Set up a basic bookkeeping system
A strong bookkeeping system can help you keep accurate records for a range of purposes. These include analysing business activities, attracting investors, seeking finance, lodging and paying tax as well as meeting your reporting requirements. Under tax law, you're required to keep records relating to income tax, GST, payments to employees, superannuation, fringe benefits tax, fuel tax credits and business payments.
It can be difficult to set up your own system without a bookkeeping background. So if you need help getting started, contact your accountant, bookkeeper or business advisor. Once your system is set up the right training, effort and discipline can help you take control of your finances.
Cash vs accrual systems
When choosing an accounting system that suits your business needs, don't be limited by choice — some businesses successfully use a combination of both cash and accrual systems.
A cash-based accounting system records transactions at the time the cash was paid or received, regardless of when the transaction occurred. While this method is simpler and uses less paperwork, it can be prone to errors. Generally, it's suited to smaller businesses that operate mainly with cash transactions.
An accrual-based accounting system records transactions at the time they occur, whether the payment is made now or in the future. While this is a more widely used method and tends to be less prone to errors, it can be more complex. This method is suited to all types of businesses and makes reporting complex transactions like extending credit and wages much easier.
Read more about Cash vs Accural Accounting for the advantages and disadvantages of each.
Manual vs electronic systems
Manual bookkeeping systems include a series of books or ledger accounts that are often available at your local newsagent, office supply or book store. While manual systems require more time spent on paperwork, they can be ideal for business owners who aren't confident using a computer and have simple affairs.
If you're confident using a computer, an electronic system may be your solution. As with all electronic systems, a good backup procedure with external off-site storage is vital. Some of the electronic options include:
SoftwareOff-the-shelf or tailored software accounting packages can help you record your transactions, calculate GST, automatically update ledgers, prepare financial statements and help you generate invoices. However, before you invest in an accounting package, it's worthwhile checking to see what systems your accountant or business advisor recommends and that the software is compatible with Standard Business Reporting (SBR).
Web-basedUsing a web-based or 'cloud' system allows you to update your books from any location. It also has the added benefit of automatic off-site storage of your financial records. While this can be a cheaper option, it does come with added security risks.
SpreadsheetsIf you're confident using a computer but don't have the funds for a full accounting package, consider setting up a series of spreadsheets to use for your accounts.
What to do...
- Visit the Australian Taxation Office (ATO) website for information on managing your invoices, payments and records.
- Download the Record Keeping Evaluation Tool to see how well your business keeps records.
- Search the ATO to find out if your accounting software complies with your tax reporting obligations.
- If you run a company, find out what books and records your company should keep on the Australian Securities and Investments Commission website.
- See how to manage your finances in your state or territory.
- Visit The Treasury's Standard Business Reporting (SBR) website to find a list of SBR enabled products.
- See our Glossary of key financial terms to become familiar with financial terminology.
- For detailed guidance in choosing the right system for you, contact your accountant or visit our Advisory Services.