Business Finance
The SME's Guide to Good Bookkeeping
23 June 2023
Key takeaways:
- Bookkeeping vs Accounting
- Common source documents
- Bookkeeping tips for SMEs
The regular recording of a company’s financial transactions is often called bookkeeping. The “books” are source documents every business uses in the course of its daily operations and includes invoices, receipts, bills, cheque stubs, payment vouchers, credit and debit notes.
A business owner or administrative staff needs to record and categorise the company’s expenses, send customer invoices, and record payments received for bookkeeping purposes. On a monthly basis, it is good practice for businesses to conduct bank reconciliations (comparing company records with bank statements), generate monthly financial statements, and process payroll. All these documents are so-called “books” that will help your accountant prepare the four key final documents that regulators require: (a) Statement of Financial Position, (2) Profit and Loss Statement, (3) Cash Flow Statement, and (4) Statement of Changes in Equity.
Bookkeeping vs Accounting
New business owners are often confused by business, accounting, and financial terms. Two terms that are often incorrectly used interchangeably: bookkeeping and accounting. We already know that bookkeeping is focused on keeping records, but accounting goes one step further. Accountants take your “books” and adjust the entries for income reporting and taxation purposes, as well as analyse operational costs, so owners are better informed when making business financial decisions.
While SME owners are likely to hire administrative staff to handle bookkeeping and external accountants for these purposes, it is still important to have basic knowledge of both bookkeeping and accounting. After all, if there are any discrepancies, it is the business owner who answers to the regulator.
Common source documents
| Document | Description |
| Invoices | A time-stamped commercial document issued from seller to buyer that itemises and records a transaction. If goods or services were purchased on credit, the invoice specifies the payment terms and methods. |
| Receipts | Issued from seller to buyer, it is an official record that presents proof of a purchase, such as stock inventory from vendors or monthly digital subscriptions from service providers. |
| Cheque stubs | Attached to a cheque, a cheque stub provides details regarding the amount paid. The contents of a cheque stub typically include the invoice number paid and the amount paid, which sums up the grand total paid. |
| Deposit slips | A small paper form that a bank customer includes when depositing funds into a bank account. A deposit slip contains the date, depositor name and account number, and amount deposited. |
| Payment Vouchers | A payment voucher acts as a backup document for accounts payable, or bills owed to your vendors and suppliers, including utility bills, rent, freelancers hired, and stockists. |
| Debit Notes | Typically issued by a seller to a buyer to notify them of current debt obligations. |
| Credit Notes | Issued by a seller to a buyer to notify that credit is being applied to their account, typically in the case of goods that were damaged or returned, services rejected, changes to an order after an invoice was issued, and pricing errors on the original invoice. |
| Bank Statements | Issued by your bank at the end of each month, summarising all transactions in a particular account during the month, including a detailed list of all deposits and withdrawals. |
| Credit Card Statements | Issued by your credit card issuer at the end of each billing cycle, this summarises how you’ve used your credit card during a particular billing period, from payments charged to the card to interest levied and amounts paid down on the balance owed. |
| Loan Statements | Issued by your lender at the end of the year listing all payments you have made towards repaying a particular loan account during the period. |
| Employee Time Cards | A card that prints the hours an employee has worked, based on when they clock in and out to a time clock. Different from a timesheet, which is recorded by the employees themselves. |
Bookkeeping tips for SMEs
Here are six tips to keep your books in tip-top shape for your accountant:
- Quick and automated invoicing: Do this as soon as possible, as your payment terms (i.e. 30 days) start from the date of issue. Some accounting software can automate your invoices, especially if you have recurring payments due from clients. When payments are made, this software can also quickly capture data and issue receipts to your clients.
- Sort and schedule bill payments when they arrive: Your vendors and service providers issue you bills and invoices which you need to pay at different times. Make sure you do not miss any payments (especially for utility bills), and if possible, automate your bill payments or schedule them at a fixed date at the end of each month. If bills come via snail mail, scanning and digitising them as soon as possible is highly recommended.
- Reconcile your books with your bank statements: At the end of each month, compare your bank statements with your bookkeeping system. Match bank transactions to invoices, bills, and receipts, or automate this process with your accounting software.
- Chase for payments effectively: Remind customers that their payments are overdue. If you pay your vendors quickly but receive payment slowly, you may face cash flow shortfall down the road. Accounting software can help keep track of overdue payments and issue reminders to customers.
- Keep on top of payroll: Payroll does not just involve wages, but also other benefits such as Employees Provident Fund (EPF), Social Security Organisation (Socso), and Employment Insurance System (EIS) contributions on behalf of employer and employee. Your payroll software may also be able to automatically calculate and make Monthly Tax Deductions (PCB) and generate employee payslips. Some business banks offer payroll solutions, such as Alliance Bank’s alliance@work’s payroll and remittance services.
- Remember your tax obligations: Businesses in Malaysia typically pay CP500 tax on a bimonthly (once every two months) to the Inland Revenue Board (LHDN). If your business provides taxable services or goods, and earns sales above RM500,000 a year (some industries may have different thresholds), you will be liable to pay and/or charge your customers Sales and Service Tax (SST).