Bookkeeping for Companies

New sole traders and newly formed companies often wonder how to keep their accounts, when they need to file a tax return and much more besides. In this article, we explain the basic accounting concepts, the differences between the accounting systems and ways to make bookkeeping easier.

Types of Accounting Under the Accounting Act

  • Single-entry bookkeeping system
  • Double-entry bookkeeping system

The Accounting Act also sets out when accounts must be kept under the single-entry or double-entry system, and when a business owner is not required to keep accounts at all.

The single-entry system may be used by natural persons, who may also opt for double-entry bookkeeping, as the law does not prohibit this. As a simpler form of accounting for individuals, the law allows sole traders to keep tax records, or records where flat-rate expenses are claimed, provided they fulfil their statutory obligations.

Commercial companies must keep their accounts under the double-entry system; unlike self-employed persons, they have no choice.

The Difference Between the Accounting Systems

The main difference between double-entry and single-entry bookkeeping lies in the underlying principle. In single-entry bookkeeping, the basis is expenditure, income and taxes, recorded when they are paid in cash or into a bank account. In double-entry bookkeeping, it is revenue and costs, recorded from the moment they arise, regardless of whether they have been paid.

Single-entry bookkeeping works on a cash-flow, or cash, basis. Double-entry bookkeeping works on the accruals principle, recording costs and revenue in the period to which they relate in time and substance.

Key Terms in Each Accounting System

  • Single-entry bookkeeping – the key terms are expenditure and income
  • Double-entry bookkeeping – the basis is costs and revenue

Income

  • an increase in funds, either in the bank account or in the cash box

Revenue

  • arises when a sales invoice is issued, regardless of whether the invoice is ever paid

Expenditure

  • an outflow of funds from the bank account or the cash box

Cost

  • arises when a supplier invoices you for goods or services purchased, regardless of whether the invoice is ever paid.