Probably the most important parts of running a successful company is knowing exactly where you are money wise, there is a saying that says income is king but cash will be everything, it is no use having a good profit in the books but no cash in the bank, you need cash to run a successful business, after all what do you pay your creditors with?
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Money or money you have in the financial institution, every business knows what happens if you don’t pay your creditors, you don’t stay in business long, same with Debtors, no good on the books, looks good sometimes, but its better in your bank, yet debtor collections are another subject.
OK we know that cash is important and should know what our cash position is at all times, but how do we go about achieving this understanding, create a cashbook or cash ledger, same thing really, just names.
What is a cash book, you may ask, fair enough, cashbooks record in date purchase your expenditure and your deposits for a particular bank account in the order of transaction date, this usually means as you write out a cheque so you record it in the cash book, if you carry out this at the time not only are you saving time but you will be recording the cost accurately, think about it, how often have a person said to yourself what the… was this cheque for? Even more important may be the recording of eftpos transactions because close to the time of payment as possible it becomes ever increasingly difficult to remember the actual cost was for, week or even months down the track. Recording on time of event accurately enables divided coding of the expense, for example a $300. 00 withdrawal may involve a $50. 00 business cost and $250. 00 personal, are you going to remember this 3month later, the experience tell me no . This is below stating expenses, thus increasing taxation. (Of course you are keeping track of all these receipts as you go, and submitting them correctly)
The same applies to build up, these may be payments from customers or money you may have lent your organization, separate the two, if necessary write a note explaining what has taken part in the description column. (explained later).
It is also important to keep a running stability as well after each transaction continues to be entered, this way you know exactly what you offer in the bank, just looking at the financial institution statement is not enough there might have been unpresented cheques you may have forgotten about or thought had gone through, this will obviously give you false information and perhaps embarrassing moments when cheques are returned through insufficient funds.
Utilize the cashbook to record often recurring expenses, eg bank fees, strength, loan payments, purchases, repairs and maintenance, etc . when totalled at the end of the week or month you will have basic summary of where your cash has been spent, a few adjustments so you have a GST or tax workpaper that you can give your accountant or even do yourself.
The type of cashbook We are advising for you is for your main business cheque account only, do not fall into the trap of putting various other bank account dealings in with it, keep in mind this is an analysis of your cheque account only. You need to create a separate cashbook for each bank account or credit card account you own.
You don’t need to be fancy when creating a cashbook but , make sure this balances at end of each 30 days with the Bank statements, otherwise the a waste of time, there may have been an error somewhere!!
Don’t forget to describe or code each transaction, you may need to ask your accountant for a list of requirements, and have an understanding of what the rules mean. (If you are not sure a general description will do). Another way associated with obtaining codes is to go through your last years financial accounts plus pick out the most obvious or ones you know have the most transactions in. Issue is your first year just make a listing that best describes the cost, does not have to be technical as long as you know what they may be.
Keep the cashbook reconciled to your financial institution statement there is nothing more frustrating plus time wasting ($$$$) for each ( owners and accountants) whenever chasing up unnecessary queries, in the end you are paying for his/her time to do this, so be accurate when completing the cashbook.
Basically the Cash book may be computerised (simple cashbook program) or a manual multi column report book. Benefits will far surpass costs in this area if completed precisely and timely.
Creating a ledger kind cashbook, you will need quite a few columns heading right to left, the first two columns are for total cash in plus out and third column is for the balance, always start with an starting balance at top of page, if you are accounting for tax after that use next column, the remainder content are for your expenses ( program code listing) these may be net of tax or include tax, but make sure the total of the expenses plus the tax agrees with the total out in the second column. At end from the month make sure the additions when incorporating across, tie in with the additions down, for example when adding up total payments column for the month the total with this must equal the sum of the expenses to the right Also on the much left leave room for a description of the transaction.
At the end of the month go through your bank statements place any direct fees or automatic payments, tick off presented cheques and reconcile to the statement.
Reconciling to the statement just take the cashbook balance, add on unpresented cheques plus deduct deposits not yet on bank statement. This should then tie up with your bank statement.
When all the columns have been added you will have an analysis of what has been used on what for the month. Doing this with all the reconciliation on the page saves the particular accountant from having to analyse your own bank statements, which can be quite time consuming and expensive.