Bookkeeping For Small Business in Australia
You were undoubtedly excited to meet your first customers and start making money when you first opened the doors of your small business. Learning to bookkeep, on the other hand, may have seemed less appealing, especially if you’ve never considered yourself a “math person.”
Bookkeeping keeps you informed about the state of your small business and helps you stay on track with the ATO. So, what exactly does it include, and how can you make it less tedious? For novices, we break down bookkeeping.
However, in order to run a small business, you must have some knowledge of bookkeeping. If you’re more passionate about, say, selling secondhand books or providing exceptional life-coaching advice than numbers, the idea of learning bookkeeping may seem daunting, but it may transform your business. The practice of recording and organizing a business’s financial transactions is known as bookkeeping.
You’ll feel more secure in your company’s future with the correct bookkeeping tools, and you’ll be able to better understand (and prepare for) its profitability. Best of all, understanding bookkeeping does not necessitate overnight calculus mastery. Instead, keep reading to learn how to master the fundamentals of bookkeeping so that your small business can thrive.
Despite the inherent unpredictability of running a company, having a reliable record-keeping system can be of great assistance. This article will teach you about record keeping, including what kinds of records you should keep, how to keep records, and for how long records should be kept.
What Is Bookkeeping?
Let’s start with a definition of bookkeeping.
A person who is responsible for keeping track of and coordinating the financial operations of a firm is called a book-keeper. Bookkeeping is the most frequent method that business owners use to establish whether or not their company is profitable. Keeping track of your numbers enables you to spot potential financial issues at an early stage and find solutions to those issues before they develop into a full-fledged crisis. Bookkeeping also helps you uncover opportunities for growing your profits, which you might not have noticed otherwise due to a lack of clear financial records that are easy to read. This is something you might not have been able to do without the assistance of bookkeeping.
The tasks of issuing invoices, processing payments, maintaining accounts, keeping track of transactions, and generating financial statements are all part of a bookkeeper’s daily routine. Bookkeeping and accounting are two related disciplines, but whereas bookkeeping lays the foundation for accounting, the primary focus of accounting is on interpreting the data that bookkeeping compiles.
Bookkeeping comprises recording and categorising all of your company’s financial activities in order to maintain accurate records. Keeping tabs on the amount of money that your firm spends as well as the amount of money that it receives is what this refers to.
The management of these responsibilities was formerly carried out with the aid of books and ledgers, hence the title “bookkeeping.” Before the information was entered into a ledger, transactions were initially recorded in daybooks, cashbooks, and diaries.
The necessity for physical books has mostly been eliminated by bookkeeping software.
Bookkept offers complete bookkeeping services for small businesses in Australia. We’ve successfully provided bookkeeping services to organizations of all kinds, from small businesses to international corporations, over the years.
Your books of accounts will be handled with the highest secrecy and care by Bookkept. Also, we guarantee that working with us will make you proud since our team of Bookkeepers will work with you in such a fluid manner that you will feel like you are working with your own team. Why is bookkeeping necessary for small businesses?
An accurate, well-kept set of books is a great start to running a successful business. Here’s why:
- You can verify that you are earning more than you are spending.
- For planning and budgeting purposes, you’ll have accurate financial data.
- By keeping track of when you need to pay suppliers and when you may expect payment from consumers, you can anticipate a cash crunch and take steps to avoid it.
- You’re more likely to come across errors (or even fraud) that could cost you money.
- You have the ability to prepare proper tax returns.
- Having your financial information organized helps working with others like lenders, investors, and accountants much easier.
How Can Records Be Kept?
You have the option of storing your records either digitally or manually on paper. Because the ATO is fast moving towards electronic reporting for tax and super responsibilities, firms should try to keep their records in an electronic format if it is at all possible to do so. Once you’ve established your system, maintaining your information electronically should make certain tasks simpler and save you time overall.
It is time to start keeping track of your funds now that you have established your bank accounts and made a decision regarding a bookkeeping system.
Each and every debit and credit transaction needs to be tracked and reconciled with extreme precision. If you don’t do this, the totals of your individual accounts won’t add up, and you won’t be able to close the books.
Every company that has employees needs to have a payroll system that only requires one touch. If you have employees, you will need sophisticated payroll software to maintain compliance and make the process easier for yourself and them. You will almost certainly be paying yourself a salary as an employee if you have launched your own business, in which case you will require a payroll system.
QuickBooks has partnered with KeyPay to integrate payroll as part of their Australian QuickBooks Online solutions. Ironically, Sage Business Cloud Financials has done the same. KeyPay, as an embedded “best-of-breed,” is likely to triumph on this front.
Payroll is not Xero’s strongest suit. Still, it’s more than adequate, and it’s always evolving; it’s light years ahead of MYOB’s payroll system (Essentials particularly).
If you keep your records electronically, there is no requirement that you keep paper copies of them unless a particular law or rule mandates that you do so.
There is also the possibility of records being stored and managed electronically. As long as the electronic copies are a genuine and clear reproduction of the original paper records and comply with the ATO’s record-keeping requirements, the ATO will accept pictures of business paper documents that are stored on electronic storage media. This is required in order for the ATO to accept the pictures. After you have digitised an image of the paper records that were originally kept, you are no longer required to keep the paper copies.
Make sure to protect your records regardless of the choice you decide to go with. Create a backup of your files, and if at all possible, save them in a secure location that is not on your local network, such as cloud storage.
Additionally, the files need to be stored on a computer or other device that possesses the following characteristics:
- you’ve got access to (including all passwords)
- is protected in the event of a computer failure
- allows you to have complete control over the data that is processed, entered, and transferred
Decide On A Bookkeeping Method
Let’s say you want to conduct your books yourself rather than hiring an accounting or bookkeeping agency. In that situation, you must make one critical decision before proceeding with the setup: Are you planning to retain your books in single-entry or double-entry format?
