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Maintaining Books of Accounts

Maintaining Books of Accounts

Maintaining books of accounts is important if you are running a company in the UAE. Books of accounts are records of financial records (activities and transactions) of a company. These books help to analyze the company’s financial position, cash flow and overall performance. With the help of organized and up-to-date books a company can make informed business decisions and manage the cash flow.

 

According to the UAE law, companies are required to keep their financial records for five years otherwise they will face fines and penalties. This process can be made easy with the help of qualified accountants or they can outsource their books to an expert auditing and accounting firm. Outsourcing is a great way to keep track of finances without worrying about spending extra money. In this article, we will discuss how a company can maintain its books of accounts in the UAE.

Maintaining Books of Accounts for Small Business

Boks of Accounts for Small Business

Maintaining accounting books means keeping an accurate and updated record of your company’s financial transactions. You can follow the steps given below to keep and update books of accounts of a small business.

Select a Bookkeeping Method

It is necessary to select an accounting method for the process of small business accounting. The main methods are given below,

  • Cash-basis accounting
  • Accrual accounting
  • Hybrid accounting

For cash-basis accounting the company needs to record the transaction if money is transferred from one person to another. For small companies, the accrual accounting method is time-consuming and requires expert knowledge. In this accounting method, the transaction is recorded even if the money is transferred or not. Whereas hybrid or modified cash-basis accounting incorporate both cash-basis and accrual accounting. 

Recording Transactions

For recording your business transactions, you can consider the following methods.

  • Recording your transactions manually in a spreadsheet
  • Appointing an accountant
  • Using an accounting software

Outsourcing can save money for a small business as it is more affordable than hiring an accountant.The use of an accounting software saves you a lot of time as it automatically completes tasks.

Make Charts of Accounts

The charts of accounts include all accounts in the bookkeeping record and it helps keep record of cash inflow and outflow of your business. The COA includes the following titles.

  • Asset
  • Equity
  • Liability
  • Expenses
  • Revenue

There can be sub-categories in your bookkeeping account according to the needs of your business.

Open a Bank Account for Mainting Books of Accounts

It is important to keep your business finances in a separate corporate bank account. It will help you avoid any kind of mistakes in accounting, managing your expenses and avoid inaccurate income tax returns.

Select a Payment Method

Payment Method

You must set up a payment method for your customers to receive payments. You can select the way you want to receive payments such as, cash, checks, credit card, or other online payment methods.

Track Your Expenses

It is necessary for small businesses to keep track of their expenses. You can monitor your company’s expenses at different times and use this data at the time of tax payments. The expenses you need to keep track of are given below,

  • Invoices
  • Credit card statements
  • Bills
  • Previous tax returns
  • Canceled checks
  • Receipt
  • Proof of payments

Set Reminders

Set reminders and schedule the accounting cycle as it will help you simplify the process of accounting tasks. Follow a process to record your transactions and set reminders when you need to update your accounting records. 

Maintaining Books of Accounts According to UAE Law

The UAE law mandates the companies to keep record of accurate financial transactions that can be checked at any designated time. The records must be maintained in a way that helps the accountants or investors to confirm they’re according to the federal law of the country. According to the law the companies must, 

  • Keep the books of accounting and financial transactions of the business for five years after the end of the accounting year of the company. The company must keep the records at the main office where they are easily accessible. 
  • The data must also be kept in digital form according to the laws of authorities.
  • The annual reports of the business must be according to the international standards of accounting. 

The manager of the company is responsible for keeping books of accounts, making annual budget reports and profit and loss statements of the company. The manager also makes an annual report on the financial status of the company and gives recommendations. 

Types of Accounting Books Under UAE Law

Under the UAE law, the companies are required to keep the following records and scripts,

  • Company’s balance sheet
  • Profit and loss statement
  • Reports of fixed assets
  • Salaries and wages accounts
  • Record of inventory after the tax period

A fine of AED 10,000 will be imposed on businesses that fail to provide the required accounting records of their business. This fine will increase five times if you fail to provide accurate records for the second time.

Items Included in Books of Accounts

Generally, following items are included in books of accounts, 

Journal Entries for Mainting Books of Accounts

Journal entries include all the business transactions of a company. The entries are recorded according to the date, amount, concerned accounts and details about transactions.

Cash Payment Journal

This is an archive where all the cash payments and receipts of the company are kept. 

Ledger Accounts

These are the accounts that keep all the financial transactions of the company, such as the money spent, money received, equity, liabilities and assets. 

Sales Journal

This is where a company keeps record of all its sales.

Purchase Journal

The company’s all purchases are recorded here.

Inventory File

Inventory Management

This is where all the information of the company’s inventory is kept, sales, purchase and cost of sales.

Paysheet

These records include salaries of the employees, taxes and other discounts etc.

Bank Account Statements

Company’s all bank account statements such as deposits, withdrawals and other bank fees are included.

Long-Term Assets

This includes records of company’s assets owned by the company and their date, cost and reduction of assets value. 

In general, books of accounts include accurate and complete financial records of the company which shows its financial health and the areas that need improvement. 

Tips on Maintaining Books of Accounts in Dubai

To simplify the process of maintaining books of account, here are some tips on accounts to help with the cash flow and business growth of your company.

  • Maintain a good relationship with the accounting team to understand the health of your business and how to avoid future mistakes and make informed decisions for business growth.
  • Making a list of all financial records in an organized way will make sure all the data is accurate and up-to-date, how the inflow and outflow is and make balance reports.
  • Making an effective budget and monitoring it according to the business’s performance will help you manage your finances and help set realistic goals for your company.
  • Keeping your records organized helps you maintain your books of accounts effectively.
  • The company must have a worksheet that shows all balance on your balance sheet. 
  • Keeping record of your company’s debts or credit is another important tips on accounts. Utilize modern technologies to make sure your invoices are paid on time. 
  • Make a list of all the bills or credits that are due, as it will help you keep track of your payables before making any kind of big investments.
  • Invest in good accounting as it will help your business in the long run.
  • Team up with an expert bookkeeper as it will make sure your books are accurate and up-to-date.

Benefits of Maintaining Accounting Books

Benefits

There are many benefits of maintaining documents for accounting,

  • A company can take care of its business in an efficient way
  • Helps analyze the performance of the company according to the business plans used previously
  • Helps the company to be prepared for any kind of mishap or difficulty in the future
  • The company can manage their employees in a better way
  • Detect any kind of frauds that may have happened in the company

The process of bookkeeping can be done by auditing firms or by working with an in-house accountant in Dubai.

Ending Notes

In company law, the concept of maintaining books of accounts means the accurate records of the company that it should keep to provide accurate and current financial activities and transactions. The accurate date shows that the company is complying with the law and there are not any kind of mishap or frauds. The company can face legal fines if it fails to keep books of accounts, also the relationship with your potential investors can also be affected badly.

If you want to know more about accounting and bookkeeping contact Al-Riyady. Our expert team can provide you with effective accounting and auditing services in the UAE. We also provide Tax Consultancy, Business Valuation, Business Feasibility Study and more.

FAQs

A small business must include, accounting, financial records, payables and receivables and compliance with taxes in their accounting books.

To keep accurate and current records of your accounts, use modern accounting software or work with an expert accountant.

The business or profession are required to maintain and keep record of their accounting books. It helps to calculate the taxable income according to the law of the country.


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