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Accounting Records

What are the Accounting Records: Documents and Types

Introduction

For a small business owner, understanding the concept of accounting records is crucial. You might be wondering, “What are accounting records, and how do I maintain them?” This article aims to dissect the various accounting records essential for businesses, providing insights into the recommended duration for retaining them and the consequential reports they generate. At the core of all accounting procedures are the accounting source documents, serving as the foundational elements from which the entire accounting process originates.

What are the Accounting Records Documents

Income

Accounting records encompass a range of documents integral to comprehending a business’s financial landscape. The nature of these records is contingent on the type of business, particularly concerning income. Income-related documents may include Sales Invoices, Till Receipts, Cash Receipts, and reports from online retail platforms like Amazon, PayPal, or eBay. Retail establishments and hospitality businesses commonly utilise electronic point of sale systems (EPOS) and till receipts, often integrated seamlessly with accounting software for streamlined financial management. Eposnow emerges as a favoured solution within these sectors.

Sales invoices play a pivotal role in businesses engaging with clients. Serving as legal documentation for product or service transactions, these invoices meticulously detail sale descriptions and pricing. Compliance requirements for creating these records are stipulated, and our sales invoice section provides additional information and templates for reference.

In the contemporary landscape, an increasing number of businesses venture into online platforms such as Amazon, eBay, and various internet marketplaces. Each platform typically comes equipped with its reporting system, some of which seamlessly integrates with accounting software. For instance, an internet store employing WooCommerce on WordPress sites may find integration with XERO as a popular choice.

For businesses participating in fairs or stalls, the issuance of cash receipts to customers is a common practice. These receipts, often presented in duplicate books or printed forms, serve as tangible proof of the transaction. To facilitate this process, we have designed a user-friendly cash receipt template in Word, catering to the needs of businesses engaged in direct sales at events.

Expenditure

In managing expenditures, businesses navigate various channels of financial outlay, with key methods highlighted below:

  • Purchase Invoices: When procuring goods or services from suppliers, businesses commonly receive purchase invoices. This serves as the principal method for recording expenditure and capturing essential details of the transaction.
  • Direct Debits and Standing Orders: Transactions such as direct debits and standing orders are reflected in bank statements, often accompanied by bills from the respective suppliers. These transactions encompass a spectrum, ranging from loan repayments and utility bills to finance charges, insurance premiums, and monthly subscriptions.
  • Petty Cash: Small cash expenses are managed through a system known as petty cash. Our comprehensive section on running a petty cash system includes a free petty cash log template, aiding businesses in maintaining transparency and control over minor cash outflows.
  • PayPal: With the shift towards online transactions, businesses increasingly rely on platforms like PayPal. The system provides additional reporting features, facilitating the comprehensive recording of transactions within the business accounting framework.
  • Bank Statements: The traditional bank statement assumes significance, especially when certain transactions lack accompanying paper records. In such instances, the bank statement serves as the primary document, offering a consolidated overview of financial activities.
  • Payroll Reports: A crucial component of business expenditure involves payroll. Payroll reports capture details of employee compensation, ensuring accurate financial records and compliance with employment regulations. This element adds a layer of complexity to expenditure management, necessitating dedicated reporting and record-keeping practices.

The Storage of Accounting Records

The storage of accounting records, mandated by HMRC for a duration of six years, prompts consideration of various options to ensure compliance. Here are the available alternatives:

  • Paper-based: The traditional approach involves maintaining original documents in physical form, organised within files or folders. For optimal organisation, separate files for customers and suppliers are recommended. Sales invoices are typically filed according to invoice numbers, while supplier invoices are categorised by the supplier and date. However, a notable drawback of this method lies in the requirement for significant storage space.
  • Accounting Software: Leading accounting software packages offer a built-in feature for document storage. Documents can be added to the software through email or integration packages like DEXT or Auto Entry. It’s important to note that reliance on this system may pose a risk of losing access to documents in the event of package cancellation or a switch to a different accounting software.
  • Cloud Storage: A contemporary and space-efficient option is cloud storage. Various platforms, such as OneDrive, Google, and Dropbox, offer cloud storage solutions. Some cloud storage options may be included for free with subscriptions to services like Google or Microsoft, providing an additional incentive for businesses seeking to reduce reliance on paper records.

