Bookkeeping n. the work of keeping a record of business transactions
Now for the ‘science bit’!
Bookkeeping is the vital heart of accounting and refers to the process of accumulating, organising, storing, and accessing the financial information of a business. Keeping good records is imperative to understanding the state of your business at any point in time. It will help you manage cash flow, track people who owe you money, track which bills are due (including payroll obligations), and make filing your tax returns much easier.
The IRAS states explicitly that, "Businesses must retain records and schedules in a systematic manner and be able to substantiate ALL transactions relating to income, expenses, assets, liabilities, and purchases of the business."
Accounting software is a helpful tool that can assist businesses in improving their record keeping practices and tax compliance, but it is not compulsory. However, these days, there are many low-cost providers offering cloud-based services as well as mobile apps, so there are no longer any excuses for out-of-date accounts.
Key Areas of Record Keeping:
Most of the expenses incurred for business purposes qualify for tax deductions. If you cannot show that the expense has been incurred wholly and exclusively in the production of income for your business, it cannot be deemed a business expense.
It is advisable to keep as much information as possible for the claiming of expenses for tax deductions. Receipts and documents such as retail, taxi or restaurant receipts, travel documents, supplier agreements and other invoices, which substantiate your business expenses, should be kept.
Credit card slips or monthly credit card statements alone are not sufficient to substantiate your claims.
2. Staff Remuneration and Employer’s CPF Contributions
Staff remuneration includes wages, salaries, bonuses, commission, and allowances. The following records need to be kept:
- Details of employees, including full name, NRIC/FIN number, and employment contract
- Pay schedule, timesheets, and record of hours worked
- Schedule of annual, medical and any other leave taken throughout their employment
- CPF statements for employer’s CPF contributions
- Community Fund records for your claims of payments to the CDAC, MBMF, SINDA and the Eurasian Fund.
You may use these records to prepare the Return of Employee’s Remuneration (Form IR8A)
3. Fixed Asset Schedules
A fixed asset schedule should explain all expenditure relating to large assets of the business in order to account for capital depreciation or allowance of the items. Information should include:
- Date of purchase and cost
- Date of sale and sale price (if applicable)
- Copies of contracts of purchase and sale (e.g. hire purchase agreements)
- Effective life of the asset
- Method of calculation of capital depreciation
4. Stock List
Preparing a stock list will help you to explain your trading stock on hand at the end of each accounting period.
- Trading stock includes anything produced, manufactured, acquired or purchased for the purposes of manufacture or sale
- To determine the closing stock value, a physical stock count should be carried out at the end of the accounting period.