bookkeeping tips

The 2021 small business owner’s guide to bookkeeping

For successful cost management, cash flow administration, and ultimately profit generation, firms need access to their financial information. It’s possible that you won’t be able to run your company effectively if you don’t have access to trustworthy data. Your activities can be managed more effectively using the information provided by an accounting system.

What is bookkeeping?

Bookkeeping entails entering financial transactions into an accounting system as well as compiling financial information into a record-keeping system. The term frequently includes additional responsibilities necessary to ensure the efficient operation of your firm. If you are in charge of the bookkeeping for your small business, you will be responsible for a variety of activities that are very important.

What does a bookkeeper do?

You will be responsible for reviewing source papers and recording fundamental accounting information if you are serving as the bookkeeper for your company. This is not an administrative responsibility. These are important steps that could have an effect on your company.

You will enter two financial transactions that occur on a daily basis into your accounting system.

Expenses: You will enter expenses in your accounting system after reviewing the invoices and payments from your suppliers and going through their payment records. Keeping track of your expenditures might be made easier by reviewing past expenses.

Revenue: When an employee makes a sale, the transaction and the customer number are both recorded in the ledger. After doing so, you will be able to compile financial reports to determine which clients bring in the most money.

Why does bookkeeping matter?

Consider the people that have a stake in your organisation if you want to comprehend the significance of bookkeeping. Accurate financial documents pertaining to your company are required in order to satisfy the requirements of investors, creditors, suppliers, and authorities. Keeping accurate books can assist you in providing a significant portion of that data.

Bookkeeping can help you manage BAS compliance

Bookkeeping allows you to keep track of your income and expenses, as well as to prepare and submit BAS returns. You will be required to make amendments to the lodgements if the data is either incomplete or contains errors; this will result in interest and penalties.

You can use bookkeeping to aid in managerial decision-making

In order to boost sales, keep costs under control, and keep an eye on cash flow, managers must precise data. You are able to post and retrieve the information that managers require in order to make judgments by utilising fundamental bookkeeping principles.

Bookkeeping can assist with business financing

It’s possible that your company will one day require a loan in order to stay afloat. Your financial statements will need to be correct if you want your lender to fund your loan. All three types of financial statements—balance sheets, income statements, and cash flow statements—can be generated from accounting activities.

It’s possible that each week, your company records dozens of accounting transactions. When you have a system that is reliable, you will make fewer mistakes. In the event that you do make a mistake, though, you will have a far easier time correcting it.

1. Keep your personal and professional costs separate

Create a bank account under your company’s name, using the Australian Business Number as the account’s primary identifier (ABN). Personal expenditures of any kind should never be deducted from the business account’s activity. By keeping your business and personal expenses in separate accounts, you can shield your assets from any potential business obligation or legal action. For instance, if you run a corporation for your company, that corporation needs to exist as a distinct legal entity from you.

If you submit transactions pertaining to both your business and your personal life into the same bookkeeping system, you put the accuracy of your financial statements and tax returns at risk. Let’s say you enter $2,000 worth of personal costs into the company’s financial records; this is just an example. Your company’s income statement costs won’t be accurate, and neither your income statement nor your tax return will be accurate.

2. Decide between double-entry and single-entry bookkeeping

The double-entry bookkeeping approach should be utilised by each and every company. This idea is fundamental due to the fact that every single accounting transaction has an effect on a minimum of two accounts. When you use the double-entry method, you are able to obtain a more accurate picture of the activity within your company. The double-entry approach takes into consideration debit entries, credit entries, and totals when it comes time to publish a journal entry to your accounting system.

Each journal entry has a debit entry listed on the left side of the page. Each debit input will, almost always, result in an increase to both the asset and expense accounts. Each journal entry has credit entries located on the right side of the text. A credit entry will almost always result in a rise to both the liabilities and revenue accounts.


Last but not least, the total dollar amount of debits and credits must always be equal. Each journal entry must record an equal dollar amount of debits and credits, according to the requirements of the accounting and bookkeeping software. There is a possibility that the number of debit and credit entries will be different.

On the other hand, the image of the business results that is presented by using the single-entry method of accounting is distorted. The transactions are each recorded as a single entry in just one account using this form of accounting. One example of a single-entry accounting system is when transactions are recorded in a chequebook. When you write a check, a single transaction is posted to your account, and this causes your available balance to fall.

The single-entry option should not be used by owners of businesses since it is impossible for them to generate the account activity that is necessary to create balance sheets or cash flow statements using this method. A book-keeper can assist you in transitioning to the double-entry way of business management if you are currently managing your company using the single-entry method.

3. Select an accounting technique: cash or accrual basis

The accrual method of accounting is the method that owners of businesses should adopt to ensure that their financial statements are clear and accurate. By comparing the amount of revenue earned to the amount of expenses incurred to create the payment, the accrual method provides a transparent picture of the profit that the company has made.

