Bookkeeping is the day-to-day job of recording every pound that comes into and goes out of your business. It is not glamorous, but it is the foundation for everything else: tax returns, loans, pricing decisions and knowing whether you are actually making money. This guide explains the basics and gives you a routine you can keep. It is general information, so ask your accountant about your own situation.
What bookkeeping is (and is not)
Bookkeeping is recording and organising your financial transactions. Accounting builds on those records to produce reports, tax calculations and advice. If your bookkeeping is accurate, an accountant can do their job in a fraction of the time.
Why it matters
- You know where you stand, with profit and cash visible throughout the year.
- Tax is easier, because everything is recorded and categorised.
- You catch problems early, such as unpaid invoices and missed bills.
- It is a legal requirement to keep accurate records for HMRC.
- Lenders and buyers will ask for clean accounts.
The basics: what you record
- Sales: invoices you issue and money you receive.
- Purchases and expenses: bills and costs, with receipts.
- Bank activity: every transaction on your business account.
- Assets and liabilities: equipment, loans and money owed.
- Tax: VAT and other amounts you owe.
Choose a method: cash or accrual
Under cash accounting you record income and costs when money moves. Under accrual accounting you record them when the invoice or bill is raised. Many small businesses and sole traders can use cash accounting, but the right choice depends on your situation. See cash vs accrual accounting.
Set up your categories
A chart of accounts is your list of categories, such as sales, advertising, travel and software. Keep it as simple as you can, and use categories that match the lines your tax return or accountant needs. See the help article Chart of accounts.
A routine that works
Daily or as it happens
- Record invoices and bills as you issue or receive them.
- Photograph or attach receipts straight away.
Weekly (15 to 30 minutes)
- Import or enter new bank transactions and categorise them.
- Check who has paid and who is overdue, and send reminders.
Monthly (one to two hours)
- Reconcile your bank accounts so the books match the statement.
- Review reports such as profit and loss and money owed.
- Follow a month-end close checklist.
Quarterly and yearly
- Prepare VAT returns if you are registered, or Making Tax Digital updates if they apply to you.
- Gather everything for your tax return or give your accountant access.
Receipts and records
Attach a receipt to every expense, and keep it in the same place as the transaction. You need to keep records for several years: at least five years after the Self Assessment filing deadline, and generally six years for VAT. Digital copies are fine as long as they are clear and complete.
Bank reconciliation
Reconciliation means matching each line on your bank statement to a transaction in your books. It catches duplicates, missing items and mistakes. Do it at least monthly. Read bank reconciliation explained for a step-by-step walkthrough.
VAT and tax
If you are VAT registered, record the VAT rate on every sale and purchase so your return is almost automatic. Set money aside for tax as you earn, perhaps 20 to 30% of profit depending on your situation. See our guides to VAT registration and Self Assessment.
Spreadsheet, software or bookkeeper?
A spreadsheet can work for a handful of transactions. As volume grows, software saves time and reduces errors by linking invoices, bank lines and reports. A bookkeeper makes sense when you would rather not do it at all. Many people use software themselves and an accountant for tax. See do freelancers need accounting software?
Common bookkeeping mistakes
- Letting receipts and invoices pile up for months.
- Mixing personal and business spending.
- Skipping reconciliation.
- Inconsistent categories that make reports meaningless.
- Not backing up or storing records securely.
How AvrioBooks helps
AvrioBooks gives you invoices, bills, bank import with suggested matches and rules, 25 reports and a dashboard of what is due, all in one double-entry system. See AvrioBooks for small business or how to import a bank statement.
Frequently asked questions
What is the difference between bookkeeping and accounting?
Bookkeeping is recording and organising your day-to-day transactions. Accounting uses those records to prepare reports, tax calculations and advice.
How often should I do my bookkeeping?
Record transactions as they happen or weekly, and reconcile your bank monthly. A short regular routine is easier than a yearly catch-up.
Do I need a bookkeeper?
Not necessarily. Many small businesses use accounting software themselves and an accountant for tax. A bookkeeper helps if you would rather not do the work or your volume is high.
How long do I need to keep business records?
At least five years after the Self Assessment filing deadline for that tax year, and generally six years for VAT records.
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