One subject often viewed as a mystery to most of us is accounting. It is also one of the hardest tasks faced by small business owners trying to keep track of the finances. You probably only need a spreadsheet or manual record if you are a small business. Also as the business grows an accounting system such as Xero, QuickBooks or Sage is a must.

There are many pros and cons of each system so simply choose the one you like best.

“Off-the-shelf” systems are relatively cheap and easy to use. They are therefore often sold on the basis that they are fast, easy to do and that you can be up and running straight away. This is a common myth and as a result most small businesses fail to set up their accounts systems properly. Users are often not accounts office trained. They therefore have no in depth knowledge of accountancy, double entry, control accounts or the software package.


Many businesses even fail to appreciate that they are making errors. Consequently the first time that they know that something is wrong is when the accountant looks at the records at the year end. Any mistakes can be very complex and therefore very costly to resolve. Because of this fees are often much higher than they need to be. This may therefore come as a big surprise when you have put a lot of effort into setting up the accounting system.

System set up

If you carriy out the setting up well and you enter the opening nominal ledger balances together with opening sales and purchase ledger items accurately and agree to the balances that your accountant is working from then there should not be any problems. When good procedures are in place, personnel are properly trained to use the system and you get the system housekeeping in order, it is therefore relatively simple to maintain a good system.

Used well, good business accounting systems are a goldmine of useful information and are therefore a very powerful tool.

In addition to the usual Profit & Loss accounts and Balance Sheet reports, you can also obtain detailed reports such as budgets versus actual results, accounts receivable by customer, accounts payable by supplier, top revenues by customer and sales and contribution by product. You will get this data from your accounts system but this has to be accurate if you wish to rely upon any figures.

Legal requirement

There is also a legal need to keep accurate records. The accounts that you submit to HMRC and, for Limited Companies, Companies House form the basis of your tax calculation each year. Company accounts submitted to Companies House are also available to the public.

You should carefully plan your accounting needs. Good professional advice is therefore essential.

No two systems are the same but they all follow the same logic. This guide is no way exhaustive nor does it cover stock control. Firstly you need to start off on a good footing with accurate data. This therefore means accurate balances that you can reconcile to. You also need to involve your accountant to make sure that your current system balances have integrity and that all proper controls are in place.

Statutory Accounts

The statutory accounts include a Balance Sheet and a Profit & Loss Account. You should take these directly from your accounts system.

These contain each of the accounts taken from the trial balance of your system which will include totals for:

  • Sales Turnover
  • Other Income
  • Cost of Sales
  • Overheads & Expenses
  • Taxes
  • Dividends
  • Fixed Assets Cost & Depreciation to Date
  • Bank & Petty Cash Balances
  • Trade Debtor Balances (Customers)
  • Prepayments
  • Wages Liability (Wages Control Account)
  • PAYE/NIC Liability (PAYE Control Account)
  • VAT Liability
  • Trade Creditor Balances (Suppliers)
  • Accruals
  • Director Loan Accounts
  • Accumulated Reserves
  • Share Capital

Using your accounting system

Before you start you need to agree the opening balances on your system with your Accountant. You also need to make sure that you complete all items that we have included below. In addition you also need to check each Balance Sheet account in your system’s Trial Balance as at the period/month end:

  • Fixed Assets
  • Bank accounts
  • Petty Cash Accounts
  • Stock account
  • Aged Debtors and Creditors
  • PAYE & wages balances
  • VAT balances
  • Director Loan Accounts
  • Print out the Profit & Loss and also your Nominal Ledger for the year from the start to the end of your accounts period
  • Print out the Balance Sheet as at the year end
  • Aged Debtors (detailed) and also Aged Creditors (detailed) up to the end of your accounts period also need printing
  • Complete & print out the Bank Reconciliations at the end of your accounts period.

Task Checklist

To get the best out of your accounts system you should complete the following tasks:


  • Raise Sales Invoices
  • Receive/Enter Customer Payments
  • Enter and account for any transfer of monies
  • Review and Enter Recurring Entries
  • Review and Enter Direct Debits and Standing Orders
  • Enter Petty Cash Expenses and Cashed Cheques
  • Enter Supplier Invoices and Credit Notes
  • Reconcile all Bank Current and Deposit Accounts

Use the bank reconciliation function of your accounts system to agree the balance in your system against your bank statements. You should reconcile daily if possible.


  • Make Data Backup
  • Verify Data Backup


  • Process Payroll for Weekly paid staff
  • Take Data Backup and store securely


  • Enter/Raise Payments to Suppliers
  • Enter Bank Charges, Bank Interest Paid and received
  • Process Payroll for Salaried staff
  • Enter payments for PAYE/NIC liabilities to HMRC
  • Enter Expense Claims including Credit Card Expenses and Charges
  • Reconcile all Bank Current and Deposit Accounts and print reconciliation reports
  • Reconcile Petty Cash and the Credit Card Accounts
  • Agree Aged Debtor balances against trial balance. Correct any differences.
  • Create Customer statements
  • It is a good idea to also print out and reconcile the detailed Aged Creditors report against supplier statements.
  • Agree Aged Creditor balances against trial balance. Correct any differences.
  • Enter adjustments for prepaid costs, i.e., the expense relates to a period after the date of the entry. Talk to and involve your accountant for the best way to account for and enter prepayments on your system. These costs could include insurance, advertising and subscriptions, etc.
  • Enter adjustments for accruals. Talk to and involve your accountant for the best way to account for and enter these. These could include telephone, gas and electricity, etc.
  • Review your fixed assets reports in the nominal ledger of your system and write off  any items where you need to. Check with your accountant what rates to use.
  • There are two methods: Straight Line based on cost price over a number of years and Reducing Balance based on book balance after depreciation to date. Rates may vary but are typically 25% reducing balance for Motor Vehicles, 20% reducing balance for Plant & Equipment and 33.3% straight line for Office Equipment.


  • Enter vehicle VAT fuel scale charges
  • Prepare VAT Return and agree the balance of the VAT account in your system against your VAT return.


Ensure that you have entered all transactions for the year and also that all bank accounts have reconciled.

Prepare Backup and reports for Accountant. The most important reports are:

  • Trial Balance as at the year end
  • Profit & Loss for the year from the start to the end of your accounts period
  • Balance Sheet Standard as at the year end
  • Nominal Ledger from the start to the end of your accounts period
  • Aged Debtors and creditors (detailed) as at the year end
  • Bank Reconciliations


You may also decide that this is too complex for you to do yourself. So if you therefore don’t really understand it or find it too difficult to use, then a good book-keeper will be able to do all this for you. Also as your business grows you will need this capability within your business. Don’t let it frighten you.  You also don’t need to do it yourself, but these things do need to be done.

If you would like us to put you in touch with a good accountant, please do call or email.