Good Bookkeeping: How To Keep Financial Records

Bookkeeping might not be the most exciting topic globally, but it's one of the most important. Good bookkeeping is essential for keeping your finances in order and ensuring you stay on top of your expenses. If you're not sure where to start, don't worry - this post will teach you everything you need to know!

When it comes to bookkeeping, there are two types of people: those who love it and those who hate it. No matter which category you fit into, though, good bookkeeping is essential to the financial health of any business. By taking a little bit of time each day to keep your records updated, you can avoid many potential problems.

Are you unsure of how to keep financial records for your business? Do you want to ensure that your bookkeeping is done in the most effective way possible? This blog post will provide you with all the information you need to know about good bookkeeping. We'll cover it all, from keeping track of expenses to recording income! So read on and get started on streamlining your financial process today.

No one wants to deal with financial messes, but they can often happen when we're not careful. One way to help avoid these problems is by keeping good bookkeeping records. This means tracking your income and expenses to see where you stand financially. It may seem like a lot of work, but it's worth it!

Let's get started!

What Is Bookkeeping?

Bookkeeping refers to the process of recording and monitoring all financial activities for your organisation, including sales, purchases, and payments. Bookkeepers are responsible for tracking all costs and income in order to assist a firm in making educated financial decisions.

Bookkeeping is intended to present you a more comprehensive financial picture of your company, bring your accounts into balance, and increase your ability to handle cash flow more strategically.

The Fundamentals Of Bookkeeping

An account is a record that contains all debit and credit entries of a certain type in a company's accounting system. Examples of accounts include accounts payable and payroll.

There are five primary categories of accounts, which are as follows:

• Assets. As a result of its business dealings, a firm may acquire rights to resources or other things of worth (e.g., inventory, accounts receivable).
• Liabilities. Obligations and debts owed by a company to its suppliers, banks, lenders, or other companies that supply goods and services to the company (e.g., loans, accounts payable).
• Earnings or money received. The corporation generates revenue either via the selling of goods or through the provision of a service.
• Expenses. The corporation must fork up cash in order to purchase assets or pay for services (e.g., utilities, salaries).
• Equity., When all of a company's obligations have been deducted, what's left over is the worth of an owner's stake in the organisation (e.g., stock, retained earnings).

Setting up each account in order to be able to record transactions in the correct category is the first step in performing accounting for a small business. This is the information that goes into your general ledger. Depending on the requirements of your e-commerce site, you will most likely not use the same bookkeeping procedures as the next online retailer, however it is common to use a variety of accounting approaches.

The Australian Taxation Office, also known as the ATO, has certain requirements that must be met

The ATO has certain restrictions to be met regarding the particulars of your records:

• You will need to preserve your records in order to prevent the information from being corrupted or altered in any way.
• You are required to keep your records for a period of five years (or often even longer), beginning with the date on which you prepared or got the record or carried out the transaction (whichever is the latter)
• You are required to be able to supply any record that the ATO requests to see if they make such a request.
• Your records ought to be preserved in English or in a format that can readily be transferred to English. There is no justification for learning other languages.
• All transactions should be meticulously documented in records, which can be retained in either paper (hard) or electronic format. To support the electronic evidence, paper copies may be required to be presented as evidence in some court cases. Both the ATO and ASIC will accept original electronic copies of documents as long as the copies themselves are originals.

Tax And Superannuation Records

It is necessary to back the information that you provide to the ATO in your tax returns and reports, so you are required by law to keep records of the transactions that occur in your business. The tax and superannuation obligations that are expected of your business, as well as the form of your organisation, will determine the records that you are needed to keep (whether you are a sole trader, company, partnership or trust).

Why Keep Records, You Ask?

When it comes to filing your taxes, if you did not keep any records, you might as well be flushing money down the toilet. When it comes time to file your taxes, having complete records of all of your expenditures will allow you to claim all of the deductions and credits for which you are eligible. Businesses that have not maintained any records will either be required to forego any benefits or will be required to make an educated guess as to the tax returns they are eligible to get. Because of this, there is a risk that they will overestimate, which could result in an audit by the ATO.

Another reason to have good record-keeping systems in place is so that you can pass audits. For instance, if the ATO raises concerns about a credit or deduction you claimed, you will be able to provide data to substantiate your position and support your claim.

