I'm new to book keeping and have recently said I will look at doing some book keeping as a favour for a friend. She is a hairdress and records transaction in a notebook. I some way into it now and asked for some bank statements to perform a bank reconciliation but it turns out she uses her personal bank account and just highlight and income / expense she deems to be for the business with a marker pen!
(1) I am going to ask her to open a seperate bank account going forward...(would you all agree that this is neccessary?)
(2) Also there are certain expenses that I do not know how you would fully justify have been incurred 100% for the business (Contact Lenses, Petrol and Mobile phones) - Can anyone offer any advice as to how such items should be treated.....Currently for contact lenses I have Dr Expenses and Cr Drawings...is this correct?
(3) What are the implications of putting an expense through which isn't wholly for the business and who do you prove this for the items mentioned above?
(4) Inventory - She purchases inventory i.e. shampoo etc on a frequent basis, currently the inventory is just going up and up as she doesn't record her usage. I am going to ask her to conduct a monthly stock take and provide me with a monthly value (@ cost) in order to process an adjusting journal. This will prevent the Inventory asset become inaccurate and over inflated. Is this the best way to do it?
Any help or advice is greatly appreciated! I am yet to look into the situation regarding TAX and NI and how that works for sole traders.
Occasionally, when I do freelance work for an accountant I get given these sorts of jobs. I've just done a similar job with a small beauty salon. How long has your friend been trading for? Is there any working papers from the previous year that you can go off? Does your friend have an accountant?
I might be inclined to use a spreadsheet and set up the columns with headings and record the items under the relevant categories; purchases, phone, fuel, drawings. I would also list all the bank receipts then summary the bank account so it matches the statement. It's possible that not all the receipts are income.
I would list all transactions that you are not sure about and ask your friend for an explanation. You will also need to do a cash summary. Setting up a small business account will also be a positive step forward.
I think just being able to summarise the bank and cash accounts would be a step forward.
1. Easier to maintain the books if she opens a separate business bank accounts and records all the income and expenditure only through that account. Though easier said that done. Would also make sense if she keeps a till cash book (assuming she has a shop rather than freelance) to reconcile what is in the till as expect everyone will be paying by cash (unless she has a chip and pin machine).
2. Contact lens - wouldnt put through business as not wholly and exclusively for business purpose
Petrol - can either put through 45p per business mileage or put everything and disallow appropriate personal %
Mobile Phone - easiest way would be split between estimated % business and % personal (could then review one invoice by looking at telephone numbers and see if split seems reasonable)
3. If puts non business related expenses through then if is investigated by HMRC this can result in penalties and interest for tax underdeclared. How to prove for above then wouldnt put contact lens through, petrol can be justified by keeping a log book of business mileage and mobile phone can be proved as said above by looking at purposes of telephone calls.
4. I expect that she wouldnt go to the bother of doing a monthly stockcount. If she buys stock eg shampoo, conditioner etc then she will use it as the month goes on and the level at the month end should always be fairly consistent. If not then she is wasting her money by tying funds up in stock that may not be used in near future. Also expect that she can replenish her stock at short notice so why keep a large stock of it on hand.
As this is the first year I am bookkeeping these accounts and previously they were done elsewhere I was wondering how I get fixed assets onto the balance sheet. In 2011 she had £415 in assets and 2012 there was £311.
It's a 25% reducing balance.
This year I will need to put through £233 and charge £78 depn chg to the P&L.
I know how to book keep newly acquired assets, i.e. Dr the Asset x Cr Trade Creditrs / Cash x.
What do I do to put the values I need through on the BS and P&L in the 3rd year???
For point number 4 Jay (as I have a similar client) Is charge them as cost of sales rather than a normal expense. My Beauty lady would be the same, she wouldn't keep stock, so just expense it right away.
As for the BS stuff, are you using excel or accounting software?
