One of the decisions you should take before starting bookkeeping is whether or not to use the cash accounting method or invoice / accrual method.
Cash accounting method you enter payments and receipts into the system when they are actually paid.
Invoice / Accrual method you enter invoices and receipts when they are raised and received and then enter the payments against them.
This section details the cash accounting method. Click here to view the invoicing bookkeeping method.
Cash Accounting Method
If you use the cash accounting method, you would recognise income and expenses only when you make or receive a payment into, or out of the bank, cash or credit card account. This is the most simplistic bookkeeping method and is ideal for a smaller business that has few transactions or those that are paid in a timely manner. You don't include or need to enter unpaid invoices, outstanding expenses or bills until they are paid.
Using this method, you only need to use the Banking area of the system.
Setting up bank accounts
Click on the Banking tab to load the page. Next, enter all bank, credit, 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 the options button drop-down on each bank account. From here you can complete various other tasks.
Adding entries to the bank
The objective of any bookkeeping method is to 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 Import Entries option to automatically import the bank transactions from a CSV. For more details on CSV imports and allocations, please click here.
You can also make manual entries to the bank by selecting ' + Create a New Receipt' or '+ Create a New Payment'.
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 process 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.