Basic bookkeeping consists of recording the prime business
transactions of sales, purchases and cash. The accounting
documents supporting and evidencing these transactions
being called prime documents which are entered into the
business books by a bookkeeper.
Sales Invoices
A sales invoice is a prime document. In more advanced
accounting systems technical terms such as sales day books,
sales ledgers, debtors and credit control are important but
at the basic level bookkeeping of sales is the act of
recording those sales in the business books.
A sales day book is basically a log of sales invoices
issued by the business and this level of recording
financial transactions is all that may be required for a
small business. A simple list of the sales invoices which
would be described as part of a single entry bookkeeping
system.
A basic bookkeeping system for sales invoices would be a
single entry bookkeeping system with minimal analysis of
the total sales value. An accountant or bookkeeper may make
these entries although in smaller organisations the records
are often kept by the business owner.
Larger organisations may well maintain sales day books but
would certainly also enter the sales invoices into an
accounting system and would usually use accounting software
to do so. Within the financial accounting package the sales
would not only appear as a list making up the total sales
turnover but would also be entered in a sales ledger.
Each sales invoice being allocated to the various clients
to whom the sales had been made. The sales ledger at this
stage of the bookkeeping represents the value of goods or
services sold to each customer.
Purchase Invoices
A purchase invoice is a prime document and a purchase day
book is a list of purchase invoices received from
suppliers. The purchase invoice day book would not normally
require further financial analysis of the type of
expenditure. To that extent a simple purchase day book
would be a good starting point for a simple set of accounts
but require a little more sophistication requiring analysis
by expense type for both financial control and taxation
purposes.
A basic bookkeeping system for purchase invoices would be a
single entry bookkeeping system that also had columns to
analyse the expenditure into the expense categories
required by the particular tax rules under which the
accounts were being prepared.
Medium and larger organisations require to track and
control purchase invoices to control costs and payments. In
a mirror of the sales ledger system purchase invoices would
also be entered by supplier into a purchase ledger. The
easy way is to allocate each supplier a code number so that
the accounting software can collect the amounts owed to
each supplier the individual supplier accounts being the
purchase ledger.
Cash and Bank Transactions
Quite apart from the single entry of sales and purchases is
the recording by a business in its books of cash and bank
receipts and payments. The third area of prime documents is
the cash receipt or bank slip, given or received. Such
documents may take many forms from the till roll of a
retail business to the deposit slip at a bank but all are
evidence of money changing hands.
In a small business cash and bank records may be maintained
separately to the records of other prime accounting
records. In a simple format the cash or bank records would
be similar to the bank statement but showing the names of
customers and suppliers or if multiple customers for
example then the source of the money being received or paid.
Larger organisations and particularly using accounting
software also code each receipt and payment to the same
customer and supplier codes used to produce the sales
ledger and the purchase ledger. In addition to recording
the cash and bank transactions in the cash and bank
accounts the amounts received and paid are also recorded in
the sales ledger and purchase ledger.
By recording the cash and bank transactions in the ledgers
the customer and supplier records making up the accounting
ledgers then show the balances on each account and the
recording of the financial transactions in this way is
effectively the other side of the double entry bookkeeping
system.
A small business not requiring sophisticated accounting
records for financial control purposes and using a single
entry as opposed to a double entry bookkeeping system could
simply record receipts against the list of sales invoices
and the payments against the list of purchase invoices.
Basic bookkeeping using single entry of prime accounting
documents would be suitable for small business, requires
very little accounting knowledge and when carried out by
the business owner rather than a bookkeeper or accountant
can save money..
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Terry Cartwright, accountant and CEO at DIY Accounting,
designs accounting software
http://www.diyaccounting.co.uk/smallbusinessaccounting.htm
on excel spreadsheets providing complete single and double
entry bookkeeping systems
http://www.diyaccounting.co.uk/bookkeeping.htm
