business leaders. This is because larger businesses rely on a financial director (usually a qualified accountant) who in turn relies on bookkeepers to come up with the figures.
So it’s the bookkeepers who really know what’s going on. Welcome to the Bookkeeping Industry.
I’ve written a 5 part mini guide on this topic as part of the Accounting for Everyone Certified Online Course, which you can find here, but I’m going to include lots of tips in this article that I know will help you anyway.
These are based on my actual experience of setting up a real bookkeeping business in the UK.
Starting your own bookkeeping service is probably one of the safest lifetime businesses you can start.
The entire world is going freelance. The number of small businesses starting up is and has been increasing for a considerable amount of time, but right now it’s increasing faster than ever because everyone known ‘jobs are no longer for life’.
A university degree no longer has the benefits it used to have, and as a self-employed bookkeeper there’s no one you need to impress – your clients certainly won’t care. In fact, the debt that university students get into whilst studying has never been higher. And that is a real burden not just on themselves but on the world’s economy as a whole.
Learning bookkeeping has as a result become super important for any business owner, but since the last thing most business owners want to do is their own bookkeeping, it ends up being done by untrained volunteers (usually a family member), and that adds even more risk to the burden small business owners have to face.
And so it doesn’t take long for them to realise they need professional help.
One answer to that is finding themselves an accountant. But the problem with that solution is the increased cost. Accountants train for years, and so expect a healthy return for all that training.
A bookkeeper can become quite competent in less than a year – even though it’s the most important part of the finance side of all businesses.
This is because the tax legislation of every country far outweighs the amount of knowledge needed to operate a double-entry bookkeeping system.
There is one caveat to that: a bookkeeper must learn where transactions go in the books. They need to know the difference between a capital purchase and an expense.
They need to know the difference between selling a service and selling goods. They need to understand VAT (Europe and much of the rest of the world) and Sales Tax (USA).
But what they don’t need to know are all the tax avoidance schemes and other forms of tax accounting that reduce or avoid the tax burden. That is strictly in the focus of accountants.
And here’s the rub. The world’s Inland Revenue services are changing fast. It is no longer publicly acceptable for large corporations to use tax avoidance schemes.
It’s not just politicians who want to change things, it’s the public as well. So it won’t be long before the crackdown comes not just for all schemes, but also for smaller businesses too.
The good news, is that it falls right into the domain of the bookkeeper. A professional bookkeeper is there not just to enter the figures and make sure they go into the right boxes, they’re there to protect business owners from making costly mistakes.
At some point in the future, the average business owner will not need an accountant at all. Governments and Inland Revenue Services around the world will make online submission so easy, and the rules so hard to break, anyone will be able to file their figures online without needing a complicated manual.
But the point is, those figures will still need to be generated in the first place, and the people most qualified to do that, are professionally trained bookkeepers.
As I say, it’s one of the safest professions you can ever choose to enter, and more so now than at any other time – hence the need for this depth guide.
Starting a bookkeeping business is just like any other business. You need to register with your Inland Revenue service to let them know.
You may also need to register with them for Anti Money Laundering supervision. This all depends on your country of course. In the UK, you can do this directly, or through a professional body such as the IAB – International Association of Bookkeepers (who also operate in 60 countries at the time of writing).
It will also help you gain trust by getting professional qualifications. The IAB can help in this respect too. They also cover distance learning as well as formal college courses.
You can start your business direct from home. There is no need to increase your costs by renting an office unless a) you can afford it, and b) you or your family has a problem with you working at home.
Another benefit of offering bookkeeping as a service is you will have very few other costs other than your time. Software comes into it, but these days you will find plenty of free software for micro business books, and fairly low cost solutions for small to medium size businesses.
You will also find the larger the business you target as potential clients, the more likely they are to want you to do your work on their premises. This has ups and downs, especially when it comes to charging for your work. They will want to pay you an hourly fee. Typical hourly charges for experienced bookkeepers in the UK vary from £20 to £35.
That rate is very similar for most countries but has to be pro-rated in for that countries economy.
If your clients are happy for you to work remotely on their account, then you can change to monthly or project charging.
Another vitally important part of any small business, but extremely important for professional services such as bookkeepers, is Professional Indemnity Insurance (PII). This will cover you should something bad happen to your clients and they end up suing you for some reason.
That brings us on to contracts and terms and conditions. Many bookkeepers take on clients without setting up any formal agreements. Don’t do it. Even if your terms and conditions are simple, make sure you have some, and get a signature that they agree to them. In fact, the simpler the better.
This means setting up expectations around responsibilities. Make sure everyone involved understands who is responsible for what, and what to expect of each person BEFORE you start.
This will ensure that should you accidentally take on bad clients, you will find it very easy to exit without any impossible problems.
What are you going to call your new bookkeeping service? Names are always hard (every parent knows this only too well of course – and if this is your first business, it’s going to feel a lot like your baby – you will get very precious about it, so the name matters).
The absolute simplest name to use is your own – but if you don’t much like your name – or you want to remain anonymous, you can always use a made up name. It’s what many of the most respected authors on the planet do – so you will be in good company (it’s not weird – and you get the chance to give your baby bookkeeping service the name you always wanted).
Alternatively, you can go for a brand style name. I originally named my bookkeeping service AccountsCheap. I did it because the service helped micro businesses, and so was right at the bottom end of the market. My clients (mostly) could not afford an expensive service, so their expectation was matched to the name.
And here’s the thing about names, the perception of the name happens slowly as you build your business. The meaning of the name will be built from the reputation you establish. In other words, names don’t actually matter that much (but see my one warning below!). It’s your service that matters. This is why Google (a completely meaningless name) now has its own brand value and perception.
It’s why Apple is more associated with a computer company than a fruit in business terms.
But avoid names that are hard to pronounce or misspellings of existing words. I founded a software company in 1999 and named it Accountz. Every time I picked up the phone and gave someone my email address I had to explain “that’s accountz with a z not an s”.
You can also use your town as the name if you want to stay local. One choice of name I had was Wisbech Bookkeeping Services, which I set up anyway to increase the likelihood of being found online.