Let’s look at an example:

– Riverside Landscaping bought $1,000 of soil in February.

– Riverside Landscaping paid $2,000 in labour costs in March and billed the Jones Family for $3,500 on 20 March.

– The Joneses paid Riverside’s invoice in April.

If you assume that Riverside paid $100 in overhead costs, you can figure out how much money they made off of the Joneses’ project by deducting the revenue from the costs of the materials, the labour, and the overhead. The amount of profit for Riverside is $400.

When Riverside was performing the landscaping work, the expenses of the materials, labour, and overhead, as well as the revenue, were reported on the website. When Riverside submitted its bill to the Joneses on March 20th, a profit of $400 was recorded. When you are able to compare revenue to expenses, you will have an accurate picture of the profitability of any individual product or service.

On the other hand, revenue and costs are recorded using the cash method according to the cash that comes in and cash that goes out of the business. If Riverside were to use the cash method to record their expenses, they would record a sod expense of $1,000 when they paid cash in February. Once they have received the payment from the client in April, at which point their revenue of $3,500 will be posted,

Transactions involving income and expenditures would, in essence, be carried over to subsequent months. Therefore, Riverside was unable to examine the income statement for the month of March and view the revenue and expenses associated with the Jones project. As a result, they were unable to estimate the amount of money made from that particular work.

4. Sort your transactions by category

When you enter transactions into your bookkeeping system, you need to make sure that you are entering the information into the appropriate accounts each time. Keep your chart of accounts up to date in order to ensure that your accounting information is posted in the appropriate locations.

Every company needs to compile a chart of accounts, which is essentially a list of all of the accounts that are required for business management. Sometimes the stores are given together with the account number that corresponds to them. As the business expands, you may need to establish new accounts, eliminate existing ones, or switch the ones you now use to submit transactions. Following the order of the accounts on the balance sheet, the accounts for revenue and expenses are subsequently numbered.

Three advantages of digital bookkeeping

If you have the correct accounting system, you’ll be able to automate a significant number of the most fundamental bookkeeping operations. As a result, you can:

  • Collect payments faster

In order to hasten the process of cash collection, you should invoice your customers and take payments automatically.

  • Capture and organise receipts

You may do rid of paper files and keep organised for tax time by scanning your receipts and attaching them to the relevant transactions.

  • Manage tax deductions

Maintain an accurate record of your expenditures so that you can claim maximum tax deductions for things like transportation costs.

Basic accounting terms every business owner should know

In order to guarantee that they are always on top of their finances, it is imperative for the owner of any newly established company to quickly get familiar with crucial accounting terms.

Cash flow accounts receivable, and liabilities are some of the fundamental concepts that proprietors of businesses are required to comprehend, regardless of whether or not they have a background in finance.

The following is a list of 14 essential accounting words that every proprietor of a company ought to commit to memory.

Key accounting terms

Accounts receivable: This is the amount of money that is owed to your company by consumers or clients as of the current date. On your balance sheet, it is categorised as an asset if it is money that you have a reasonable expectation of getting in the future.

Accruals: Accruals are expenses and sales that have been completed but for which payment has not yet been received. Sales that have been fulfilled but for which money has not yet been received are also considered accruals.

Assets: These are all of the assets that are owned by your company. Fixed assets are those that are purchased with the intention of providing a long-term benefit to the company, such as factory equipment or property, while current assets are those that can be converted to cash within one year, such as inventory or accounts receivable. Purchases can be either current or fixed assets. Assistance can also take the form of intangible assets, such as copyrights or trademarks.

Audit: An audit is a type of formal evaluation that can be carried out by the Australian Tax Office (ATO) to determine the correctness of the financial reporting that you have provided. To have a better understanding of the state of your company’s finances, you may also choose to carry out an internal audit.

A balance sheet is a statement that provides an overview of your company’s current financial position by providing a summary of what your company owns (its assets), what it owes (its liabilities), as well as an owner or shareholder equity.

Capital: This might relate to the worth of monetary assets, such as cash, or it can refer to the value of monetary aid, such as inventories. To determine the amount of money that is easily available to your company, subtract your current liabilities from your existing assets to determine your working capital.

Cash flow: This is the amount of cash that is anticipated to flow into your business over a specified time period as a result of sales and the expenses that those sales generate. The two are compared in a cash flow statement, which helps present a more accurate picture of your ability to pay off creditors while maintaining a profitable business.

COGS: This represents the cost of the things that were actually sold. It’s a measurement of how much it costs you to create or buy your items, and it might be positive or negative. To calculate your gross profit margin, start by subtracting the cost of goods sold from the sale price.

