Keeping good accounts

One of the key components of any successful small business is a proper accounting and record keeping system. It’s true that ‘cash is king’ and if you’re not managing your cash flow properly, then your business is likely to face a rocky road.

 

A good system will help you monitor the health of your business and give you the information you need to prepare financial statements such as annual income tax returns and activity statements. Plus, it will also help you demonstrate your financial position to banks or prospective buyers of your business.

 

The other important reason to keep good business records is that you are legally required to do so. The Tax Office requires you to keep business records for five years after they are prepared.

 

What records are required?

 

According to the Tax Office, you need to keep business records that can explain all your business transactions and include the following items.

 

Records relating to income tax and GST

 

·        sales records:

-       sales invoices (including tax invoices)

-       sales vouchers or receipts

-       cash register tapes, credit card statements

-       bank deposit books and account statements

 

·        purchase/expense records:

–        purchase/expense invoices (including tax invoices)

–        purchase/expense receipts (which include an ABN)

–        cheque butts and bank account statements

–        credit card statements

–        records showing how you calculated any private use component

 

·        year-end income tax records:

-       motor vehicle expenses

-       debtors and creditors lists

-       stock take sheets

-       depreciation schedules

-       capital gains tax records

 

Records relating to payments to employees

 

·        tax file number declarations and withholding declarations

·        worker payment records

·        PAYG payment summaries

·        annual reports

·        superannuation records

·        records of any fringe benefits provided

 

PAYG withholding records relating to business payments

 

·        records of amounts withheld from payments where no ABN was quoted

·        a copy of any PAYG withholding voluntary agreements

·        records of voluntary agreement payments

·        PAYG payment summaries

 

Record keeping systems

 

There are a number of computerised systems available to help you keep your financial records and manage your accounts. Check with your accountant to see which software suits your business and is also compatible with your accountant’s system.

 

When evaluating software, consider if the supplier offers an annual support service, some kind of guarantee and if the software can be customised to your business.

 

If you choose to adopt a manual system, you’ll need:

·        a petty cash book

·        a cash receipts book

·        a cash payments book

·        debtors and creditors ledgers

·        a general ledger

·        a timesheet system if you have staff.

 

 

Tips for good record keeping

 

·        Separate business matters from personal matters: It’s a good idea to use a dedicated business account, credit and debit card in order to clearly differentiate your personal and business records.

·        Reconcile your financial statements each month. This will ensure that you’re always up to date. Request that all statements, including debit card, credit card, and petrol accounts are sent on a monthly basis.

·        Be organised: Set up an easy-to-use filing system for all your paperwork. This will help you track your receipts, overdue accounts and bills that need to be paid. Avoid leaving your record keeping until the end of the year.

·        Keep a log book for your car: If you use your car for business and personal travel, keep a log book to track your kilometers.

·        Maintain employee records: Keep meticulous records if you have any employees. This includes information relating to how much you pay them, any tax deducted or superannuation paid on their behalf.

 

For further information, contact a qualified accountant to discuss your business’s accounting, record keeping and financial management requirements.

Previous Article  Next Article