Accounts and bookkeeping: the basics

Keeping accurate financial records is essential for the management of your business and for meeting statutory obligations, such as submitting tax returns and annual accounts.

Article

5 min read

Bookkeeping

All businesses must accurately and completely record all the money that goes in and out of the business. This is known as bookkeeping.

Setting up a business bank account to keep all transactions separate from your personal finances is the first step towards making bookkeeping easier. Accounting software can also help.

You need proper bookkeeping, to:

  • understand your income and expenditure

  • plan budgets and make decisions

  • convince potential lenders that your business is sound

  • pay the right amount of tax

  • meet any legal obligations for filing accounts


Accounts

When the data gathered from your bookkeeping is used to produce forecasts and reports, which help to understand how your business is performing, this is known as accounting.

There are two main categories of accounting information - financial accounts and management accounts.

Financial accounts

These include:

  • profit and loss statements - which demonstrate the financial performance of the business over a specific time period by disclosing the income and expenditure

  • balance sheets - which show the financial position of the business on a specific date by giving an overview of the assets, liabilities and equity.

  • cashflow statements - show how much money came into and left the business over a given time and how much is currently available

These are useful and good practice for most businesses. However, some businesses have statutory obligations to prepare and file financial accounts with Companies House.

  • Sole traders don't need to create formal profit and loss accounts or balance sheets, although these can be useful financial health checks. However, they must keep adequate records to allow them to complete their Self Assessment tax return.
  • General or 'ordinary’ partnerships are like sole traders but each partner needs to complete their own Self Assessment tax return.
  • Limited partnerships have to be registered with Companies House, but as with sole traders and general partnerships, they generally do not have to make an annual return or file accounts (unless the general partner is a limited company). Each partner must complete their Self Assessment tax return.
  • Limited liability partnerships (LLPs) must submit annual accounts to Companies House each year including a profit and loss statement and balance sheet. The designated partners must also complete a Self Assessment tax return for the partnership every year. And each partner needs to complete their Self Assessment tax return.
  • Limited companies must submit ‘statutory accounts’ each year to Companies House, including a profit and loss account and balance sheet, as well as a Company Tax Return to HMRC. Directors receiving dividends as well as salaries, will need to submit a personal Self Assessment tax return.

The Economic Crime and Corporate Transparency Act will introduce a number of changes over the next few years impacting how small businesses file their accounts with Companies House and what information will be visible to the public.

Management accounts

Depending on the sector and size of business, you may want to prepare management accounts including figures relating to sales and purchasing, to help plan and make decisions. There is no obligation to prepare these, although they can support applications for loans and other types of finance or investment.

Bg

Find information about accounts and bookkeeping on mygov.scot

Learn more
Want to speak with your nearest Business Gateway team?

Your local Business Gateway can offer you free 1:1 advice and online support to help you with anything to do with your business or if you are just thinking about starting up then we can support you with that too.

Fill in the form below and we will get back to you to help.

1. Tell us a bit about your business or idea (such as, sector, stage…) 2. What are your main reasons for contacting us today? 3. Is there anything else we need to know before we contact you?

Enter your postcode

How we use your data

We will use the information you provide to respond to your request, and to provide business advice and support services to you. For more information please view our privacy notice.

You might also be interested in

Self Assessment: the basics

If you are self-employed or a partner in a business partnership, you will need to complete a Self Assessment tax return for HM Revenue & Customs.

Balance sheets: the basics

A balance sheet shows a summary of what your business owns or is owed (assets) and what it owes (liabilities) at a particular date.

Business bank accounts

Setting up a business bank account keeps your business finances separate from your personal finances making it easier to track income and costs for your accounts. Also, some banks won't allow use of personal accounts for business transactions.