Depreciation: A method of accounting known as depreciation is used to record the cost of assets or expenses incurred by a company over time. Instead of deducting the total cost of an asset when you purchase it, which could result in an artificial loss for that particular fiscal year, depreciation gives you the ability to record the expense in increments based on the depreciation method that you choose. This allows you to avoid creating an artificial loss for that particular year.

Expenses: These are the charges that are associated with running your firm, and they typically fall into one of the following categories: operational, fixed, variable, or accumulated expenses.

General ledger: Imagine that this is the master file for your company’s accounting system. It is a thorough record of all of the financial transactions that have been conducted by your organisation.

Gross profit margin: This is the gap between the price that you sell your products or services for and the amount that it costs you to make those products or provide those services. It is essential for gaining an insight of the profitability of your company.

Liabilities: You are obligated to make payments on these debts or expenses, which arose as a result of running your firm, in either the immediate or more distant future. A current liability is one that you will pay within the next year, but a long-term injury may include consistent payments made over the course of a specific length of time.

Profit and loss statement: This is a financial report that details your earnings, costs, and nett profits over the course of a particular time period.

Revenue: This is the entire amount of money that you receive from the sale of your products or services. It is also sometimes referred to as turnover or gross profit.

Financial accounting glossary for business owners

When beginning a new business, one of the most challenging aspects is typically getting your mind around the financials of the company. During the end-of-the-financial-year (EOFY) period, it is especially important to understand the distinction between your capital and a capital cost so that you may reduce the number of times you consult your accountant or financial advisor.

Accrual accounting

A method of keeping financial records that documents transactions at the time they take place rather than when they are paid for. For instance, if a sale was made on December 31 but the money wasn’t collected until February 2, the sale will be reflected in the books as having occurred on December 31.


Things that belong to your company and have the potential to either earn cash or be transformed into cash. Typical assets consist of real estate, automobiles, inventories, and pieces of equipment (and cash itself, of course).


An auditor or a tax official will go through the financial records of a company to make sure that everything has been accounted for accurately and will do a check on those records. You can also conduct an audit of the accounting for your firm.

Balance sheet

A snapshot of a company’s financial status at a certain date (often the end of a financial year) that displays all of a company’s assets and liabilities is called a balance sheet. This snapshot is typically taken at the end of the company’s fiscal year.


The process of recording the financial transactions that occur within a company, which is a component of accounting. The form of bookkeeping known as double-entry is the one that is most frequently utilised.


The wealth of the company, expressed either as cash on hand or the value of its assets.

Capital cost

A one-time, major purchase of immovable goods such as plant, equipment, building, or land that is considered to be a capital expenditure.

Cash accounting


When the cash is really collected for the transactions, rather than when the transactions actually take place, the transactions are recorded by a system of accounting. For instance, a transaction that took place on December 31 but wasn’t recorded until February 2 because the consumer didn’t pay until that date is recorded on February 2.

Cash flow

The rate at which cash is actually coming into and going out of a business. The cash flow statement of a company can also be used to provide insight into the company’s cash flow over a specific time period.


When a consumer purchases products or services with an agreement to pay later, for example by opening an account with a supplier, charging the purchase to a credit card, or taking out a loan, a specific word is used.

In double-entry bookkeeping, the term “credit” is also used to record one side of a transaction in the accounts (the opposing side of a transaction is recorded using the term “debit,” which is why the system is called “double entry”).


A sum of money that is owing to another party by an individual or company; for instance, unpaid bills or loan repayments. Bad debt is money that is owed to a company but there is little chance that it will be paid back in the near future.


The worth of one’s ownership interest in a company, which is determined by subtracting the company’s liabilities from its assets. In certain circles, this concept is referred to as “nett assets,” “nett worth,” “owner’s equity,” or “shareholders’ equity.”

Financial year

A period of one year during which a company’s operations are carried out, often beginning on July 1 and ending on June 30.

Income statement

Profit and performance over a given time period can be demonstrated with the use of a financial statement that details sales and expenses. A balance sheet is another name for a profit and loss statement.


The tangible products or raw materials that a company presently possesses, with the intention of either selling them or generating other products that can be sold. Also referred to as stock.


A debt that must be paid back, typically in the form of money borrowed or loaned (such as an unpaid bill or credit from a supplier).


The amount of money retained after deducting expenses from the selling price of a product or service. In most cases, the margin is expressed as a percentage, which demonstrates the profit margin for every single dollar of sales.

Petty cash

Cash on hand for use in making quick purchases of miscellaneous items, such as office supplies.


Profit is the amount of money a business keeps after deducting all of its costs and expenses. A loss is what is referred to when this number is in the negative.


Contrary to profit, revenue is the amount of money produced (often from a company’s sales) before any costs, taxes, or other deductions are taken out of the total. Alternately referred to as gross income or turnover.

Working capital

This refers to the cash that a company has on hand to cover its day-to-day operational costs.

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