Bookkeeping for limited companies: a practical monthly system

Set up the records around the actual business

Start by listing where money moves: current accounts, savings accounts, company cards, payment processors, cash and finance agreements. A company using an online marketplace can have sales, refunds, fees and delayed settlements before anything reaches the bank. Recording only the bank deposit understates both the income and the deductions that explain it.

Set up a sensible chart of accounts with the accountant before hundreds of transactions arrive. Separate sales, purchases, assets, financing, payroll, VAT and director loans. Choose software that supports your company’s tax obligations, access needs and export requirements. If VAT registered, check the Making Tax Digital requirements and how records flow into the return. A formation package’s optional bookkeeping subscription should be assessed on these needs, not simply on its introductory price.

Record sales when the underlying transaction happens

An invoice and its payment are related but not identical records. Maintain customer details, invoice numbers, dates, tax treatment and the service or goods provided. Identify credit notes and refunds without deleting the original sales trail. The accounting treatment of deposits, subscriptions and work spanning a year end can require more than cash-in equals income.

For marketplace or card sales, capture gross sales and the fees withheld before settlement. Check whether the platform acts as agent or principal and how VAT invoices are supplied. Reconcile customer debtors so you know which amounts remain unpaid. That record supports collection work and helps the accountant review bad debts rather than discovering old unpaid invoices when annual accounts are due.

1. 1

   Issue invoices using consistent numbering and correct company details.

2. 2

   Record credit notes against the relevant original sale.

3. 3

   Import or retain payment-processor reports.

4. 4

   Match receipts without counting the sale twice.

5. 5

   Review aged unpaid balances and disputes each month.

Keep evidence with each expense and asset

A card payment demonstrates that money left the company; it does not establish the business purpose or tax treatment. Save supplier invoices, receipts and contracts. For mixed business and personal spending, explain the facts rather than letting an automated category decide. VAT recovery needs the relevant invoice evidence and conditions, not just a bank-feed entry marked VAT.

Equipment may be an asset rather than an ordinary expense, and finance payments may include both debt repayment and interest. A director buying something personally should use a supported reimbursement process. A private item paid by the company may belong in a director loan account or employment-benefit review. Store evidence in a searchable system linked to the transaction so a new accountant can understand it without accessing a former director’s private email.

Keep director transactions visibly separate

The owner’s finances and the company’s finances must not blur into one ledger. Track each director loan account, salaries through payroll and dividends with lawful approval and vouchers. A dividend cannot be created by selecting a bookkeeping category; distributable profits and share rights must support it. Similarly, a personal transfer is not a deductible salary unless the employment and payroll treatment is correct.

Reconcile owner transactions monthly and show the director the balance. If several shareholders have different share classes, keep records that explain who received what and why. Provide the accountant with actual dates and evidence rather than a spreadsheet that retrospectively labels every withdrawal dividend. This makes unexpected overdrawn loans and unsupported distributions easier to spot while action is still possible.

• Separate ledgers for each director or relevant connected person.
• Reconcile payroll payments to payroll reports.
• Retain dividend decisions and vouchers.
• Review personal expenditure before a tax deadline.
• Do not backdate documents to make the ledger balance.

Use a repeatable monthly close

Choose a cutoff date and reconcile all accounts to their statements. Resolve unmatched items, check transfers between accounts are not recorded as income and review duplicate imports. Inspect aged debtors, unpaid suppliers, payroll liabilities and VAT control balances. Set aside tax cash using the accountant’s estimates, not the balance left after directors withdraw money.

Keep a short issue list showing who will resolve missing evidence and by when. Where an estimate or accrual is needed, document the basis and revisit it. Lock or approve completed periods where the software supports it so changes are visible. A routine close makes annual accounts a consolidation of work already done, rather than an emergency reconstruction of an entire year.

Worked example: gross sales versus settlement cash

Illustrative example: a payment processor collects £8,000 from customers, refunds £300 and withholds £160 in processing fees. It transfers £7,540 to the company. Recording £7,540 as the only sales figure loses the refund and fee trail. The records should explain £8,000 gross customer receipts less £300 refunds and £160 fees equals £7,540 settlement, with VAT treatment assessed separately.

If the processor holds part of the money past month end, the balance may also require reconciliation as funds receivable rather than a missing bank deposit. The accountant checks the underlying sales dates and platform relationship. This example shows reconciliation, not a universal revenue-recognition rule or VAT calculation.

Run the first monthly close without relying on automation alone

A newly formed company can make its first close manageable by agreeing responsibilities before the first invoice. The director names who uploads receipts, reviews imported transactions, issues credit notes and approves owner payments. The bookkeeper establishes a consistent cutoff and lists each account that needs reconciliation. Bank feeds are useful, but imported entries can arrive late, duplicate earlier uploads or miss settlement detail. The reviewer therefore compares the ledger with actual statements and processor reports, resolving transfers and fees before signing off the month.

The director receives a short management view containing cash, overdue customers, unpaid suppliers, estimated tax commitments and each director loan balance. It explains material exceptions rather than presenting a colourful dashboard as assurance that everything is accurate. Uncertain transactions are assigned an owner and a due date for evidence. Dividends remain subject to a lawful financial and approval review outside the ordinary expense-categorisation workflow. A company with VAT or payroll obligations checks that those control accounts reconcile to returns, payments and outstanding liabilities.

At the end of the close, records are backed up or exported through an appropriate controlled process. The company knows how to obtain its ledger and supporting documents if the software subscription or accountant relationship ends. It checks access for departing staff and preserves required records for the applicable period. The year-end handover then includes completed reconciliations, asset schedules, tax balances and unresolved questions. A repeatable evidence-based routine is more useful than a large volume of unexplained transactions automatically labelled by a system.

1. 1

   Gather the records described above before making the decision.

2. 2

   Review the case-specific assumptions with the appropriate adviser.

3. 3

   Record the agreed action, responsible person and relevant dates.

4. 4

   Reconcile the outcome to the company’s actual records.

Preserve records and hand over without losing access

Company accounting records generally need to be kept for six years from the end of the relevant company financial year, with longer retention in particular situations such as ongoing enquiries or transactions spanning periods. Check the official requirements rather than deleting everything at an arbitrary sixth anniversary. Statutory company records and employment records can have their own requirements.

Use controlled access, backups and export capability. When changing software or accountant, take copies of ledgers, reconciliations, invoices, tax returns, loss schedules and asset records before subscriptions end. Keep credentials secure and distinguish accounting access from Companies House authentication. Directors remain responsible for the company’s records even where an external bookkeeper does the daily work.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Company and accounting records
• GOV.UK: VAT record keeping
• GOV.UK: Taking money out of a company

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.