Frequently asked bookkeeping questions

September 25 2015, 0 Comments

Please click on the question which needs to be answered, if you have any suggested questions please ask them in the comment box at the bottom of the page.

How do I enter an Opening Balance?

How do I record National Insurance Contribution as a Self Employed / Sole Trader?

How do I record Stock and Cost of Sales?

What is a balance sheet?

How do I reconcile my bank account?

How do I run my year end?

How do I manage EC reverse acquisitions and the flat rate scheme?


How do I enter an Opening Balance?

There are two situations to consider, please choose one or the other.

1. Opening Balances for a Brand New Business.

If you are starting a new business and using Business Accountz, there are no opening balances. This is because all your accounts start with a zero balance. There is nothing to carry forward from a previous year. Your first transaction will most likely be an injection of money. If so, enter that into the green books (Transfers).

For the self-employed or partnerships the transfer transaction will come from Capital Introduced or a Loan and go to the Bank. Capital Introduced is an Equity account in your Chart of Accounts.

For Limited Companies it may be entered as a Directors Loan and go to the bank. Directors Loan accounts are held in the Liability Group. These accounts will have been set up for you when you went through the company setup wizard.

2. Opening Balances for existing Businesses.

This assumes you have a set of accounts from your previous year which are not already in Business Accountz (note that you only need to enter opening balances once when you first start using Business Accountz).

You will need something called a Trial Balance from your last set of accounts. Don't worry if you haven't got this, however, if you used an accountant or bookkeeper then they will be able to supply you with one.

A Trial Balance (or TB) is simply a list of every account in your system with a balance. The balances are split into two columns, debits on the left, credits on the right.

If you don't have a TB, then compile a list of all your accounts and their balances. You will need three columns: Account, Debit, Credit. Enter each account into the Account column. If the account has a positive balance, put the balance into the debit column. If the account has a negative balance (e.g. a business credit card) then put the balance into the credit column.

Either way you should now have a TB. The opening balances can be entered using the Easy Steps or using Journals (click on Transfer at the top of the screen then Journals). Copy each account and its balance directly into the journal, mirroring the debit or credit balance. Enter a description for each such as 'Opening Balance'.

NOTE: In Journals your debit balances MUST equal your credit balances. If they do not, you can leave the journal screen but, you will have to return later to correct this as your balance sheet will not balance.

Once you are done, you can check if your books balance by opening the Chart of Accounts and looking at the Current Balance in the very top row, named 'Chart of Accounts'. It should be zero. The Chart of Accounts row contains every account within the system. It is the balance of all those accounts. If all the money coming in or owed to the business equals all the money going out or owed to suppliers then it will be zero. And that is as it should be.


How do I record National Insurance Contribution as a Self Employed / Sole Trader?

If you are setting up Business Accountz for the first time, are currently self-employed/sole trader and assuming you are not operating PAYE - self employed class 2 NIC is a personal not a business expense and in my opinion should be shown as drawings. This would be entered in the Transfer Transactions, from bank to drawings.


How do I record Stock and Cost of Sales?

If you buy stock for resale or buy basic (aka raw) materials to make products for resale there is a standard way to account for this called Standard Costing. This topic shows how it works and how to make the transactions to account for it.

You cannot claim for any stock or materials you buy against profits until they have been'consumed'. That is, used up and sold.

So, when you buy these things they need to be accounted for in the first place in Assets, and not in the Profit and Loss account.

Transaction 1: Buying stock/raw materials. Make a new Purchase Transaction (so you can account for VAT). The From account will be bank or Unpaid Bills (aka Trade Creditors). The To account will be an asset account in Current Assets called Stock Bought (or rename the account to something that makes sense to you).

Transaction 2: Accounting for stock used up (sold). At the end of every day/week/month/year depending on how accurate you want your Chart of Accounts to be at any particular time make a Transfer Transaction From Stock Bought To Stock Sold cost of sales account, for the cost value of stock sold (do NOT include VAT in this amount).

If you look in Chart of Accounts > Equity > Profit and Loss > Sales Group >Cost Of Goods Sold Group (COGS) you should see the Stock Sold account. Feel free to rename any accounts to something that suits you.

Summary: When you buy anything for resale its value is recorded in current assets until it is sold. Then that value is transferred from current assets to the P&L. The value is always less VAT for the transfer part.

In brief, you buy stock:

1. Red Books From Bank To Stock Bought.

You make a sale incorporating some of the above stock.

2. Blue Books From Sales Account To Bank Account.

You have used up a bit of your stock.

3. Green Transfer From Stock Bought To Stock Sold At Cost.

What is a Balance Sheet?

Money comes from somewhere and goes to somewhere else. This is called the flow of money. If you track where your money is coming from and where it is going to, you will be accounting for everything financial that you do in your business.

A Balance Sheet is a list of accounts categorised into From (called Liabilities in accounting terminology) and To (called Assets in accounting terminology).

If the total of the Asset account balances equal the total of the Liability account balances then you have proved that you have accounted for every penny. Thus you have a Balance Sheet.

Liabilities can be split into 2 major groups:

1. Liabilities

2. Equity

So the balance sheet equation becomes: Assets = Liabilities + Equity

So, what does a balance sheet look like?: Take a look at the Chart of Accounts in Business Accountz.