One last point on names. Sometimes they can backfire. The AccountsCheap service had an achilles heel that I hadn’t thought through properly. Given enough time, I would have stuck with it, because I know reputations take time to build, but we didn’t want to wait that long.
We discovered that clients who wanted to recommend us, had a problem with being associated with the word ‘cheap’. They wanted cheap, but not its association to their own business. So we changed it to A4Accountants, and just like that, we were now seen as professional.
I quickly got that site to No 1 in Google searches for local bookkeeping practices by putting up great content based on the fact it was a bookkeeping service and operated in my local area. You can do this too.
The first thing to do is get your site listed on Google for Business. This is fine whether you are working from home or an office. Search for ‘Google my Business’ and follow the instructions to get your business listed.
Next, put up a page with relevant content to not just your bookkeeping practice, but also your local town. Include images of local landmarks. This builds trust (even if you are a national service).
Then schedule in a series of pages, each devoted to the different areas your business covers (both geographically as well as from a services offered perspective).
If you offer accountancy services as well as bookkeeping services, make sure you mention that. And make sure that you use those keywords enough times to ensure Google and other search engines understand what you do. But VERY IMPORTANT, don’t overuse those keywords. 2% is a safe maximum (that is, 2 in every hundred words can include those keywords).
What matters more than anything else, is the length of the articles you include. The longer the article, the more opportunities you have to influence search engines that the article is important to your industry.
Make sure you include HTML meta tags for the page title and description. This is what Google and other search engines are most likely to use when displaying your page in the search results – and of course, they are the first thing potential clients will read – so they matter more than anything else.
There is more to ‘paperwork’ than you may think! But the most obvious paperwork is (of course!) Receipts.
That’s what we’re look at next in our definitive guide to bookkeeping. Read on.
Your Inland Revenue service (no matter where you live) demand one thing more than anything else – proof of expenses and purchases.
Since that affects bookkeepers of every kind as well as their clients (and every business in the world come to that), it makes sense to start here.
After this mini-section, we’re going to take a look at the legal side of paperwork, but let’s get back to what matters most – receipts.
For a receipt to be of value it must include the following:
Talk to any bookkeeper or accountant about missing receipts, and the most common expression you will find is ‘read them the riot act’. Which means when a client wants the professional bookkeeper to enter a receipt to claim against tax, and supplies no evidence for the purchase, it’s time to read them ‘the riot act’ so they understand that the risk is not just to them, but also to the professional.
So the golden rule in accounting is KEEP ALL RECEIPTS.
The good news though (in many countries) is that your paperwork can be kept electronically. Hard copies (ie. paper copies) are no longer needed in many jurisdictions provided a legible electronic copy exists (check with your Inland Revenue service for the law in your own country).
Some countries, such as the UK, operate this policy, but still have exceptions, one of which is the legal requirement to keep paper copies of tax related charges from HMRC (the UK’s Inland Revenue service quaintly known as Her Majesties Revenue and Customs).
And most cloud accounting software now available lets you upload electronic copies of your paperwork and attach them to the actual transactions in the bookkeeping system.
This is an excellent way to keep all your accounts in one place (make sure you keep backups though – without physical paper, you are far more vulnerable to loss).
Invoices issued out are of course where receipts originate from, and most of the same rules above apply here too.
Inland Revenue services need to see copies of invoices just as much as they need to see receipts (ie. where those invoices ultimately end up). This completes the invoice cycle, so under investigation, an auditing company or inland revenue service will be able to track the complete cycle by matching invoice to receipt.
Interestingly though, revenue services are far more interested in receipts, since these are prime documents that reduce tax. It’s helpful to remind ourselves that a receipt and an invoice are the exact same thing (the only difference being that an invoice may be unpaid, whereas a receipt is always paid).
Every professional bookkeeper (or accountant) needs certain documents in place – and for many reason including legal ones.
Here’s a list of the most important:
There are plenty more documents you might want to use in your bookkeeping or accountancy business including employer’s liability insurance if you have staff or deal with members of the public face to face, but the above 3 are essential.
Without clients for your bookkeeping business, you don’t have a business. So let’s take a look at some proven ways of doing this most important of all marketing tasks.
The fastest way to get clients is to contact every accountancy practice in your area and let them know about your bookkeeping service.
If there’s one thing accountants are not keen on, it’s doing the every day tasks of tracking down receipts, tying them up with transactions, and entering those transactions into whatever bookkeeping system the client has chosen.
Accountants are far more fond of figuring out how best to save tax or make the business look great to investors. That’s what they’re trained to do, and that’s what earn them large fees.
So if you can take away some of the burden of bookkeeping, they will thank you for it.
The only downside is the fees you will be able to charge them. But, you don’t necessarily have to be the cheapest in town, provided you can show them these three attributes:
The most important thing to an accountant is your accuracy. A badly prepared set of books will cost them in potential litigation (and you your job), so accuracy and detail is imperative.
If you can also prove you work fast – because you know what you’re doing, then you’re most definitely worth paying more for.
And finally, getting qualified is simply due diligence as far as the accountant is concerned. Even if you’ve been a bookkeeper for years and know what you’re doing, but have never bothered getting the certificates that prove it, definitely go after them now. Especially if you’re going to contact accountants as your first port of call.
The second easiest way to get clients is to do a flyer drop. This will take considerably longer. This is because at any one time, there will only ever be a handful of people in your neighborhood who need a bookkeeper – and when I say neighborhood, I mean at least 10,000 houses.
Look for houses that show the owners are not the poorest in town. So pick the more well off looking streets and if you’re going to deliver the flyers yourself, here’s what to look out for:
The third way is actually the best of all, but it’s also the toughest, so few do it. It’s using the telephone (yep, we all hate it). But it works. Here’s what we do:
The fourth way is join your local business networking groups, but I can tell you from experience, this can take a very long time to work. People have to get to know, like and trust you before they will recommend you.
But once you get a client or two from a group, those recommendations will come thick and fast. My own bookkeeping business exploded this way, but it took a year for that to happen.
