Anyone in business has to have cash books to keep track of the amounts of income and expenses. This is essential in knowing how well the business is doing in terms of the amount of profit the business is making. Even if you record these amounts electronically by using a spreadsheet program, it is important to have actual books where you record the amounts. If you do not have a back up system by either recording the money manually or by saving what you enter into the program on disks, if your computer crashes, all your business records will be lost.
Government auditing systems require businesses to keep records of these transactions for a seven-year period. This is a lot of information to keep stored on your hard drive. The best way to keep the cash books and/or backup disks is to have a special place in the filing cabinet for them. Then once you complete the annual bookwork and do a complete inventory, you can store all the information and erase the file on the computer. When you want to compare one year to the next, you can just refer to the information you have stored in the file cabinet.
Cash books are ledgers in which you record the daily amounts of your sales. You can have sections for each of your suppliers for a monthly period and record all the amounts of money you paid out. At the end of the month, you add up all the sales, which may or may not include sales tax. You can have a column for this in the ledger so that you know how much sales tax money you have to submit to the government each month or quarterly periods. Then when you total the cost of your expenses and subtract it from your sales, you will know how much profit you realized during the month. You also have to consider that some of the purchases have not yet been sold and although you may show a loss, you still have these products remaining on the shelves.
At the end of the year, you just have to add up the monthly totals and subtract one from the other to find your profit or loss. The end of the financial year is also a time when business owners do a complete inventory and make up how much money’s worth is still remaining. This also factors into the profit and loss statement because the amount comes off the expenses.
It is not just the suppliers of the products that you have to consider when totaling the expenses. In your cash book, you should also have a section for such expenses as electricity, travel and the cost of the employee’s wages, if you do have employees. When you complete your income tax return all of these expenses will help to reduce the amount of income tax you have to pay on the profit you made during the year.