Do you have an adequate Record Keeping system?

Well it’s tax time again! Are you prepared?

Hopefully you have maintained an organised record keeping system that enables you (or your tax agent) to prepare your income tax return with a minimum of fuss.

Or, are you guilty of leaving it to the last minute, with a mad scramble digging out a bunch of invoices, bank statements, cheque butts….? Yes? Please read on…..

Why Keep Good Records

Firstly, it is a legal requirement to keep good records and to maintain them for the required period (usually at least five years.)

Secondly, poor record keeping is a contributing factor to why many small businesses fail.

The key benefits of keeping good records are:

• Provides the information required to complete your annual income tax return (and your activity statements if you are GST registered)
• Enables you to keep track of how your business is performing
• Minimises the time your tax agent spends preparing your lodgements thereby saving your $$$$

Records You need to Keep

The Australian Taxation Office has guidelines on what records you need to keep. Record Keeping for small business (NAT 74242) is available online from their website (www.ato.gov.au).

Basic records include:

• Bank records (bank statements, loans…)
• Records relating to sales (invoices, receipt books, deposit books..)
• Records relating to business expenses (invoices, cheque butts, receipts)
• Records relating to employees
• Records of any assets you acquire for the business

Electronic v Manual Record Keeping System

You can keep your records either manually or electronically. The record keeping system for you will be dependent on your business needs and your budget.

Manual Record Keeping System

You can keep your records manually on paper, such as an exercise book or a commercial cash book.

Advantages:

• Cheap
• No computer experience required

Disadvantages:

• Time consuming to manually total the columns
• Manual = room for error

Electronic Record Keeping System

To overcome manually adding totals, you can record your transactions in an electronic spreadsheet, such as excel.
Or you can use a software accounting package that meets your business needs and the Tax Office requirements. Common packages for small business are MYOB and Quicken.

Advantages:

• Automatically totals the data for you
• Depending on the software, it may also prepare invoices & financial statements and manage payroll and stock control
• Your data file can be emailed to your tax agent

Disadvantages:

• Initial outlay required to purchase the software
• The initial set up can be time consuming
• Time factor of entering the subsequent data entry or cost of hiring a book keeper
• Potential loss of data if you don’t perform backups

If you are considering acquiring electronic software, talk to your accountant first to determine which software will best meet your business needs and your budget. Proper planning can save you $ in the long term.

Conclusion

The bottom line is, maintaining a cashbook (manual or electronic) or electronic accounting software means less of a headache for you at year end. It also means less time spent by your accountant/tax agent which equates to lower fees. A winning combination!

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Tips to be organised:

1. Set up a good filing system for your paperwork

2. Make sure you obtain all invoices & receipts at time of payment

3. Keep a cashbook to summarise all receipts & payments

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Disclaimer: This article is an information guide only. It neither purports or intends to be advice.  Always seek advice from your accountant/tax advisor to ensure that you have the most appropriate record keeping system to meet your business needs and to comply with government reporting requirements.