The fifth way is to offer yourself up as a speaker to local business groups. This is also a supreme way of getting your message spread. Remember that for talks like this you are NEVER selling your service, you are selling yourself as a person who knows what they’re doing and can be trusted.
The sixth (and perhaps most important method of all) is via your website. If you haven’t got one, get one. You can set one up yourself these days for free using WordPress.
But simply putting up the site won’t do anything at all. You need to promote it, and the best way to do that is through Google My Business by adding your site as a business, so Google can start displaying it to anyone searching for a specific business in a particular area.
Don’t be frightened of doing this yourself if you’re not a techie. It’s easy and Google give you complete guidance.
The last method I would recommend here for now is to use local advertising. You MUST have a good budget for this to work.
The ad does not need to be large, just the smallest display ad – or even a simple text ad will do.
But what matters most is continuity. Be prepared to advertise for 6 months. It will take that long for your ad to become familiar to the papers readers.
The more they see your ad, the more they trust you – even though they have no idea who you are.
Pick any one of the above and master it before moving to another. One (or many of them) will work for you. How do I know? Because all of them have worked for me (and when you think about it, there’s not many other ways left that businesses use to get more customers).
You’ve attracted the clients, now how do you sell your service to them?
Every professional telesales consultant I’ve talked to says the same thing: “use a script”. But experience has shown me there is no way to write that script until you have had many conversations with your target audience.
This is why it matters hugely that you pick a specific industry to talk to and not go for ‘everyone’.
If your service can be used by everyone, great, but so can everyone else’s, and that means you won’t stand out.
So pick one specific industry and get to know it as well as you can – and the best way I know of doing that is to actually go and talk with people actively engaged in it.
People are always happy to help those looking for knowledge (and not trying to sell themselves!), so your questions will be welcomed.
And from that you will soon learn what matters most to them.
And from there, it becomes easier to start new conversations with prospects about their real needs.
For A4Accountants, we chose the hairdressing and beauty market to start with. I met someone who ran a beauty and hairdressing boutique at a local network meeting and arranged to have a coffee with her (which is normal practice in network meetings).
I was able to find out not only the problems of running such a business, but also how she dealt with the individual sub-contract/self-employed hairdressers that worked in her shop.
And from there, we were able to start figuring out a marketing plan.
We started by scraping the internet for local firms in that industry. There was a surprisingly large number of them. I knew that just one contact could yield 6 more who all worked in the same place (all would be sole-traders).
Then we sent letters to each contact we got. After a few hundred letters, we realised this was not going to work for this industry (we tried two different forms of letter – long and short).
So we went straight to telesales. This was always a part of the plan, but we’d looked upon telesales as the 2nd step.
It turned out that phoning cold was the absolute best thing to do. At first we had the excuse of the letter we had just sent: “Hello, I’m wondering if you got my letter about our new bookkeeping service? No?, OK, we offer a service that starts at just £xxx for someone in your profession. Would that be of interest?”
After a while, we changed the script slightly, so we didn’t need to mention the letter at all – because now we weren’t sending one.
We got a conversion rate of 10% from cold call to interested to hear more. And from that we converted around 20%.
So for every 100 people we contacted, we got 2 new clients. If we had just sent the letter, it would have been 1/10% (1 in a thousand) – with a massively higher cost overhead.
It could be argued that we didn’t test enough letter combinations out, and I’m sure with enough time and money we could have improved things, but we hit upon a better method quickly, and that’s what we wanted.
Cold calling costs nothing but time if you have a free call plan. And follow up letters to interested parties is then far more cost effective. We followed up the letters with another call (having already got permission to do this after the first call).
You can easily bring in a new client a week if you’re just on your own using this method. So in a year, you will have a very viable practice. And once you hit a certain number of clients, you will find referrals coming in faster, so you can start cutting down on cold calling (unless you want to expand of course).
The next step is meeting (or calling) your prospective client.
It’s all about trust. They must trust you 100% because if they become a client, they are going to need to reveal everything about their financial affairs to you.
Put yourself in their position. How much of your own affairs would you be willing to tell a stranger?
Now let’s put that into perspective. By the time it comes to a conversation like this, they will already know what you do – and what they want. So the ice is broken to some extent.
But, you will still need to probe deeply into their financial affairs – as well as their business affairs, so put yourself in that position, and think about what sort of questions you would be willing to ask if the roles were reversed.
Of course, you are very different from your clients (as is everyone – we’re all different really), so you need to think about how empathetic you are. How easy is it for you to see another person’s point of view?
When you’re watching a film, do you often side with the hero (or villain)? Or are you largely agnostic to the feelings generated by the script?
If you’re a very empathetic person, you will find aligning with people easy, and winning trust is simple for you.
If you’re not, then that’s fine too. You must just ensure you keep your own values to yourself or you run the risk of alienating your prospect before you have even found out what they want.
And finding out what they want is your top priority. This is VERY different from what they need.
You can weave in their needs to their wants once you know what it is they are after.
And that leads us to the most important point of all about selling.
It’s all about the future.
Everything that drives humans forward is about the future. Hope is what we have to keep up motivated.
Think about those two points carefully. Future and Hope.
We will also do things because of the consequences that would happen if we don’t – but either way, it’s about the future. Is it painful or pleasurable?
This is what wants are all about.
To discover someone’s wants, you need to start with asking where they are right now in life.
Do they hate bookkeeping. Do they hate submitting year ends accounts. Are they ignoring the things they must do, and if so, why?
Once you’ve defined their current position – using their own words – which means you must listen carefully to what they have to say, then you’re ready to help them reveal their future.
Speaking of which, we’ll get to that in the next episode, which you can find here:
The bookkeeper has a responsible position in society. She tracks the flow of monies that come into and go out of companies and businesses. The work of a bookkeeper is necessary so that interested parties can understand the financial status of the business at a glance. A bookkeeper is a powerful person and must work to the highest ethical standards. The role of the bookkeeper could also involve working on a company’s tax obligations and so there is often a legal aspect to doing the job. If you work in payroll as part of your bookkeeping role you also have a huge responsibility to organise people’s wages and therefore livelihoods. If you create invoices and organise paying the bills then you will understand that you need to be honest, up-to-date, accurate and quick to spot mistakes and put them right if you are to be an ethical bookkeeper.
