Bookkeeping Basics
Maintaining good business records is essential not only for the purpose of compliant tax returns, but because there is great knowledge to be gained about your business from your financial transactions.
Your Basic Obligations
It is a legal requirement to maintain business records. By Law, the Tax Office requires you to keep business records:
- For five years after they are prepared, obtained or the transactions completed (whichever occurs later), and
- In English and in Australian dollars or in a form that tax officers can access and understand in order to determine your tax liability.
You should keep records for a longer period if you use information from those records in a later tax return (e.g. claiming a loss carried forward from a business activity in an earlier year) – the records should be kept until the end of any period of review for that later return.
There are penalties for not maintaining the required records and failing to keep them for five years.
What Records Should You Keep?
The records you are required to maintain will be based upon the nature of your business and the types of transactions undertaken. There are numerous records that the ATO require businesses to keep for reporting purposes and we have compiled an example list of records to assist you in identifying what might be relevant to your business.
Should I keep Electronic or Manual Records?
You can issue and store records in either paper or electronic form.
The advantage of an electronic record keeping system include that it:
- Helps you record your business transactions (including income and expenses, payments to workers plus stock and asset details)
- Automatically tallies amounts and provides readymade reporting
- Can produce invoices and provide summaries and reports for GST and income tax purposes
- Keeps up with the latest tax rates, tax laws and rulings
- Allows you to report certain information, such as activity statements to the Tax Office electronically (if the package meets Tax Office requirements)
- Requires less storage space
- Allows you to back up records and keep them in a safe place in case of fire or theft
- Enables you to use your time more efficiently.
On the other hand, an electronic record keeping package is more expensive to set up. You also need to know how to operate a computer and use the software. Depending on the program, you might also need to be familiar with accounting principles to understand how the software automatically stores and calculates the information.
There are a range of commercial accounting software packages available and we urge you to contact our office before making your choice. We can set you up with an electronic accounting program that will meet your needs at the current stage of your business and provide growth options as your business develops.
Other Benefits of Maintaining Good Business Records
Business Survival
Some statistics suggest that up to 80% of businesses fail within the first 5 years. To make informed business decisions you need up to date and accurate financial records and reports. Each business and their owner(s) requirements are different and you should discuss your situation with us so that we can assist in determining how frequently your business should update their business records.
The chart below supports the facts that regular reporting can impact on your survival rate.
Survival and Frequency Of Accounting Reports
| Frequency | Survival Rate % |
| At least monthly | 79.7 |
| Quarterly | 71.5 |
| Half-Yearly | 49.9 |
| Annually | 36.0 |
In business, 3 months can be a very long time and waiting a whole year to review your business performance can be lethal. So much can change and quickly.
Most business owners will usually have a good sense of how they are performing but it is important to recognise:
- Cheques in your cheque book DOES NOT mean Money in the Bank
- Money in the Bank DOES NOT mean Profit
- Profit DOES NOT mean that all aspects of your business are Profitable
It is only by maintaining regular, accurate and meaningful records that you can truly understand your business performance. The real advantage and opportunity arises not only from understanding your business performance, but developing strategies and tactics to maximise your business potential.
At Negotiis, we offer our clients the opportunity to work together to unravel and understand their business performance using the experience of our Accountants combined with specially developed tools and systems. Contact our office for an Intial No-Cost Consultation to learn more about how our team at Negotiis can help you and your business.