What are 'proper books of account'? What is 'adequate'?

What are 'proper books of account'? What is 'adequate'? Discuss please.Proper Books of Account - aka book-keeping

For SMEs what constitutes proper books of account and how do you determine that they are adequate.

Firstly the legal requirement is for Limited Companies; however let's assume sole-traders, partnerships and others actually have a similar need.

The primary need is for the safeguard of creditors whether they are suppliers or indeed bankers so that they can continually assess the risk attached to the funding they provide you. However there is another need and that is for the control and calculation of Value Added Tax and Corporation tax etc as the revenue (HMRC) like to feel that they can rely on your figures.

OK so that means we probably do need adequate book-keeping and accounts. (The word 'proper' occurs in the auditors report at the foot of a set of accounts for limited companies, except that companies with a turnover of less than £5 million are exempt from having audited accounts. They are signed off by the Director(s) personally, which means you.)

So whatever we describe as 'Books of Account', they do need to be adequate.

What do 'proper books of account' entail, what does it include?
Do they need to be like the original ledgers and day books which were beautifully bound (and very heavy) books of account (which is where the term comes from) - In my opinion, NO.
Do they need to be created from specialist accounting software - In my opinion, NO.

Does the profitability need to be reviewed frequently and in a timely manner - In my opinion YES, most definitely.
Do your debtors (your unpaid sales invoices) need to be monitored continuously - In my opinion YES, most definitely.
Do your creditors, predominantly your unpaid purchase invoices, need to be monitored continuously - In my opinion, YES, most definitely.

Therefore what is adequate?
1. Certainly a sequential list of sales invoices (with copies available) or cash receipts duly summarised by week or by month; plus a separate column for the VAT content, marked paid when cleared;
2. Certainly a complete list of purchase invoices, and a file of the documents; plus a separate column for the VAT content; all marked paid when cleared
3. Certainly a complete list of your personal business expenses with receipts; plus a separate column for the VAT content.

Providing you don't attempt to be clever then these lists, printed and totalled and summarised into a Profit and Loss Account are adequate books of account.

Only spend anything where the costs are wholly allowable for tax, so rent a car, rent your office equipment, no lunches out, no presents for valued clients unless you're doing it out of your own money.

Don't buy anything unless it is for a particular job or project. In other words don't buy anything for stock, if you do then you may need software like Sage or Access Accounts. Otherwise don't waste your time trying to grapple with anybody's software. OK OK if you want some help adding it up and making the lists look smart then use MS EXCEL or other spreadsheet.

I don't think you need anything more complex. Mind you having an employee moves your needs up the complexity ladder and certainly well worth having the payroll done by a payroll bureau.

Other views, please.Cliff