Assets = What the business owns

Liabilities = What the business owes third parties (suppliers, HMRC etc.)

Equity = What the business owes you (owner or shareholders)

How do I reconcile my bank account?

Reconciling you bank accounts or credit cards is simply matching your physical bank statement with the entries that you have made into your Accountz program and is important whether you are using our Home Accountz or Business Accountz packages to be able to match or prove these entries.

You should enter all of your purchases and income before you start reconciling the bank or credit card though you can always add any missing transactions as you go along.

If you have just started using an accounting package and have had the accounts for some time you will need to enter an opening balance. This is the balance in the account on the day that you started using the program. It should be entered from Retained Earnings (previous years profit or loss balances) To Bank Account for our business products or From Opening Balances To Bank Account for our home users. If the bank account was overdrawn then then transactions should be From Bank Account To Retained Earnings or From Bank Account To Opening Balances.

You can then tick the amounts cleared that match the amounts on the physical bank statement. You will be able to see a running statement balance which should agree to your bank statement.

This proves that you have entered all amounts correctly and have not missed anything. It will also show you if any amounts have not cleared the bank these could be duplicated transactions or correct entries for instance cheques that you have written that have not been presented to the payee’s bank.

If you would like to watch a short video on how to reconcile your bank account please click this link.

Reconciling your bank and credit card statements is simple to do, helps you understand your accounts and take control of your finances.

How do I run my year end?

Please follow these steps BEFORE you run your year end. You should also have reconciled your bank account!

Nominal Ledger

The nominal ledger report shows every transaction by account that you have used during your accounting year. To locate this report go to Chart of Accounts (in writing at the top of the screen) then click on Nominal Ledger.

You need to build a filter or view to only show this year’s transactions click on new view and name it year end. Press ‘Add Condition’ this will open a drop down list, please pick Tax Date. You will now have a line of information showing column tax date, condition equals and value a date.

Please click on Equals and scroll down and change this to Occurs Between.

Now click on the Value and enter the first date of your financial year press enter and then click on the second date and enter the last day of your financial year and again press enter.The screen will now only show transactions during this date range. You can export this as a CSV using the disc icon.

Trial Balance, Profit and Loss and Balance Sheet Reports

These reports can be printed from the chart of accounts or from the easy steps. As long as you have run previous year ends you will not need to set a start date only a date so that in the reports you will not see future dated entries.

Trial Balance - Press the T icon at the top of the screen and print or export

Profit and Loss – Press the P icon at the top of the screen and print or export

Balance Sheet – Press the B icon at the top of the screen and print or export

Aged Debtors and Creditors Reports

Aged Debtors are all amounts owing to you from your customers – Go to Sales in writing and select Aged Debtors and enter the end date of your financial year. Print or export these figures.

Aged Creditors are all amounts you owe to your suppliers – Go to Purchases in writing and select Aged Creditors and follow steps from above.

Running your Year End

After you have run the above reports you can run the year end by going to Chart of Accounts (in writing at the top of the screen) selecting Year End and then follow the on screen steps. The year end process zeros down your profit and loss accounts fresh for a new financial year and can easily be undone if necessary.

How do I manage EC reverse acquisitions and the flat rate scheme?

This is text is taken from VAT notice 700/12 How to fill in and submit your VAT return

VAT notice 700/12

Box 4 Total input VAT

"If you use the flat rate scheme you do not normally make a separate claim for input VAT, including any VAT on imports or acquisitions, as the flat rate percentage for your trade sector includes an allowance for input VAT."

"However, you can recover VAT on any single purchase of capital goods of £2,000.00 or more, including VAT, and VAT on stocks and assets on hand at registration. For details, see Notice 733 Flat Rate Scheme for small businesses."

"You should also use this box to claim Bad Debt Relief and to account for reverse charge transactions (see paragraph 4.6)"

4.6 Reverse Charge Accounting

“Under the reverse charge procedure, the purchaser of the goods or services, rather than the seller, is liable to account for the VAT on the sale”

What does this mean to Business Accountz customers?

If you are purchasing either goods or services from the EU and have provided the supplier with your VAT number so that they do not charge you VAT then you should be paying this VAT to HMRC.

In the example below the company has paid £100.00 for advertising to an Irish registered company and has supplied their VAT number so no VAT was charged at source.

You can either enter this transaction in the easy steps by going to Easy Steps>Purchases>Buy Service From EC Zone and following the wizard or enter the transactions straight into Purchase Transactions. Either way you will have the following entries in Purchase Transactions:


You will now need to add another transaction to include this VAT on your VAT return. Press the plus icon and date the transaction the same day and relate to the same supplier, the From Account for this transaction needs to be the same as the previous transactions To Account in this case

Advertising and Marketing, you will not be able to select this from the normal drop down list so please click on New Account which will open the Account Manager.

Open the Equity Group>Profit and Loss Group> Expense Group and locate this account and click Select. Because every transaction needs both a From and To Account please select ANY account for the To Account (this account will not have any amount of money charged to it). Please enter the Total Amount as -20.00 (note the minus) and select the VAT code to ALL VAT. The transactions should now look like this:



The effect of the above is that you will now show in your books the cost of the purchase including VAT as you normally do for UK purchases. You VAT return should now show as follows: