Simple books that still tell you the truth
Many small businesses run on a notebook and the bank app until tax time. That works until you need to know whether last month was profitable, why cash is short, or what to show a bank. A cash book with categories is the smallest system that answers those questions: one line per transaction, and the workbook does the adding up.
Income, cost of sales and expenses
Each category has a type. Income is money earned from customers. Cost of sales is what you spend directly on what you sell – stock bought for resale, freight in, materials. Expenses are running costs such as salaries, rent, electricity, phone and travel. Income minus cost of sales is gross profit; gross profit minus expenses is net profit. The monthly P&L shows all three for each month of the April–March financial year, with each line as a percentage of sales.
Why some payments aren't expenses
Money taken out by the owner (drawings), money put in, loans received or repaid, equipment purchases and GST paid to the government all move cash, but they aren't income or expenses. They are kept in a separate 'Not P&L' section so your profit isn't distorted – and the sheet reconciles profit plus these items to the actual change in cash. Equipment you buy is a capital asset; its cost is recovered through depreciation, which your accountant will work out at year end.
Cash basis and GST
This is cash-basis book-keeping: income and expenses are recorded when money moves. If you give credit to customers, track invoices separately (the Freelancer Invoice & Payment Tracker does this) so you know what's still due. If you are GST-registered, enter amounts including GST and note the GST part of purchase bills. The Pro edition totals that input tax credit by month and highlights bills without a supplier GSTIN – credit you may lose unless the bill is corrected.
Monthly habits
Enter transactions at least weekly. At month end, match the Balances sheet with your bank statement and cash in hand, and look at the month's profit and the biggest expense lines. Ten minutes a month is enough to spot a rising cost or a falling margin early.
Free vs Pro
The free edition gives you the cash book, the monthly profit and loss and account balances. The Pro edition adds a GST input-credit tracker and a dashboard with an income-versus-expense chart, year-to-date margin, the best month and your largest expense categories.
Written by Prakash Bagchi, finance professional and founder of PB Lab. Last reviewed .