Before undertaking the disposal of any records, it is prudent to verify that they have surpassed the required retention period. This precaution ensures compliance with HMRC regulations and prevents premature destruction of documents.

Common Accounting Records – Journals

In the realm of accounting records, journals play a pivotal role in documenting every transaction within an accounting package. The predominant accounting practice is the double-entry system, where each transaction is meticulously recorded with equal amounts to balance the debits and credits. For instance, issuing a sales invoice to a customer not only records the sale in the profit and loss account but also posts it to the debtors, ensuring a comprehensive representation of the transaction.

In scenarios requiring adjustments to the accounts, the creation of a manual journal becomes essential. Manual journals come into play for various purposes, such as addressing prepayments, managing accruals, writing off debts, or effecting any other necessary adjustments. This manual intervention ensures the accuracy and completeness of the financial records, allowing for the incorporation of nuanced details that may not be seamlessly captured through automated processes.

The Usage of Accounting Records

The utility of accounting records is integral to the entire financial process. As transactions are meticulously recorded in the accounts, a plethora of reports becomes accessible, catering to various stakeholders such as management, and accountants, and for submission during year-end procedures. Some of the most prevalent reports include:

  • Balance Sheet: Offering a snapshot of the business, the Balance Sheet provides a comprehensive overview of assets, liabilities, and equity. It serves as a crucial tool for assessing the financial health and standing of the business at a specific point in time.
  • Profit and Loss (Income Statement): This report delineates the income and expenditure incurred during a designated period. It plays a pivotal role in evaluating the profitability and financial performance of the business over time.
  • Trial Balance: A consolidated report featuring all accounts from both the Balance Sheet and Profit and Loss, the Trial Balance is particularly beneficial during year-end assessments. It aids accountants in ensuring the accuracy of financial records and detecting any discrepancies that may require attention.
  • Debtors and Creditors: These reports provide insights into the financial relationships of the business by indicating the amounts owed to or by the company. Understanding the debtor and creditor positions is crucial for effective financial management.

While numerous other reports exist, including those tailored to specific industries or needs, the aforementioned reports constitute the core set essential for gauging the financial performance and position of the business.

Who Should Manage Accounting Records

Determining who should be tasked with entering accounting records hinges on various factors, including the business’s structure, available time, and level of expertise. In the context of a small, self-employed business, it’s commonplace for the business owner to take on the responsibility of posting all transactions themselves, leveraging their understanding of the intricacies of their financial affairs.

In contrast, larger businesses may opt to employ dedicated accounting staff, whose primary responsibility is to manage and complete the company’s accounts. This approach is particularly feasible when the volume of transactions and the complexity of financial operations require a specialised focus.

Alternatively, businesses may choose to regularly engage with professional bookkeeper services. With their expertise, qualifications, and efficiency, bookkeepers offer a valuable solution. Their involvement not only ensures accurate and timely recording of transactions but also frees up the business owner’s time for other critical aspects of operations.

While a more costly option, some businesses may enlist the accountant’s services to handle the entire accounting process. Accountants, given their expertise in taxation and experience in submitting accounts to regulatory bodies such as Companies House, bring a high level of proficiency to the table. The decision on who should manage accounting records ultimately depends on the business’s unique needs, resources, and the desired balance between cost and expertise.

Conclusion

In summary, accounting records serve as the foundational elements for all financial accounts, encompassing a range of documents like invoices, bills, cash receipts, bank statements, payroll records, and online transaction records. Compliance mandates retaining these records for a minimum of six years. Storage options include traditional paper-based methods, integration within accounting software, or utilising cloud storage solutions. The responsibility of entering accounting documents can fall upon business owners, staff, bookkeepers, or accountants. For more in-depth information on accounting records, refer to our comprehensive accounting source documents section.

 

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