Bookkeeping ethics are all about truthfulness, being careful and diligent in all you do, not just in your bookkeeping. A bookkeeper has a trusted and respected role. There are bodies such as the International Association of Bookkeepers (IAB) and the Institute of Certified Bookkeepers (ICB) which state what behaviours are appropriate for bookkeepers. These behaviours are listed below along with generally recognised appropriate actions that bookkeepers will need to take in order to uphold the good name of the profession.
When you are a bookkeeper you will need to conduct yourself according to the rules and ethos of the professional body to which you belong or the company which employs you.
Bookkeepers should at all times only engage in activities which will not bring themselves or their peers or employers etc, into disrepute. For instance committing any criminal offence (maybe apart from some road traffic offences) would usually be enough to get the member struck off the official list of practitioners. It may tarnish the good name or reputation of the institution or the company the bookkeeper works for and is considered very serious. So being a good bookkeeper means behaving appropriately in your private as well as your professional life.
Bookkeepers should only ever be honest and scrupulous in their dealings. For instance members of the IAB and ICB are not allowed to engage in dishonest activities even if they’re unaware, which means due diligence in taking on clients is of the utmost importance (especially important with internationally recognised anti money laundering legislation). Also members of any professional organisation must always adhere to their strictly professional standards and are not permitted to ‘cover up’ any illegal or corrupt procedures, even if this would mean upsetting the business relationship with a client.
As an ethical bookkeeper you would never take on any work that you know you could not complete for whatever reason (e.g. if you might run out of time and be unable to finish the job). An ethical bookkeeper only takes on tasks that they can do and are qualified to do. As a bookkeeper you have a duty to protect the client’s information (save in a criminal case where you might be required to pass on details). The ethical bookkeeper has a duty of care over the files and documents they are checking, creating and logging. Files, documents and receipts/paper trails of the employer or client must be securely held at all times. Digital files should be encrypted as should digital copies of those files. Physical data should be stored in locked areas and access strictly controlled to safeguard all parties from theft or the disclosure of sensitive company data. The role of the bookkeeper goes far beyond the mathematical aspects of data creation.
Bookkeepers should only ever keep accounts that accurately reflect the reality of the business they are keeping the records for. They are in a trusted position and need to be clear and concise about the trading activities of the company. A bookkeeper will at all times need to be polite and courteous and any advice or information imparted to clients should be right and also easy to understand.
The ethical code of the bookkeeper also ensures that he or she would always disclose if they had an interest in the work they were employed to do. In this way they protect themselves and their company from potential charges of not working in clients’ best interests.
If you are a member of a professional body as part of your bookkeeping practice your subscriptions should be up to date and any CPD required should be recorded and logged for future reference. Insurances should be promptly paid and in line with your work activities. You would also need to update your employer or professional institution with any changes in your situation such as a house move.
A bookkeeper should follow company procedures. He should be loyal, keeping financial matters confidential. He should make sure the accounts are in a safe pair of hands. If in doubt he should check with his manager. A bookkeeper has a responsibility to report if he is asked to do something he doesn’t think is ethical. He could speak to his manager or someone in the company who deals with such complaints.
In answer to the question ‘what are bookkeeping ethics’ we have covered personal responsibility as well as having a regard for the business which we are employed by. If you work for yourself and are your own bookkeeper you need to be just as rigorous as if you were working in a large company. The basic rules are straightforward. Report accurately what your business is doing. Liaise with the relevant departments or legal entities if you need further support or information and if you make a mistake rectify it transparently and as quickly as you can. The ethical bookkeeper will store sensitive information securely and only pass on data to relevant third parties as and when and according to the local legal system. A bookkeeper has a duty to do the right thing and take steps to put things right when something goes wrong (which does happen). The bottom line is that the bookkeeper is honest and accurate. Everything else will follow from working to this basic ethos.
The tasks a bookkeeper needs to do may be highly specific or they may be extremely varied. A bookkeeper’s day-to-day tasks will depend on if he is working for a tiny start up or a major global company. For instance at the very basic level the bookkeeper will need to log all incoming and outgoing transactions (together with the ‘evidence’ – the paper trail of receipts, invoices and other material). She may also need to create the system itself if the company is just starting out and/or prepare VAT returns or sales tax information. In such a business, the bookkeeper will most likely be required to do a wide range of differing tasks. However if the role of the bookkeeper is to work with a large number of peers in a huge company he may be needed to focus on one specific area and become an expert in that. In a nutshell the role of the bookkeeper is to organise and produce information essential to the financially healthy running of the business.
The tasks of the bookkeeper include things which are done daily, monthly as well as quarterly and annually. Daily tasks involve checking the petty cash, logging and preparing invoices (plus storing these in a paper or a digital and secure filing system), paying bills and raising purchase orders as well as updating the payroll information. The data should be recorded using either computing software (such as Accountz.com, MYOB or QuickBooks) or some other format. Some companies use spreadsheets to log the data. In a few cases the information is recorded in journals – literally written down in specially ruled books. However you do the books you need to be accurate and diligent in keeping up with the daily tasks. Some bookkeepers use a checklist so that at each day, month, quarter and year end they have fulfilled their requirements.
Depending on the company requirements monthly duties could involve an analysis of the month’s overall profit and loss standing as well as double checking the figures ready for the quarterly tasks which may involve the quarterly sales tax payments or income payments. At least once a month the bookkeeper would need to oversee the invoices – are they all paid? Do reminders need to go out?
At the year end the task of the bookkeeper will be to complete the year’s trading figures ready to send on to the accountant for her information. The bookkeeper may also need to conduct stock reviews especially at the year end in order to account for the expenditure of the company and so that the value of goods that remains within the business can be verified. The bookkeeper would also need to monitor and log fixed assets and work out the cost of goods sold at the year end so that money is allocated to expenses according to the reality of the business and expenditure is spread realistically over the life of the company.
The tasks of the bookkeeper are vital in that he will be the one who logs exactly what’s happening with the cash flow, any trends in the sales or the losses and the exact status of the bank account (crucial as if the business owner is not wholly aware of what is happening there then the company can run into trouble overnight). Any bookkeeper tasked with maintaining up to date cash flow records will need access to the company bank and or credit card accounts in order to carry out bank reconciliations. This involves marking off what incomings and outgoings are logged with the bank or credit card. Typically bank account statements lag behind real time. This is where the good bookkeeper comes into her own; she will know exactly what cash is available and when.
One very important task of the bookkeeper is to keep a track of unpaid bills and invoices. For instance without the bookkeeper keeping a true account of the monies flowing into and out of the business it’s all too easy to spend cash that’s not there. If someone has been late paying their invoice the bookkeeper may be tasked with contacting the person to find out how the money will be paid. In future the bookkeeper may be asked to work out with the customer a payment plan to avoid late payments being made in the future.
Bookkeepers also work on paying the bills. These should be paid on time and double checked that you are not over or underpaying the amount. In this way the bookkeeper safeguards the good name and the good will of the company which can make the difference between surviving or sinking in difficult trading times.
At all times the bookkeeper is tasked with being accurate and honest. He or she will need to check the figures and report precisely what is going on in the company. They would need to let management know about any irregularities. Without a clear and comprehensible picture of the business trade and how it is progressing it will not be obvious if the company is making a profit. Without a profit the business will not be viable. The bookkeeper in many ways is the heart of the business and should be respected and supported for the work that they do.
The bookkeeper also needs to be able to hand over good, clear records of the life of the business to the accountant as and when so that they can work on the financial statements for the business. It may be that external auditors double check the ongoings within the company. The bookkeeper may also be tasked with creating the paperwork for them.
In conclusion the tasks of the bookkeeper will vary depending on the nature of the business and the level of expertise of the bookkeeper. In all cases the bookkeeper will need to have the same qualities of attention to detail, ability to deal with complexity and to be thorough and discrete with sensitive data.
Bookkeeping is the process of recording daily transactions of a business and is a key component to building a financially successful business. Bookkeeping is normally completed by bookkeepers. Some tasks regularly undertaken by a bookkeeper can be:
Accounting software such as Sage, Xero, QuickBooks, Accountz etc. are used for recording financial transactions. Complexity of a bookkeeping system depends on the size of a business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by a business need to be recorded in the ledger.
Accounting is the process of analysing and interpreting of financial information compiled by a bookkeeper or business owner, and produces financial reports and statements which represent the financial performance of a business. These reports help business owners and directors to make informed business decisions.
The process of accounting is more subjective than bookkeeping, which is largely transactional. An accountant will be in a position, through analysis of past performance, to offer financial projections and advice on future financial elements of your business.
Using the information entered by the bookkeeper into the ledgers, accounting reveals the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.
You need basic accounting knowledge to be able to practice bookkeeping or accounting. In smaller companies, bookkeepers get more involved with the accounting process as well as recording financial transactions. They can generate financial reports using template reports from accounting software. Sometimes, an accountant records the financial transactions for a company, handling the bookkeeping portion of the accounting process.
To work as a bookkeeper you will need to study a few accounting courses and develop a basic understanding of accounting. To work in accounting, you must study for a higher level of expertise. Accountants are qualified to handle the entire accounting process, while bookkeepers are qualified to handle recording financial transactions. Bookkeepers record and classify financial data, the accountants analyse the financial data.
Bookkeepers are less expensive than accountants which make them a great choice for a company that needs day-to-day expertise. Pricing depends on geographic location and industry, as well as experience.
Many bookkeepers work as freelancers for small businesses in need of financial record keeping.
Many bookkeepers start as data-entry clerk for a business and grow, through experience and merit, into being a go-to person for the day-to-day financial recording. As they develop their skills through experience and studying, some bookkeepers move on to become accountants.
Both bookkeepers and accountants can study with a professional organisation such as IAB (International Association of Bookkeepers), ICB (Institute of Certified Bookkeepers) or AAT (Association of Accounting Technicians).
As a business owner how will you know if you need a bookkeeper or an accountant to help with the financial side of your business? The size of your business, the industry your company is in, how many employees do they have, are a few factors that can determine if you need a bookkeeper or an accountant.
The more complex the organisation, the more important it is to make sure that the company’s bookkeeper is also supported by an accountant who can provide advice as and if needed. It’s a great partnership that keeps communication open and data strong.
Is advisable to ask for client references and proof of insurance, which is available to both bookkeepers and accountants. To make you hire a qualified bookkeeper or accountant ask for references and call them. Also if certified, call the association or organisation through which the professional is certified.
At which stage in your business should you hire a bookkeeper or accountant? Advisable as soon as you start your business. However, many business owners however will try to sort out the information themselves and then have a bumpy ride when it comes time to transition.
If hiring a bookkeeper when starting up is not an option, consult with a bookkeeper or accountant when the business is started and then perhaps touch base periodically, such as once a month or quarter.
Ask for a quote or hourly fees, and fit in some sort of periodic meeting into your budget. Errors tend to continue until caught at year end or the next time a professional sees the books. Books set up accurate at the start of a business can be a strong tool for measurement and growth.
The simple answer to the question ‘Are bookkeeping businesses profitable?’ is ‘Yes.’ The most important thing when setting up your new bookkeeping business is to be clear about the process; be accurate and knowledgeable about the numbers you are handling and work on the detail. That will ensure that you know exactly what is going on in the business not only your own but your clients’ businesses. Make sure you charge enough for your services to afford yourself the lifestyle you want and include fees to help you achieve the profit margin you need to thrive now as well as save for a rainy day!
You need o keep written or computerised documents on the business (especially your own) which means noting all the incomings, outgoings and the cash flow of the company. This information will lead you to the all-important profit margin. Organise your business so that it runs smoothly and you have clear steps in place. This should in turn help you to step back from the business and get an overview on how it is progressing. By doing this you should be able to see how it can grow.
It’s important to train to become a bookkeeper. At the present time you do not need any formal qualifications to become a bookkeeper but training is necessary to help you understand the jargon at the very least. You might even begin by working with another bookkeeper in a small business or sometimes you can get free training with local government or you can look into courses within an educational establishment. Nowadays you can also learn much of your trade through watching online courses.