Each transaction is only entered once in single-entry bookkeeping. If a consumer gives you money, you just put it in your asset column. Isn’t that correct? If your business is simple—as in, very, very simple—this strategy may work. If you operate from home, don’t have any equipment or goods to sell, and don’t perform a lot of cash transactions, single-entry bookkeeping can be a good fit for you.
The double-entry accounting system, which is similar to Newton’s Third Law of Motion but for finances, is used for the majority of bookkeeping. According to Newton’s law, “every action (in nature) has an equal and opposite response.” Similarly, any transaction in one account necessitates an equal and opposite entry in another account under double-entry accounting. It’s not physics, but double-entry accounting is more complex than single-entry bookkeeping, but don’t let that stop you.
Double-entry accounting ensures that your books are constantly balanced, so you’ll know right away if profits start to decline. In addition, most accounting software defaults to double-entry bookkeeping. You may do double-entry bookkeeping with ease now that the program is ready to use.
It is, however, as crucial for company management.
A set of books or ledger accounts is used in manual bookkeeping systems. These are frequently available at your local newsagent, office supply, or book store.
The benefits of a manual system can be as follows:
- Setup is less expensive, and data corruption is less likely.
- If you’re not familiar with accounting software, this is an easier system to use.
- It is common practice to avoid making duplicate copies of the same records.
To keep records, the ATO is switching to electronic means. So going digital at this time might be a good idea. The following are some advantages of keeping digital records:
- a manual approach requires less physical store space
- Automatically calculates amounts, making reports simple to create and store in the event of a fire or theft.
Spreadsheets, web-based systems, and accounting software are among your electronic alternatives.
You can do the following with the assistance of an off-the-shelf or customised accounting software package:
- keep track of your transactions.
- calculate the tax on goods and services (GST)
- Prepare financial statements by updating ledgers.
- produce invoices
Web-based or “cloud”-based software:
- allows you to update your books from anywhere and enables automatic off-site storage for your financial information, making it a more cost-effective digital choice.
However, there are some safety concerns associated with it.
Are you proficient with a computer but lack the cash to purchase an accounting package? Consider building a spreadsheet structure for your accounts.
Point-of-sale (POS) systems
You may need to update or improve your POS system as your business expands. These are computer systems that assist you in processing sales and keeping records.
Depending on the POS system that you choose, point-of-sale (POS) systems are capable of automatically:
- adjust sales income and inventory records
- create receipts, invoices and tax invoices
- process EFTPOS and credit and debit card sales
Before you purchase a point-of-sale system, it is important to give some thought to the functionality that your company need.
How To Do Bookkeeping
Recording and reconciling are the two most critical activities in small business bookkeeping. Let’s dissect them.
Keeping track of each transaction
Keep track of your sales. Traditionally, this was achieved by entering them into a cashbook or punching them into a spreadsheet. Business owners are increasingly uploading sales data from point-of-sale or invoicing software directly into their books.
Always remember to record your transactions.
Every single purchase made by an organisation needs to be documented. Keep the proof of purchase as well as the receipt for the item if you are going to claim that expense as a tax deduction.
You have the option of recording these details once more in a book or spreadsheet. You also have the option of automating the procedure so that any debits made from the bank account associated with your company are entered into your accounting software.
You can record your income and expenses at various times throughout the year depending on whether you use cash accounting or accrual accounting.
Consolidating each transaction
The process of reconciling your business’s accounts requires making routine comparisons between those books and your bank statements to check that all of the transactions and balances are accurate – and identifying why they aren’t if they aren’t. Take into consideration any bank fees, interest payments, deposits, and payments that have not yet been made to your bank accounts.
You may need to perform bank reconciliation on a daily, weekly, or monthly basis, or even less frequently, depending on the volume of financial transactions that are processed by your company. However, in order to submit your tax reports, you will undoubtedly be required to perform a reconciliation of your books.
When transactions are reconciled as quickly as possible, it allows for speedier identification and resolution of problems. To prevent work from piling up, it is essential to complete it on a regular basis, possibly once each day. Our guide contains more information that may be used to learn how to perform bank reconciliation.
Other small business bookkeeping duties
If you’re acting as a bookkeeper for a small business, you may also be responsible for:
- accounts receivable (issuing bills and ensuring payment)
- accounts receivable (paying bills on time)
- payroll (paying employees)
Professional bookkeepers also assist with financial reporting (profit-and-loss, balance sheet, and cash flow report) and business performance measurement. Bookkeepers are frequently BAS agents and can assist you in filing your taxes.
Choosing A Professional To Do Your Accounts
A good accountant or bookkeeper can help you increase your revenue. They can also assist you with your accounting and financial health.
Consider hiring the following financial experts:
- Accountants can assist you with your company’s financial needs, such as financial statement preparation, tax management, and financial and business counseling.
- A bookkeeper may keep track of your daily financial operations, handle your banking, chase down late payments, pay wages, and generate financial statements.
- Agent for business activity statements (BAS) – can assist you in preparing and filing your BAS to ensure accuracy. They are licensed professionals who are experts in their fields.
Even if you hire someone to manage your books or accounts, you are still accountable for any financial decisions you make.
Check their registrations
Whoever you hire to assist you with your accounting must have the necessary qualifications. They should also belong to a professional accounting or bookkeeping organization.
You can verify if your tax agents, BAS agents, or tax (financial) advisers are registered on the Tax Practitioners Board (TPB) website.
There are two ways you can check:
- Search the TPB database.
- On their website, stationery, brochures, or business cards, look for the registered tax practitioner emblem. The type of registration and their individual registration number are included in the registered tax practitioner symbol.