Keeping Your Accounts Up to Date

Maintaining accounting records up to date allow businesses to be able to prepare their financial statements on a monthly basis or month on month comparison of businesses’ performance which are to be used in their business planning, creating sales strategies, and improving and maintaining theirbusiness operations.  These financial statements like Income statement and Cash flow statement provide information to the company’s health and to enable the control of cash in the business, and a prompt assessment on the financial situation of the business at any time.

Some businesses choose to arrange updating their accounts on every Tax period for compliance to save on administrative time and cost but this may result to poor budgeting or planning, and sometimes incorrect business decisions.  For example, a business may think that their business are doing good because of the big amount of cash on their bank accounts from their business and became very complacent on running their operations but after recording all their costs at year end, it turned out that they are at Net Loss which may have been addressed earlier if their accounts were kept up to date.

In the UK, if sole traders arenot VAT registered, traditional accountants won’t update their accounts until their annual filing of tax returns.  And if they are VAT registered, their accounts are updated on quarterly or every filing of their VAT to HMRC.

At Libabun Accountancy, we update your accounts every month and send out monthly financial reports to you as we know how important our sole traders in the continuous growth of UK economy and should be given the utmost quality of service.

RECORD KEEPING

All of the expenditures used in business operations should be recorded.  All receipts or purchase invoices used in running a business should be kept for recording.   This includes expenditures on cash and on account.

Same goes in your sales record which also includes sales on cash and on credit. Sales promotions like sales discounts, freebies or giveaways should be booked as well and best if also supported by sales invoices for recording and tracking purposes.

By documenting every transaction, a company’s activities are made certifiable, transparent, and comprehensible.  It’s easier to make an audit trail if businesses recorded transactions are supported by an invoice or receipt.  Invoices and receipts are also important supporting documents when filing your VAT or Tax returns or on filing for Tax adjustments.

ACCRUALS

Accruals on prepayments such as yearly subscriptions, advance rental payments should be realized on a monthly basis so these will be included in your monthly income statement to have an accurate record of your gross profit and net income.

Depreciation on fixed assets should ideally be accrued or realized on a monthly basis particularly if a business has a lot of machineries being used in their operations which should be part of their overhead expense or operating expense.

Updated record keeping, including accruals, other expenses and administrative costs are crucial in pricing your products and services.   Given a constant changes in prices, a business may not know that they are already at net loss if they are not keeping their accounting records up to date.  Falling behind on your record keeping means a business may face an operational breakdown by not making correct financial decisions as their basis on their decision making is not correct.  If your accounting records are monthly up to date, not only you have a ready access on your Financial Statements but you also have ready access on your financial ratios like Cash flow adequacy ratio, Cash flow margin, gross profit margin, Break even margin which are also used in making important operational decisions.

HOW TO UPATE YOUR ACCOUNTS IN XERO

Having your accounts up to date monthly is a piece of cake if you are using XERO as your accounting software.  In XERO, you can connect all your business bank accounts easily and securely.   In this way you can easily track all your spending and Cash receipts through the Bank reconciliation feature in XERO.

Bank reconciliation is the process to confirm that all the transactions in your bank accounts are recorded in your business accounting records.   In XERO, this is done on the reconcile tab, by matching bank statement lines from your bank account on the left against transactions in XERO on the right.

To go to your reconciling items in XERO, go to Accounting tab> Bank Accounts or simply go to your Dashboard tab. XERO will show items need to reconcile by clicking the “ Reconcile __items” in the Bank section.