If the business that you are keeping the accounts for is simple with few transactions you may find that you can manage with a written ledger e.g. written records of all the incomings and outgoings. However a computerised system is usually used these days and there are free trials of all the major brands of software available to help you to work out which one might suit you and your needs as a bookkeeper. Spreadsheets are commonly used in bookkeeping as well. However you run your business you will need to organise not just the accounts but your time. You need to make the most return out of your investment (ROI). Profitability depends on this. The most efficient system is the most cost-effective.
Working from home also increases your profitability. You will not need expensive premises to conduct your bookkeeping trade in the early days. Some expenses are also tax-deductible which helps with the profit margin. You may be able to deduct expenses for part of your home if you are using it to do your business in.
Bookkeeping businesses will always be in demand since everyone needs to keep accounts of their commercial transactions and inform HMRC/the IRS about their profits or losses. Many small business owners find that they would prefer to spend their time working on their businesses rather than working out the maths/details and so they end up outsourcing the bookkeeping which is why bookkeeping can be so profitable for you. However you will also need to be scrupulously honest and ensure the accuracy of your work. This demands concentration and you will need to work hard at being the best bookkeeper around but if you enjoy the tasks that bookkeeping presents to you then you really can’t go wrong.
How can you let people know that you are available to help them with the bookkeeping? Marketing. This aspect is an overlooked and key aspect to being a business owner in any trade who wants to make a profit. Marketing your company is essential. Use leafleting, posters and email to contact potential customers. Walk door to door to get yourself started if you want to! It’s free and might just help you to find your first client. After all how can you even get started on your business if no-one knows that you exist? Write a simple plan and follow it through. This plan might be as basic as ‘contact one new person per day’. But create a ‘map’ of how you will let people know that you are out there. Then follow it.
Always be looking for allies. You will be hopefully so successful that you will have too much work. Along your bookkeeping journey keep in mind that you hopefully will soon need to get help with the business in order to grow it to increase your profitability. It might be that you have help where you live (partner, husband or wife) or you have friends that could be called on. Your aim in the long run will be to have a business that almost runs itself. You will be so organised that you almost don’t need to be there. If you can get this right this will free you up to even have a holiday and also to keep your sights on the bigger picture and run the business rather than become the business itself.
In a nutshell if you enjoy organising paperwork, are prepared to keep good, clear records of all the business’s transactions and you love numbers then becoming a bookkeeper could be not only profitable but enjoyable. Organise your plan to let other know that you are available to do their bookkeeping. Work from home to help save money on premises costs. Keep your eye on potential work colleagues for when you grow you need that team behind you. Work at it slowly at first taking on one client at a time and do the necessary training and soon you will find you have more and more clients and the pennies should roll in very nicely!
The simplest way to become a bookkeeper is to pass a basic bookkeeping certification, such as the Accounting for Everything online course available on this site, or to step up to the highest level through the International Association of Bookkeepers (IAB).
Whatever you choose to do, get some basic bookkeeping tuition first before you start the bookkeeper’s journey.
Another way to do that is to buy a self-study book. Once again, the IAB is excellent for this. They offer text books to buy online for all three levels you will need to become a registered bookkeeper.
The alternative to all the above is to apply as an accounts junior or apprentice in a firm who are willing to help you train. And if you do choose to go down that path, then having a basic knowledge of the following topics will help you pass the interview with ease:
You don’t need to know all these accounting terms and processes inside out (that can take years of training), but an overall knowledge of what they mean will certainly help.
You can use the Accounting Glossary here on the Accounting for Everyone website to get up to speed with that (click any of the terms above to discover what they mean – you will need to scroll around though as the links only take you to the sections in which the accounting terms appear – a new tab will open for each term so you don’t lose your place here).
Another great resource is our FREE Definitive Guide To Bookkeeping, also on this site. This will give you a deeper look into most aspects of becoming a bookkeeping, especially if you are thinking of opening your own bookkeeping business.
After you have taken your basic training, the next thing is to decide if you want to become a bookkeeper as a career, or if you want to become a self-employed bookkeeper in business.
Taking up bookkeeping as a career will always be a smart move as this is the one thing ALL businesses require.
Smaller businesses usually attempt to do it themselves, and almost always come unstuck because the legislation (no matter which country you are in) is rarely simple. As a result, very few business owners know how to keep their accounting books properly.
Which means, if your decision is to start a bookkeeping practice, then you’re also in a large market due to the sheer number of businesses already established, but also an ever increasing number of new businesses that are appearing in every industry and walk of life.
If you’ve been reading along this far, you will know the steps:
a) Get a solid understanding of double-entry bookkeeping skills
b) Make a decision on bookkeeping as a career or as a business
Next up, you need to consider your country’s legislation regarding how you can legally operate as a bookkeeper.
If your choice was bookkeeping as a career, this should be taken care of by the firm who employs you, since they must also operate legally and ultimately, it’s the owners of the firm who are responsible for their books and accounting statements.
But if your choice was to set up in business, then things do get more complicated. There are far too many countries around the world for me to keep track of for the purposes of this guide on how to become a bookkeeper, but generally there are two types:
In the UK, it is the latter. You do not need to prove anything at all about your knowledge of bookkeeping. BUT, you will need to register with the UK’s tax office, called HMRC if you want to practice as a commercial bookkeeper. And there is a cost to that.
This is why I also recommend joining a professional bookkeeping organisation such as the IAB, who will cover you. Note also, that in most countries you will also need insurance to operate.
This can be on many different levels including:
Following this, the key to becoming a proficient bookkeeper is simply practice. As much of it as you can get.
Which is why becoming an accounts clerk is always the best way to start. You will usually get free training as well as a paid job, and you will get to work on a large number of different client accounts.
On top of that, your CV will start to shine over the years, thus giving you greater chances of promotion, as well as the opportunity to go into business yourself.
I wish you very good luck in your new career and hope it serves you well.
Quentin Pain FIAB FIoEE
This is a simple infographic from the International Association of Bookkeepers (IAB) explaining the benefits of becoming a bookkeeper.
