One of the decisions you should take before starting bookkeeping is whether or not to use a cash accounting or invoicing accounting method.
Cash accounting: you enter payments and receipts into the system when they are actually paid.
Invoicing accounting: you enter invoices and receipts when they are received and then enter the payment or receipts against them.
This sections details cash accounting. Click here to view the invoicing bookkeeping method.
Cash Accounting Method
Simply, only update the accounts system when you actually make or receive a payment into, or out of the bank, cash or credit card account. This is the most simplistic of bookkeeping method and is idea for smaller business who have few transactions or those that are paid on a timely manner.
Using this method, you only need to use one area of the system - Banking
Setting up bank accounts
- Click on the banking tab to load the page.
- Next, enter all bank, credit, paypal or cash accounts that you use by clicking on Add New Account and entering the account details.
- If you make a mistake or wish to change the details of your bank account, click on More Actions dropdown on each bank account. From here you can complete various other tasks
Adding entries to the bank
The objective of any bookkeeping method is ensure the bank, credit, cash or any other bank mirrors the transactions you incurred on your actual account. Therefore, after each session your system balance should match exactly with your actual bank balance.
The easiest way to enter your transactions is directly from your bank statement. Click on the More Actions dropdown and choose whether you want to add a payment or receipt
- The transaction entry page is a quick and easy way of entering lots of transactions in one go.
- You enter one transaction per time but can split that transaction into multiple lines. This is useful if you are entering a paying in credit slip which has multiple credits that need to be allocated to multiple account codes. In most case, the default view will suffice most transactions.
- The page will look slightly different depending on whether your business is VAT registered or not. However, apart from a few extra fields (if VAT registered) the concept is the same.
- Enter the date of the transaction e.g when it was paid or received into the bank. This is a mandatory field.
- Enter a reference for the transaction - this could be the name of the supplier or customer for example This is a mandatory field.
- You can enter the type of transaction e.g. cheque (enter the cheque number) etc if required.
- Enter the nominal code (account code) by pressing space within the field (to list all transactions) or starting to type any part of the account code name. The account code should closely reflect the type of transaction that it refers to.
- Enter the Net amount of the transaction - this would be the Total amount if not VAT registered
- If VAT registered, enter the VAT details and select the VAT rate that the transaction should be allocated to.
- If you need to add an extra line e.g. if you wish to split the transaction between multiple account codes click on Add new line.
- Click on Save to add the transaction and move onto the next one,
Check your transactions
Making sure the transactions have been entered correctly is very important. When entering transactions it is very easy to make mistakes and thus making further checks by reconciling the bank ensures the transactions amounts are correct.
See the help guide how to reconcile the bank for further details.
End of year processes and limitations
If you have customer or supplier accounts that remain unpaid at the end of the year we'll need to know the balance of these when we complete the year end accounts. This is because the cash accounting method does not record unpaid balances on account and thus we need to make adjustments to enable us to complete the year end accounts.
You should only use this method if you use the cash accounting VAT scheme (either on the standard or flat rate). This is due to not recording when invoices are received and there can be a delay in paying or receiving payment of an invoice that overlaps a VAT period.
The cash accounting bookkeeping method is a great way of entering your income and expenditure transactions quickly without having to enter contacts and invoices. However, using this method does reduce the functionality of the system and thus you would need to use other methods to send invoices, track expenses or manage balances on customer or supplier accounts.