Bookkeeping basics - I can hear you grown! "I'm an entrepreneur, not a bookkeeper! Why do I need to know about bookkeeping?"
But the fact is, until you're making enough money for someone else to do the administrative work, you're stuck with it!
And in any case .... what do you think your suppliers will think of you when don't have an understanding of something so basic? Not very much.
Bookkeeping is all about recording the daily financial transactions of your business such as sales, purchases, income and payments.
Bookkeeping is different to Accounting.
A bookkeeper records the financial transactions using the documents described below. The information and the documents then go to your accountant who does the reporting and analysis for you.
Your accountant draws up documents such as a Profit and Loss Statement and Balance Sheet and does your Tax Returns at the end of the financial year.
So to fully understand what bookkeeping basics is all about, it is important to understand what sort of documents you'll encounter as a business owner.
There may be one or two that you won't use, but it's still important to know what they are. When you're dealing with large suppliers they may very well ask you for a specific document and it'll be good if you can answer with confidence.
Large companies use Purchase Orders when ordering goods from suppliers. The PO is an official document with the Company's letterhead and contact details. Each Purchase Order has a number and is signed by an authorised person. It is then sent to the supplier.
In my business, I don't use an official Purchase Order but I make sure that all my orders are in writing. This avoids confusion and gives you backup in case the wrong goods are delivered.
When your order arrives, it'll be accompanied by a Delivery Note.
Make sure you check your delivery against your order within the first twenty four hours to make sure that your order is correct. If there are any discrepancies, advise the supplier within 24 hours or as per your agreement with them.
Failing to do this may result in your being saddled with goods that you actually can't sell - and that's money you've lost!
Soon after your goods arrive, you'll be sent an Invoice. Be aware though - some suppliers may send the invoice with the delivery.
The invoice is the actual bill and details how much you owe the supplier for a particular order. Be sure to check this against your original order to make sure that the charges are correct. The quicker you notify the supplier of any discrepancies, the better.
In the event of an incorrect order and you've returned goods to the supplier, make sure that they issue you with a Credit Note. ,/p>
This will ensure that they deduct the cost of the goods from your account and it also gives you proof that you have returned the goods and that they have accepted them.
A Receipt is proof of payment.
This is an important document for two reasons.
At end of each month, the supplier will send you a Statement which summarises all your orders from the previous month.
The Statement will itemise every invoice for the month, the date, invoice number, and amount owing per invoice.
It'll also have the date payment is due which you should already know from the Terms and Conditions that you agreed to when the supplier opened your account.
So now you have an understanding of bookkeeping basics, what do you do with all these documents? Well, all you have to do is go to my article on organizing financial records which'll give you step-by-step what you need to do.