Setindiabiz Team |Updated : August 28, 2024

How to Record Bank Transactions of Startup

Overview :Businesses’ Bank Statements serve as a foundation for the preparation of books of accounts. The bank statements have limited or very basic information. The blog focuses on ‘how to record bank transactions of startup’ and some best practices to record Income and Expenses properly. Explore this blog thoroughly to know how to record several transactions of startups in the best possible way.

The Bank Statements of your business is the foundation based on which books of accounts are prepared. However, a Bank Statement with no proper remarks creates more problems than solving one. A typical bank statement issued by an Indian Banker contains only a few columns. The information which you may gather from a bank statement is only very basic information such as date, transaction reference numbers, amount, and finally, whether it is deposit or withdrawal.

It does not contain necessary information such as the Full name of the Party and the purpose of the transaction. Please refer to a Bank Statement from HDFC Bank for the use of reference. For the purpose of accounting each & every transaction must be identified by party name & the reason for such transaction.

You would agree that under a double-entry system of accounting when the money is received in the bank account then the bank account is debited and correspondingly we have to credit the party from where money has come into the bank statement. Similar credit/debit treatment is required for payments/withdrawals. In view of the same please add four new columns to your bank statement;

• Name of Party
• Transaction Purpose
• Invoice Number (if Income)
• Bill Status (If Expense)

Sample Google Sheet To Maintain Bank A/c

You may use the above format and prepare the details of the transactions of the bank statement. You should make a habit of maintaining the records as explained in this post. Apart from this please pay attention to the following paragraphs for the Best Practice relating to Income, Expenses & Staff payments for your business.

Best Practice related to Income

The Income of the business should be generated out of an Invoice, if you are registered under GST then the invoice shall be known as a Tax Invoice and it must meet the requirements of law. The flow of activities for every income is as under (Best Practice):

• Define the terms of agreement resulting in income or income stream. We always recommend our clients to have a formal agreement signed clearly mentioning the responsibilities of either party and the terms of payment.
• Based on the understanding of the party, raise an Invoice, and in case the invoice can be raised only after the project is over then generate an estimate.
• Always remember to levy GST at the applicable rate and show separately in a separate column against each item
• Ensure that the invoice is signed by the authorised person as registered under GST
• When you receive the payment in the Bank Enter the name of the party, purpose as “Payment received against Invoice Number —“
• Remember to pay GST Levied for the month in which the Invoice was raised. The receipt of payment is immaterial.
• In case the party has deducted TDS keep take note of the same. Obtain Form 16A from the party for the TDS Deducted.

Best Practice related to expenses

The expenses of the business must be recorded carefully and while making the payment do remember to deduct the applicable TDS. Please visit our webpage for updated TDS Rates on various expenses. The important points are as under:

• Always insist on signed bills/tax invoices from vendors
• TDS Deduction (if applicable) is mandatory
• Record the party name and bill number on the Bank Statement Sheet

Best Practices related to Employees

• Prepare monthly payroll sheet
• Deduct proper TDS
• Deduct professional tax at the applicable rate (if applicable)
• Comply with PF and ESIC related provisions.
• Mark the payments relating to staff in the Bank Statement

For any assistance, please contact us. we would be glad to help you.

Conclusion

The bank statements of a business play a crucial role in preparing books of accounts. Bank statements have limited information, while for accounting each bank transaction must be identified by party name and also the reason of transaction. The above post helps you understand how to record bank transactions of a startup properly, so read it thoroughly!