If you can't provide evidence to support your claim, you can wave goodbye to those additional returns, and you may even be required to pay a higher tax rate. In addition, maintaining accurate records can reduce the likelihood of the Australian Taxation Office (ATO) discovering any inaccuracies in your company's tax returns and taking action against them.

What Should You Choose to Retain?

This is the first obstacle that the majority of people who operate small businesses face. The sheer volume of unique papers, like as invoices, receipts, and other nitty-gritty paperwork, that you either get or send out on a daily basis can be extremely intimidating.

Some seem like a no-brainer to keep, while others are less evident. The problem is that some of those documents that don't appear that vital could end up being crucial in the event that the ATO comes knocking. These are the kind of records that you ought to consider keeping:

1. Client files

The client file is useful for more than just tax time. It is of great assistance to be able to quickly view bills sent to a customer as well as any expenses incurred as a result of finishing the task. In addition to this, it can assist in informing any future jobs with your clients, which will save you time. Additional helpful information, such as a client's preferences for future projects, can be conveniently stored in their respective client files.

2. Contracts

Contracts are an essential component of any small business. They not only make it easier to initiate a lawsuit against the client in the event that they do not live up to their half of the bargain, but they also explain out what is expected from your company as well as the client. Make sure these are documented so that your company can avoid any future issues caused by tough customers.

3. Purchase orders

You must keep track of everything that your company spends money on, and the receipts are the best way to do this. When it comes time to file your taxes, these receipts are going to be valuable and will help you improve your tax return. In addition, you have a receipt as evidence of purchase, which is necessary for product warranties and exchanges in the event that something goes wrong with the item.

4. Emails 

Any communication that takes place within the company or with customers needs to be documented. It is possible that these records will come in handy in the future if any customers or employees cause any trouble. Although keeping these records won't help you get the most out of your tax returns, they might come in handy if you ever find yourself involved in a legal dispute and need to defend yourself.

5. Resumes and cover letters

It is essential to save copies of all employment-related documents, including applications and contracts. If a situation happens with the employee, whether it be positive or negative, having this information readily available to call upon is useful. Payslips should also be kept for safekeeping because they may come in useful around tax time or if there is a disagreement regarding payment.

6. Accounting and tax records 

It is important to keep records of all other expenses, travel logs, invoices, and previous tax files. When it comes time to file your taxes, all of this information will be helpful in determining the deductions, returns, and tax credits to which you are entitled.

Tips for Record Keeping

1. Keep your financial records up to date

Bookkeeping entails working with numbers. The majority of the work consists of simple mathematical and accounting tasks. The specifics are determined on the kind of company you run, but it could involve things like settling accounts receivable and bank statements, recording financial activities, issuing invoices and bills, and keeping track of wages.

You'll also be responsible for various concerns pertaining to finances, such as the following:

• Bookkeeping for tax purposes, including payroll, income, employment, and even tax deductions for small businesses.
• Planning of the company's budget to assist in maintaining progress and expanding the business.
• Getting ready to provide financial information to stakeholders, including balance sheets, income statements, cash flow, and changes in equity.

Keeping accurate books needs thoughtful analysis and a basic understanding of legal requirements. For instance, in the event that an audit of your company is ever conducted, you want to be sure that your records are in order and that any deductions you take are appropriate.

2. Maintain an awareness of what each person is up to (and spending)

The process of keeping accurate financial records can consume a significant amount of time. You are responsible for ensuring the accuracy of each financial transaction, as well as balancing the accounts on a daily basis and keeping track of payments received and paid out to staff.

In order to become proficient in bookkeeping and accounting, you will need to have strong communication and organisational abilities. On any given day, for instance, you can be required to handle travel expenses, gather receipts from employees, or pay people back for charges they incurred. You may reduce the risk of missing a transaction and ensuring that your records are up-to-date and accurate by developing a system for handling submissions and reimbursements.

3. Utilise bookkeeping services to enhance workflow

A reliable bookkeeping or accounting programme ought to be included in the accounting tools package for your small business. The proliferation of virtual bookkeeping and other forms of online bookkeeping services underscores the importance for owners of small businesses to be current with developments in information technology.

With reliable bookkeeping services or software, you may expedite the data input process, provide comprehensive financial reports, combine and organise data, and automate record-keeping. It is also a simple method for enhancing accuracy throughout your company and removing the need to spend time performing operations that are repetitive.

