Having a solid accounting strategy is crucial for small business owners. This involves keeping a detailed record of your business finances. Keeping an eye on business transactions and business bank accounts will help your long-term growth and financial security. This is why we've compiled this short guide to small business accounting in Australia.
Australian Tax Office requirements
There are certain requirements set by the Australian Tax Office (ATO). If your business employs less than 20 people, you are required to lodge reports with the ATO using Single Touch Payroll software. Also, you have to lodge your income tax return covering the period from 1 July - 30 June (tax year). According to the ATO, all businesses have to submit business activity statements on a monthly, quarterly, or annual basis. This is to determine goods and services tax, withholding tax, etc.
What should you record in small business bookkeeping?
- Tax invoices for supply
- Purchase and expense forms
- Tax invoices
- Year-end records
- Records of income and sales (eg receipts, cash sales)
- Bank statements
- Records on employees (eg payroll statements)
Other tips for small business accounting
- Keep financial transactions handy with accounting books
- Record entries in chronological order and in a double-entry bookkeeping system
- Update entries at the end of each accounting period.
- Keep accounts in the general ledger
- Separate your accounts payable and accounts receivable records
Step-by-step small business accounting
Get a business bank account: Always keep personal and business finances separate - this is why a separate bank account is crucial.
Carefully pick an accounting method: Choose either cash basis accounting, which records income and business expenses when receiving cash for your product or accrual basis of accounting, which records income at the point of sale. This means income gets accounted for, even if you haven’t received the funds into your account yet.
Develop your small business bookkeeping system: For most businesses, having a (small) business accounting software is a helpful step - this keeps all your statements and worksheets in a single place for reference.
Maintaining your bookkeeping and accounting system
We would advise you to always start your morning by checking your business ledgers. Review the current status of your bank account and estimate what income is likely to be generated throughout the day. Maintaining cash flow is crucial in accounting for small businesses.
By the end of a work week, we would advise you to record all transactions in your accounting software or spreadsheet, document and review unpaid bills, receipts, cash payments and cheques and pay invoices owed to your vendors, of course recording the transactions.
Monthly and quarterly maintenance
As a small business owner, we would advise you to undertake the following tasks on a monthly basis:
- Review and, if necessary, restock your inventory
- Review due accounts receivable and chase up payments
- Process payroll
- Check you are paying applicable tax to the ATO
- Review the balance sheets to see how your business is managing liabilities and assets.
- Review your profit and loss statement to see how you’re measuring up against your quarterly budget
At the end of the financial year, the main accounting task will be to prepare the business activity statement for the ATO. We would also advise checking all reports and business financial statements, scrutinizing their accuracy and noting any areas that could use improvement.