In business finances, bookkeepers play an essential role in maintaining the financial condition of a company. Reliable bookkeepers manage daily financial transactions to ensure financial records are updated and accurate. This is one of the crucial aspects for businesses of all sizes. Bookkeeping should not be a stressful task, especially if you have a professional Melbourne bookkeeper by your side. In this blog post, we have outlined the basic concepts of bookkeeping that every business owner should know.
Understanding the basics of bookkeeping for a small business
Managing business finances is one of the most essential aspects of running a business successfully. However, many business owners struggle to organise their business books. Proper bookkeeping of a business is vital for ensuring compliance with Australian tax laws, making informed business decisions, and maintaining the cash flow of a business. Whether you are a small business or a large organisation looking for expert bookkeeping services, understanding primary bookkeeping concepts is vital.
Understand basic bookkeeping terms
From financial statements to a bank reconciliation statement, there is no denying that there are various phrases and terms you will come across. Generally, they are quite easy to understand once you understand the definition of each term. Here are the most common bookkeeping terms that every business owner must understand:
- Balance sheet: With a balance sheet, you will come to know about the financial condition of your company. It includes liabilities, assets, and the capital of the business. The primary goal of a balance sheet is to show what your business owns and owes.
- Chart of Accounts: A comprehensive listing of all accounts a business uses to classify its financial transactions. This includes categories such as assets, liabilities, equity, income, and expenses.
- Expense: Costs incurred by a business in its operations, which may be fixed, variable, accrued, or day-to-day in nature.
- Profit and Loss: A report summarising a business’s income and expenses over a specific time period, used to determine net profit or loss.
Simple Yet Essential Bookkeeping Habits to Adopt
Bookkeeping may feel intimidating at first, but it doesn’t have to be. By incorporating these straightforward yet crucial habits, you’ll set yourself up for success from the start.
- Don’t Leave It Until the Last Minute: Stay on top of key dates and deadlines by setting reminders. Tackling your books early helps reduce errors and saves you from scrambling to find important information at the last moment.
- Keep Your Records Clean and Organised: Disorganised paperwork can make bookkeeping a frustrating task. Maintain well-structured records so you can easily locate what you need without wasting time.
- Digitally Store Your Receipts: Using software to store receipts allows you to go paperless and keep all your expense documentation in one place. This ensures compliance and makes it easier to retrieve information in case of an audit.
- Separate Business and Personal Finances: Keeping your personal and business finances distinct simplifies bookkeeping. It eliminates the need to go through unrelated transactions and makes tracking business expenses far more efficient. Having separate personal and business finances also makes it easy for taxation accountants in Melbourne to prepare and lodge tax returns for your business.
Cash vs accrual accounting method
Businesses in Australia can choose between cash and accrual accounting methods:
- Cash accounting records financial transactions when cash actually changes hands. It is suitable for small businesses with simple business finances.
- Accrual accounting: Accrual accounting records financial transactions when they are incurred, irrespective of when payment is obtained or made. This method is useful for businesses with a turnover of above $10 million.
Understand the role of GST and BAS
Australian businesses with a turnover of over $75,000 need to register for Goods and Services Tax (GST) and file Business Activity Statements (BAS). BAS essentials report GST collected and paid, and includes PAYG withholding tax. By getting help from a professional bookkeeper, they ensure accurate GST reporting.
Conclusion
Professional bookkeepers can save you time, reduce the chance of mistakes, and ensure compliance with Australian financial regulations. They ensure financial accuracy, so you can be sure to have accurate business books. By getting reliable bookkeeping services, you will stay on top of financial records.