Choose the Best Bookkeeping System for Your Company

Any new company needs to instal their first system as quickly as they can. From the very beginning, you will be responsible for keeping records of your revenue, expenses, and tax obligations.

Make sure the system you pick is one that is simple to use and is appropriate for the things you do on a daily basis. There is a selection of solutions available to choose from, like using accounting software or keeping records on paper. Because they automate computations, let you run reports, and provide access to the data you require, online systems are often simpler to use than their offline counterparts.

You will, thankfully, be in a position to keep records of your spending, income, and taxes with relative ease from the beginning if your small business is equipped with the appropriate software.

This is encouraging news because it will make things simpler. Using software that is hosted in the cloud is another excellent option. It makes a significant impact because we are able to access the information of our customers and assist them or identify potential problems earlier.

Set Up a Schedule

It is in your best interest to manage your books on a consistent basis, which you can do either first thing in the morning or right before you go to bed at night.

It is crucial to stay on top of things; an excellent strategy that makes it simpler to stay current is to use a "small and frequently" approach to learning new information.

When things are allowed to pile up, it might lead to difficulties for the customers. We frequently receive information far after the fact, and perhaps not until the end of the year. Accounts that are kept up to date allow us to look at opportunities for the company, which may be incredibly helpful for doing tax planning at the end of the year. If you leave it too late, you can miss out.

It is also essential that you meet all of the necessary payment dates for things like value-added tax, corporation tax, and national insurance. If you are late making any of these payments, you may be subject to penalties, which can soon pile up. Keeping your accounts up to date allows you to see what you owe and makes it easier to keep track of your obligations.

Receive the Best Advice

It is crucial to seek assistance when keeping the books because bookkeeping comes with its own set of rules, some of which you may not be aware of.

Obtain assistance as quickly as possible regarding the topics that you do not fully comprehend. Your accountant should be able to assist you with this matter; after all, that is why they are available. However, please don't wait until the end of the fiscal year to take care of this matter, since it may be difficult to make changes to historical information at that point.

Match Up Your Bank Statements

A crucial component of keeping accurate books is ensuring that the information in your accounts corresponds with the transactions that take place in your bank account. It serves as a check to ensure that everything is in the correct proportions by ensuring that all revenue and expenditure are properly recorded.

By automating the procedure, the software can contribute to making this less difficult to do. For instance, you can import your bank statements into accounting software, and then the software will automatically match the transactions with the information that is in your accounts. You are able to view the information that has been added and, if necessary, make adjustments.

Pay Close Attention To Your Bills

A delay in making payments can be expensive for a company because it disrupts their cash flow and takes additional time to pursue.

Therefore, you are required to follow up as quickly as possible by sending a second invoice and calling to enquire about any problems that may have occurred.

You have the option to impose additional costs on top of any payments that are made late. According to the government, these penalties for late payments can be enforced if the money is not received within the first thirty days (or during the timeframe specified in any contract, whichever is longer). You are also able to acquire guidance on the possible range of fees, as well as the expenditures associated with debt recovery.

Benefit From Any Training

One of the most important aspects of managing your accounts is receiving proper training.

Training is an investment that should be made since it enables you to get the most out of your software and the data that is pulled from your accounts. It is a common misconception that software can perform any and all tasks; yet, while it is helpful, you still need an in-depth understanding of how accounting functions in order to be successful.

We strongly suggest that you acquire training from the company that developed your software, or from an accountant or bookkeeper who is competent in the relevant abilities.

Make Use of the Information Contained in Your Financial Records to Better Comprehend Your Company

There is a possibility that you are missing out on opportunities if you devote time to maintaining your accounts but do not use the data to gain insights into your company.

People have a tendency to focus more on the amount of time it takes to do their own accounting rather than the value of the knowledge it provides. The most significant benefit is that your accounting records will reveal to you whether or not your company is earning a profit and where excessive costs are being incurred. They have the ability to forecast the future of your company if applied appropriately.

How Can Record-Keeping Be Made Simpler?

1. Keep your receipts digital

Your receipts should be digitised after being removed from the shoebox that is located at the very top of your cabinet. The ATO does not have any issues whatsoever with digital receipts, provided that they are accurate duplicates of the paper receipt. There are also a great deal of obvious benefits associated with using electronic records.

