Accounting is an approach to reporting financial information that dates back over 7,000 years. In its simplest form, it entails recording a business's income and expenses. Accounting provides managers and investors with a comprehensive overview of a business's financial health, which in turn helps to ensure that the business stays profitable.
Bookkeeping is the method used to keep track of all the funds that a business handles - money that is paid in; money that is paid out; and the value of the assets owned or leased by the business. Bookkeeping involves logging information from sales invoices, receipts, bank statements, pay slips and other documentation. These records used to be kept using pen and ink in paper books - hence the name - but now they are more likely to be stored using software. Double-entry bookkeeping is a system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits). The principle is that every transaction has two parts and will therefore affect two ledgers (a ledger is a book or a software file that totals money by account).
If you run your own business, you have certain legal obligations that relate to your accounting. This includes:
- Keeping records relating to PAYE (Pay As You Earn) if you have employees and VAT records if you're VAT registered.
- Submitting an annual tax return to HM Revenue & Customs (HMRC), which will involve the preparation of financial statements.
- Filing accounts with Companies House (if your business is a company).
Record keeping is very important in business and it is essential that you keep an accurate log of your income and expenses to prepare your business accounts at the end of the financial year.
Although you can do a lot of the accounting work related to your business yourself, most business-owners choose to use an accountant to do at least some of this work. This is so that they can focus their attention on their own area of expertise - the business itself. Also, as they are unlikely to have the detailed understanding of tax legislation and financial reporting standards that an accountant will have, they might not present their company's financial data in the most efficient way or take advantage of all the available reliefs. Many businesses find that the tax savings that their accountants can make are greater than the fees they pay them for preparing their accounts.
Accountants can help businesses with a range of tasks including:
- Preparing and filing VAT returns
- Preparing and filing annual accounts with HMRC
- Filing annual returns and annual accounts with Companies House
- Running the business's payroll
- Filing employer returns
- Filing CIS returns
- Tax planning
- Preparing a business case
- Raising finance from a bank or other lender
- Due diligence (in the case of an acquisition, for example)
- Advice on accounting technology
- General business advice.
When choosing an accountant, it is important to consider their fit with your own business in terms of size, experience, specialism and location. Can you afford their fees? Are their staff members appropriately qualified? Ask other business owners in your area whether they would recommend their own accountant.
Finally, do you get on with them? Your relationship with your accountant will be one of the most important relationships that you have in your business life. You need to be able to work with them.
You can find the names of some accountants that might suit your business by searching on the internet, looking in local newspapers or approaching an accountancy body.