Definition
Bookkeeping is the day-to-day recording of a business’s financial transactions, such as sales, purchases, receipts, payments and bank movements, so the records are complete and correctly categorised. It is the basis for VAT returns, payroll, Making Tax Digital updates and year-end accounts. UK limited companies are legally required to keep adequate accounting records.
What the records must cover
A limited company’s accounting records must include all money received and spent, assets it owns, debts owed by and to it, stock at the year end and goods bought and sold. They must be kept for at least 6 years from the end of the financial year they relate to, and HMRC can fine a company £3,000 for not keeping them. Sole traders must keep records for at least 5 years after the 31 January Self Assessment deadline.
Bookkeeping vs accounting
Bookkeeping records and organises transactions through the year. Accounting uses those records to prepare statutory accounts, tax returns and management figures.
Most small businesses now keep their books in cloud accounting software, which is also how digital records for Making Tax Digital are usually kept. SmartFiling’s guide explains what bookkeeping involves, and its bookkeeping service covers bank reconciliation, receipt capture and monthly reports.
Related questions
- What records does a limited company need to keep, and for how long? The records listed above, for at least 6 years; see which business records to keep.
- My bookkeeping is behind. How do I catch up? Work through the bank statements month by month; see catching up on bookkeeping.
- Which accounting software does SmartFiling work with? Xero, QuickBooks and FreeAgent.