By doing a search through a digital file, you are able to quickly and efficiently produce invoices, summaries, and reports for GST and income tax reasons. Utilizing the search function, which is standard on all computers, becomes less of a chore when you have a naming system that is organised and straightforward.

If you take use of cloud storage, all of your files will be stored on secure servers located in different parts of the world, protecting them from the risk of a fire or theft.

2. Make a file strategy

Creating a file plan will make it an incredible amount simpler to save records in the future and to access them at a later time in the future. Despite the fact that, in comparison, it could appear to be the most uninteresting thing in the world (file! Who wants to do that! ), it might have a favourable impact on the way your organisation keeps its records overall. First things first, be certain that you have an effective naming system; this will be of assistance when you are searching through your records later.

3. Maintain a wall of separation between your personal and professional costs

Although it may appear to be obvious, there is still a significant risk involved. You will face a lot of temptation to make personal purchases with your company's credit card, but you have to fight through it. Not only is this a poor practise to get into, but it also creates a significant amount of additional stress when tax time rolls around.

It would be helpful if you also looked through all of your expenses and differentiated between those related to your business and those related to your personal life. On the other hand, this will make it more difficult for you to keep accurate records as you sort through your expenditures and differentiate between business and personal costs. Maintaining a wall of separation between your personal and company spending will help you keep things organised and straightforward.

4. Create a fresh document every year

Beginning a new file each year is a simple strategy that can help you save a significant amount of time and make it much simpler to sort through your documents. Therefore, at the beginning of each new year, you will need to make a new file and store all of your records for that year in that file. It will also make it simpler for you to delete records that you do not need to maintain for any reason, such as if the retention period of five years has been reached.

5. Utilise accounting software

The usage of Excel spreadsheets is a significant improvement over record keeping with pen and paper, but you haven't seen anything yet compared to sophisticated accounting software. The use of these tools enables you to simply automate certain aspects of your record-keeping, which in turn speeds up the process as a whole.

You won't have to mess with with the formulae in Excel in order to generate reports, and you'll also be able to generate automatic totals for your income and expenses. One of the drawbacks of using these kinds of software is that it is possible that it is too complicated to use straight out of the box. If you are in need of assistance, you should consider hiring an accountant. They are knowledgeable in accounting software such as Xero and can assist you in gaining an understanding of how to make use of it.

How Long Should You Keep the Records That You Have?

At a minimum, you should save your tax records for a period of five years. The ATO has stipulated that you must do this, in addition to the fact that it is beneficial to your company. For instance, any possible client disagreements over the work that has been done in the past could be settled using these data. In addition, such records can be utilised by your company for the purpose of future planning, which can assist in the production of a data-supported projection of your company's future.

• Keep any records that pertain to taxes for a period of five years after they have been prepared, obtained, or the transaction has been finalised, whichever comes first.
• Maintain your financial records for a period of seven years. For instance, documentation for the company's financial accounts can be required in the event that the company is subject to an audit or is put up for sale.
• Maintain your employment records for a period of seven years. You are required to keep payslips, as well as records of the hours worked, employment status, superannuation payments, and leave balances, in order to comply with the standards set forth by Fair Work.
• Purchase and lease agreements, brokerage statements, and other sales documentation should be kept for a period of seven years following the disposal of a company property or stock.
• Other records, including but not limited to those pertaining to

- In the event that you will at some point in the future require evidence that an item was purchased, you should keep the receipts for significant purchases with your insurance paperwork. For instance, in the event that the item sustains damage, you are required to file a claim with the insurance company.

- Documents pertaining to property and investments: If you are renovating your business premises, you should keep all receipts and records of improvements and related expenses made because it is possible that this can affect your capital gains tax.

How To Master Small Business Bookkeeping

It is crucial for the financial health of a small firm to understand and keep track of its financial data. Unfortunately, though, in order to manage a business successfully, this is a skill that you will either need to acquire through attendance at bookkeeping schools or will need to outsource.

The good news is that not only is it easy to learn how to handle your books, but there are also a few noticeable benefits to taking on the responsibility yourself.

Even if you are new to keeping track of your finances and do not have the financial means to pay a bookkeeping company or a self-employed bookkeeper, you may still educate yourself on the fundamentals and handle everything on your own. This article will focus primarily on the bookkeeping for online businesses and will examine it on a daily, monthly, quarterly, and annual basis.