Bookkeeping tips for business owners

As a business owner, it is important to understand the fundamental principles and processes involved in bookkeeping. This is the case regardless of whether you employ an accountant or not because although an accountant will ultimately analyse, interpret and report on the financial information associated with your business, they can only effectively do such if the records provided to them are comprehensive, up-to-date and accurate. As such, you should also play an integral role – particularly on a day-to-day level - in recording and reporting on your business’ finances.

 

Here are three simple (but important) tips for effective bookkeeping:

 

1.       Separate business and personal accounts

 

It is always smart to have one stand-alone business account completely separate from any personal account(s). There are taxation and legal reasons for this:

 

In terms of taxation, business owners are annually required to declare their personal and business incomes. This, however, can become difficult and time consuming for owners who choose to co-mingle their accounts. In such cases, many will be required to sift through a multiplicity of statements and receipts to decipher the nature of each individual credit and expense, which can lead to inaccurate reporting and under-claiming on deductions.

 

From a legal perspective, keeping accounts separate can be extremely important in protecting business owners from personal liability for their business’ mistakes.

 

2.       Be thorough and consistent

 

Bookkeeping should be a consistent process done on weekly or monthly basis – at least. While it can be tempting to let receipts, invoices and other financial documents pile up, you should always try to keep on top of such to ensure that records remain accurate and prevent yourself from becoming overwhelmed.

 

All financial data related to the business should be recorded; not just expenses and income. Other relevant records include, but are not limited to, accounts receivable, accounts payable and deposit records.

 

One of the best ways to stay up-to-date on your business’ financial records is to keep all of your receipts and log them into a system on a regular basis. The type of system you employ is completely your choice – it could be an advanced software program, an Excel spreadsheet or a notebook. The important thing is to record your information in an organised, accessible and secure way.

 

3.       File for the long-term

 

For auditing purposes, taxation law requires that business records be kept for at least five years after a relevant tax return has been submitted. According to the Australian Tax Office these include any “documents that specify and explain transactions” and “documents that are relevant for the purpose of working out your tax liabilities.”

 

Given such, you should implement a long-term filing system based on date, month and year.  It is always good to have business records backed up in both hard and soft copy to ensure that if anything unexpected happens you do not leave yourself or your business in a vulnerable position.

Posted by George Tarbey on 17/07/2012 at 11:52 AM | Categories:

2 Comments

John

John wrote on 26/11/2012 4:01 PM

Great advice, would be nice if my online bookkeeping and accounting students, as well as my clients, could follow this advice instead of dumping everything on me at the last moment.
Jack Brewstein

Jack Brewstein wrote on 27/11/2012 11:02 AM

Bookkeeping is the essence of record keeping so it's absolutely essential that good systems are implemented in order to keep track of all relevant information. This should be instilled in bookkeepers and accountants from the time they start their first course on the subject all the way through their professional careers.

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