Every business is different, from the activity is does to earn income to the number of people who work within in it but whilst there are a number differences between every business, the one thing that remains constant is the need for good bookkeeping. The process of recording & reconciling every financial transaction that comes through the business once meant that owners and managers would spend hours going through receipts and ledgers but thanks to the advances in cloud computing, this is no longer the case. Cloud Accounting systems such as Xero not only allow for easy bookkeeping & reconciliation but also ensure that data and invoices are secured safely in the cloud, meaning that your financial records are kept safe in case of a system outage. Not only are the advances in Cloud Accounting making the management of businesses easier, it also is a great tool when it comes to preparing and lodging your tax returns. As a part of being ready for tax time, business owners would normally dread having to prepare income reports, reconcile statements and sift through receipts & invoice papers however, by having all of your records stored securely online, this is now a thing of the past. Even if you are not the best at reconciling your accounts every month or quarter, having all of your business transactions stored in the cloud makes this much more time efficient then the traditional way of preparing accounts. This is because for the majority of cloud accounting systems currently available on the market, their software can directly link to your business bank account, meaning that there is no chance of loosing receipts or double counting invoices. In addition to this, because everything is stored in the cloud, there is no chance of you loosing the files due to software corrupting or issues with your computers. As we have an ever advancing digital the world, The Australian Tax Office has worked alongside some of these cloud accounting providers to allow for complete integration for lodgement of documents including Tax Return, Activity Statement & Payment Summaries. This integration completes a full circle on accounting and bookkeeping requirements for small business, with transactions allowed to be traced and reconciled with ease, a simple report generation process stored securely in the cloud which can be directly lodged with the tax office. Something that hasn’t been touched on is the fact that cloud accounting is designed for small business owners, not accounting professionals. The user friendly interface and functionally across multiple devices allows business owners to seamlessly integrate this into their operations and thanks the app add-ons such as invoicing and payroll, it can become a very strong asset to the business. It should also be said that with all great features cloud accounting offers, these usually come as part of a membership packages with varying fees depending on the level of sophistication required for you reporting.
What is bookkeeping and how does it help small businesses? Bookkeeping is the day-to-day recording of a business’ transactions. The process involves recording, analysing and interpreting of financial transactions. Bookkeeping primarily records the financial effects of transactions and is part of a broader aspect of the accounting process.
In the normal course of business, a document is produced each time a transaction happens. Sales and purchases come with invoices and receipts. Deposit slips are produced when depositing money into a bank account. Cheques are written up when paying money out of a bank account. Pay slips are produced when paying salaries of staff. Bookkeeping first involves recording the details of all these source documents into multi-column journals. For example, all credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal.
After a certain period, usually at the end of each month, each column in the journals are summed up and these totals are then posted to their respective ledgers. For example, the total sum of in the sales journal will be leave a credit entry in the Sales account, and a corresponding debit entry will be made in each individual debtors’ account (showing the business who owes them what amount).
Bookkeepers follow a strict double entry principle in which for every transaction, there is a debit entry affecting one account and a corresponding credit entry of the same amount that affects another account. For example, purchasing a $200 printer from Officeworks with a credit card will create a $200 debit entry in the Office Equipment account and a corresponding credit entry of $200 in the Bank account. This shows the business that they have increased the value of their office equipment by $200 and their bank total has reduced by $200.
As a partial check that the posting process was done correctly, a 3-column working document called an unadjusted trial balance is created. It shows the names of every non-zero account in the first column, a debit column in the second and a credit column in the third column. All the accounts with a debit balance has its balance posted in the second column whereas accounts with a credit balance is posted in the third column. The debit and credit columns are added up and if they do not tally, it shows there is a mistake somewhere in the journal recording or posting to accounts. The mistake is then discovered and rectified.
A bookkeeper does all of the above to set up financial statements so that an accountant can easily perform legal and tax management in a timely manner.
A skilled and compliant bookkeeper should be able to produce financial records that give the business accurate information about its financial activities. These records are critical to the future success of any business. Not only are these records necessary for the business, they are also required by law. Australian legislation states that businesses must have up to date financial records to ensure that they pay all necessary taxes.
Records that are accurate and true must be kept for a period of at least 5 years from the date that the documents were prepared, obtained or the transaction completed, whichever occurs the latest. Some records, such as payroll, must be kept for a minimum of 7 years.