Being a bookkeeper could be to learn the trade and gain employment in the industry, or to more fully and perhaps do the books for your business if you own one, or to set up your own bookkeeping business.
Whatever the reason you want to become a bookkeeper, the “Top Reasons to be a Bookkeeper” infographic below will give you plenty of ideas and insights into the profession, especially if you are new to the bookkeeping and accounting industry.
The IAB helps people gain professional qualifications in all aspects of bookkeeping including payroll and has branches in 60 countries around the world as well as distance learning opportunities and home study bookkeeping courses.
One of the most common accounting areas people want to know about is Accounting Ratios.
With just a little math you can quickly discover a lot about a business.
All you need is some basic statistics and figures such as turnover, sales and expenses tracked over time and you can figure out pretty much anything.
We have set up an Accounting Ratio page over here:
Also, another massive area of interest is our Accounting Glossary, which unusually is actually written so people can understand the terms. How good is that!
You can find that over here:
Finally, you may want to learn all about Double-Entry bookkeeping and how to understand Debits from Credits.
That is covered in great detail in the Accounting for Everyone Fast Track Online Course. Here’s how to find out more:Accounting for Everyone Certified Course
If you are new to bookkeeping and accounting then you should optin to the Accounting for Everyone 12 week online course.
Put together by Quentin Pain in 1998 the course has been available for many years and has recently been updated, although the principles of double-entry have not changed in 600 years.
But what has changed is the way you can think about the logic behind double-entry.
And that is what makes Accounting for Everyone so unique in the world of accounting and bookkeeping courses.
Here’s some fundamentals you will want to remember if you ever get stuck either in day to day bookkeeping or if you find yourself taking an accounting exam.
Next time you try to figure out which is the credit and which the debit apply the From/To principle and you will get it.
For example, entering an expense of 100 for travel paid for in cash.
And let’s look at the other side. Recording a sale of 500 paid into the bank.
The course has many brilliant snippets like this, so choose an option below and get started.More Info
Depreciation is really important yet few bother to do it. Why? because it seems so hard to do.
But the reality is that it is really very simple.
But first we need to look at what it is, and why we need to do it.
Everything you buy to use for your business is an asset. However, over time your assets generally lose value. A computer becomes obsolete, your vehicle’s mileage gets higher and higher and requires more and more spare parts. Something that you bought today, may be cheaper to buy a year from now.
There are many reasons of course. So why do we need to record the change in value to our assets? It is because we must always reflect a true picture of our business.
We may need to do that in order to get a loan, or to show our investors the value of the business as it stands today, or to value the business properly if we are going to sell it.
There is one more important thing about depreciation. It is a book value item. That is, it has NOTHING whatsoever to do with tax and limiting your liability for it. This is a common misconception.
Inland Revenue services around the world deal with asset depreciation and claiming that depreciation against tax in different ways, but the most common is by giving business owners an allowance.
When you record depreciation, you are doing so only in your books. Never ever think of depreciation as some form of allowance or tax mitigating transaction. You are simply recording what you (or some valuer) really believes the loss (or gain) in value of an asset really is.
This is a good thing. You want your books to reflect reality. In fact you are legally obliged to do so. Before we get into the transactions, here’s one last reason why you must see depreciation and allowances as different things.
In many countries, if a business makes a loss, they can put off an allowance and carry it forward to a future year. So you can get the case where a business has bought, say, a computer for 500 and values it at the end of the year at 300 (if you bought a brand new computer today, how much could you sell it for tomorrow?).
The depreciation on that computer is 40% and that is what you must record in your books (don’t worry the actual transactions are coming shortly). However, your Inland Revenue (IR) service may only let your claim a 25% allowance, so you can see that the balances will already be skewed. But that is how it should be.
A worse case is where you make a loss and decide not to claim that year. In your books the computer will be worth 300 but your IR service will still have it valued at 500. The following year you will depreciate it down to, say, 200 and because you make a profit you will want to claim your 25% allowance of… 500! which is 125.
So now your book value is 200 and the IR have it as 375. The bottom line is, unless you are a tax specialist or you are submitting your own tax returns, you need not be concerned with the IR valuation. You are only concerned with recording a true and fair picture of the value of your business.
Your chart of accounts should be set up with a group called ‘Fixed Assets’. This is where you add accounts to hold the balance of assets you have bought. Each asset account should have a depreciation account associated with it. This will hold the accumulated depreciation of assets over the years (it is often called ‘Accumulated Depreciation’ for this reason).
To see the value of your assets, subtract the accumulated depreciation from the asset balance.
The reason for keeping both balances is so that you can see at a glance what your assets originally cost you (in case you need to replace them so you get a better idea of the investment needed).
There is one thing missing from this though. Where do we record the other side of the Accumulated Depreciation amount?
The answer is in the Profit and Loss account. You can set up a new group in there specially for it. Let’s call the account This Year’s Depreciation (or even P&L Depreciation to make it clear where it is going).
So make a journal Debiting This Year’s Depreciation and Crediting Accumulated Depreciation.
That’s it. That’s all there is to it.
Using the technique taught in the Accounting for Everyone course, you are simple transferring an amount From Accumulated Depreciation To P&L Depreciation.
If you want to try this out, download the trial of Business Accountz available on Accountz.com and give it a go. Use the Green books (‘transfers’) to do this or use the traditional journal. Remember you can flip between From/To and Credit/Debit in the menu option Tools > Language (choose English – Accountant for the latter).
And if you haven’t done so already, sign up below to start the Accounting for Everyone Online Certified Bookkeeping Course. We go into depreciation in greater detail on the course, including standard ways to depreciate such as straight line depreciation and reducing balance.[ez_box title=”Start The Certified Accounting for Everyone Online Bookkeeping Course Today” color=”orange”]Instant access to the whole course plus online certification plus 150 page downloadable workbook with answers [ez_btn color=”grey” url=”https://legendary.simplero.com/page/3887-accounting-for-everyone-fast-track” target=”_self”]£29.99[/ez_btn][/ez_box]
I have been passionate about accounting ever since I started my first business back in 1979 in the UK. It grew quickly and became successful, and I developed a computer program during that time to run the accounts of the business.
