Businesses whether they are small or large, generate a lot of transactions and therefore they need systems in place to manage the financial data that arises in the form of transactions. Even a small business can have a high transaction volume with transactions going into hundreds if not thousands. Businesses, therefore, employ bookkeepers and accountants to manage their financial information.

Bookkeeping can be done either manually or through the usage of computers and technology. In this day and age, however, even most of the small businesses use bookkeeping programs as they are simple, time-efficient, and save office space. The accounting records can simply be kept in a hard drive or on the cloud instead of maintaining physical books.

How to track Income?

Income refers to the revenue that the business is making through its main activity. To manage income property, businesses need to set up a formal structure that begins with the offer for sales in some cases. The offer of sales is a document that contains the details of the proposed sales such as the quantity, price, and other terms and conditions.

The next step to record sales should be the sales invoice. The sales invoice is a formal document that shows proof of sale and delivery.

It contains all the essential details such as:

• Order number
• Invoice number
• Price
• Quantity of goods delivered
• Terms of payment
• Signature of Seller
• Signature of Receiver/Customer
• Date

The sales invoice acts as proof of delivery therefore it also has a legal value and it should be kept safely in the accounting records. The total value of all sales invoices in a period will show the total revenue or income that has been generated through sales and this is how a business can know how much revenue or income it has generated in a period. Total sales are recorded in the sales day book and it is the total of this book that signifies total income or revenue for the business.

How to track Expenses

Just like a system is required to keep track of income, similarly, a system is required for expenses. In the normal course of activity, a business will incur many expenses of different nature and these will need to be tracked at first before they can be categorized.

It is, therefore, better and general practice to use your business bank account to pay for all of the expenses instead of paying for the expenses out of the cash till. Paying the expenses out of the bank will give you a record on the bank statement. Furthermore, the business will get receipts for the expenses incurred, like invoices the total of these receipts will determine the total expenditure but there is a complexity here.

Expenses are generally of two types

• Capital expenditure
• Revenue expenditure

Capital expenditure refers to the money spent to maintain or acquire long term assets whereas revenue expenditure refers to the money spent to incur day to day expenditure.

Furthermore, expenses that relate to stock or inventory should be included with the cost of production, as these relate to the cost of goods whereas expenses that relate to revenue expenditure should be categorized according to their nature.

The common expense categories that most businesses have are..

• Administration expenses
• General expenses
• Salary expense
• Rent expense
• Stationary
• Interest expense
• Insurance premium
• Sundry expenses

Accounting programs today come with the ability to sort out expenditure automatically as it is fed by the data from the business bank account.

Therefore the key to sorting expenditure is to categorise it according to its nature. Capital expenditure should go to the cost of fixed assets whereas revenue expenditure should go to the expenses and deducted from the gross profit whereas expenditure related to inventory should be added to the cost of inventory but ultimately it has the same effect as revenue expenditure but for accounting reasons expenditure on inventory has to be separated from revenue expenditure.

A certified public accountant, therefore, should be able to create these processes that create a mechanism to track every item of income and expenditure, thus making the process of financial reporting simple and error-free.