So here we are 33 years later and a LOT wiser, plus a few more successful businesses under my belt, but you know, the best thing about it all has been the businesses I have helped. And especially, the people who run those businesses.
2013 is going to be an incredible year for small businesses and those who want to become bookkeepers. So I would just like to wish you all a super journey and a really prosperous year in your ventures.
PS. If you want to learn a little more about marketing your business go and sign up at http://QuentinPain.com
Businesses in the UK can claim fuel or usage as an expense when using a private vehicle for business. There are three choices:
1. Record every business trip and reclaim the mileage allowance. You can also claim back a small amount of VAT from the business mileage. Make sure you have receipts (although HMRC accept that just about all fuel companies are VAT registered!). The amount of VAT you can reclaim varies depending on engine size. VAT 700/64. Here are the published fuel prices: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
2. Claim back all the VAT and pay the scale charge. This is the most common method since it requires no mileage records to be kept, just a fixed amount to pay each quarter. If hardly any business miles are done, then method 1 may be more beneficial. Add up the total VAT and see if it is more than the scale charge.
3. Keep detailed records of all trips (date, from, to mileage, reason for trip) and figure out the business percentage. Only enter that percentage of fuel receipts and claim back only the same percentage of VAT.
Money laundering is a very recent change in statutory law around the world (although it has been going on since time immemorial) brought on by terrorist events over the last decade or so.
In many countries including the UK you are required to record and keep proof of clients if you are a bookkeeper or accountant for money laundering purposes. This serves two purposes:
Due dilligence means you have taken the trouble to look at your client more closely by asking them to prove who they are. Client Identity Proof is just the evidence you can supply should something go awry with your client. That is, at some point, your client should become involved with money laundering (ML), terrorism, drug smuggling or any other criminal activity, which is why ML was brought in in the first place.
Many practitioners, and the vast majority of ordinary people see this as a typical example of beaurocracy, and I agree, however it is something you must do with every client you take on board, by law.
You will need photographic proof (driving licence or passport is acceptable) and proof of name and permanent address. The best source for that is a utility bill (gas, electric, water or telephone). Records should be retained for a minimum of five years, but retain them permanently to be safe.
When photocopying documents make sure you do not photocopy parts that are not relevant (eg. travel pages in a passport). In the UK you cannot use colour photocopies, they must be black and white. We are not sure what the requirements are for the USA, but I suspect they are similar.
Finally remember that you must register with your Inland Revenue service (HMRC in the UK, where there is also a fee to pay). HMRC have a useful section on Money Laundering on their website.
Have you read our guide to running a bookkeeping business, money laundering is just another aspect you need to know about? Bookkeeping Business From Home
Bookkeeping is the art of tracking money; where it came from and where it went to. That is all there is to it.
A simple transaction involves 2 accounts. The ‘from’ account and the ‘to’ account. This is what the concept of double-entry means. Trained bookkeepers and accountants use the term ‘credit’ and ‘debit’ to do this. A transaction credits one account and debits another. Hence a double-entry (it’s not two identical entries, it’s the two sides that make up a transaction).
By transposing ‘from’ with ‘credit’ and ‘to’ with ‘debit’, business people (not trained in accountancy) can get a simple handle on how accounting works. But enough of the theory, let’s look at a few examples.
This article explains some common transactions the self-employed need to make plus some of the differences and common pitfalls experienced in bookkeeping tasks between a limited company and the self-employed.
In a limited company, all workers including the directors are employees. Their pay and salaries are direct expenses of the company. A company, for example, could account for its payroll with just a few transactions. The accounts affected would be the bank (the ‘from’ account, ie. where the money is coming from to pay the wages) and some expense accounts to track how much is going to the employees and how much is going to the Revenue for tax etc. (these are the ‘to’ accounts).
For the self-employed, it is a different story. Their ‘salaries’ are not expenses. As a self-employed person, when you take money from the business, it is usually only as a result of the business making a profit. These transactions are typically called ‘Drawings’. You are ‘withdrawing’ money from the business, hence the name.
So, for the self-employed, you will need a ‘Drawings’ account. This should be set up in the ‘Equity’ section of your chart of accounts. Whenever you take money out of the business, create a transaction From Bank To Drawings. In a traditional double-entry system you would credit the bank and debit drawings (so remember the rule: from=credit and to=debit if you want to make sense of it).
Another common transaction is where you have bought something using personal money or a personal credit card. As your personal credit card or money won’t be included in the books, the simplest way is to treat it as cash, as follows:
Create a cash account in your ‘Current Assets’ section of your Chart of Accounts. All payments will be From Cash To [some expense account]. When you decide to pay yourself back from the business make another transaction, but in reverse: From Bank To Cash.
A better way, from an auditing perspective would be to set up a ‘Loan’ account in Current Liabilities. This is important if you need to track cash separately. The transactions are exactly the same as described except you will use Loans instead of Cash.
Finally, opening balances. For a limited company, the opening balances will involve the shares bought by the shareholders. A typical transaction for this would be From Shareholders To Bank.
For the self-employed, you would have an account called ‘Capital’ and make a transaction From Capital To Bank.
All the above and more is explained step by step with tasks and answers in the Accounting for Everyone online certified bookkeeping course. Click below to find out more.Join The Accounting for Everyone Online Course
There are many ways of keeping your accounts (including a shoe-box!), but the preferred method, used by every trained book-keeper and accountant throughout the world, is double-entry.
Many books and courses are already available. However, most are taught from an academic view point. They tend to throw you in at the deep end and assume you will not be overcome by the tidal wave of jargon.
The Accounting for Everyone Certified Online Bookkeeping Course takes an entirely different approach. By using just a few transactions and some simple guidelines you will understand the logic of double-entry, and by the use of a few key words the jargon will fall into place.
Words like nominal, general ledger and trial balance will become second nature. You will have no problem with your debits and credits. In short, you will be able to post a journal just as easily as you can now post a letter!
By the end, you will be able to talk, and understand, the same language as the professionals – and that includes your bank manager, accountant and tax inspector.Find Out More…