Three Financial Statements You Should Get From Your Bookkeeper

Bookkeeping may not be a business owner’s forte, but you still need to learn the ropes because the most important aspect of your business is at stake. When your finances are left unchecked, you can join the growing number of failed businesses due to the lack of knowledge in bookkeeping. While bookkeepers and accountants are the only ones that can survive number crunching, you can still prevent bookkeeping mishaps, but gaining basic understanding of how the system works. If you are completely clueless about the bookkeeping system, your head will be in the clouds every time you are presented with a pile of financial statements because all of which will look and sound Greek to you.

Start With The Basics, Know Your Financial Statements

Income Statement
If you want to get an overview of your business’ profit and loss, the income statement is going to be your guide. Your bookkeeper presents the losses, net profits and sales revenue for the current period. You will also get the details of your expenses from this statement. The net profit or net loss is taken from the difference between the income and the expenses. A net profit is always good news to business owners.

Cash Flow Statement
If you wish to find out about your asset’s movement over a period of time, the Cash Flow Statement will give you the details you need. The statement has several categories: financing, operating and investing activities. The financing activities have to do with generating or paying debt. The operating activities refer to the tasks your business performs on a regular basis including making a sale. The investing activities are the purchase and sale of assets and buying a new location is a perfect example.

Balance Sheets
The balance sheets are important to bookkeepers and business owners because this is where profit and loss are demonstrated. While the balance sheets do not necessarily reflect specific investments of business owners, it is a good way to determine the available money. The balance sheets can also be used for predicting which direction your business is heading. They are known as the building block of bookkeeping and accountants refer to this statement in creating or analysing data.

The Balance Sheets Have Three Elements:

•    Assets refer to the business-controlled items. Cash and machinery are examples.

•    Liabilities are the items that a company owes. Loans are an example of liabilities.

•    Equity is the capital left after the assets have been utilised for paying off liabilities.
Bookkeepers and accountants also refer to these financial statements to provide recommendations. This way, a business owner will have an idea whether the business is still profitable. Business owners may sit down with the bookkeeper to discuss these financial statements.

Australian Bookkeeping Dates To Remember

Deadlines are important to business owners especially when it comes to making payments. Aside from filing dates, both business owners and bookkeepers must also take note of tax deadlines. There are lots of problems associated with delayed payments and they can certainly have a serious impact on your business.

Annual Withholding Declarations: Employees can claim entitlement once they give their withholding declaration. After they claim entitlement, the amount being withheld from their wages are reduced. It is important that an employee’s information is updated once there are changes in their address or employment status. As a business owner, the declaration can also provide sufficient information about the changes made. The deadline for tax declaration is on August 14th. Business owners must make changes to the payments of employees from the very first payment upon receiving the declaration.

Pay As You Go Withholding: PAYG Withholding is the employee’s summary of payments. These payments are based on a specified period of time. Once your business makes a payment, the summary will show that amount withheld. If your business did not withhold any payments, it is necessary that the statement is presented. The deadline for PAYG withholding is 28 days after the end of the quarter or 21 days after the end of the month. The deadline will also depend on the type of system you have chosen.

Business Activity Statements: Tax obligations including securing business activity statements must be fulfilled by all Australian businesses. Every month, businesses must make payments and the deadline is 21 days after the last day of the month. For business owners who choose to pay on a quarterly basis, the payment must be lodged by the 28th day after the quarter. Payments are not due until February for the December quarter.

Superannuation: Superannuation includes the funds that will be available upon retirement. As an employer, it is your responsibility to set aside a portion of your employees’ wages as this will serve as a superannuation fund. The employees also have a choice to put additional funds into the account. Employers need to pay superannuation fees regularly. Making a payment can either be made on a quarterly or monthly basis. Superannuation payment must be lodged 28 days after the established period of time.

Payment Summaries: The summaries of payment provide the payment details made to employees. This type of payments that falls under this category is the payment an employer made under a voluntary agreement and labour-hire arrangement. The payment must be made on July 14th.

Bad Bookkeeping Can Definitely Wreak Havoc On Your Business

Bookkeeping is critical to your business and when your financial records are not handled properly, expect your business to take a turn for the worse. Perhaps you have already heard of business owners clamoring about their financial records because of paying less attention to this essential business aspect. A bookkeeper should not be the only person fully responsible for understanding your finances because as a business owner, you should also be involved.

Even in searching for a reliable bookkeeper, choosing someone who is experienced in the field is a must. You just cannot put your trust in an inexperienced bookkeeper and allow your business to fail. This is going to be unacceptable because you know for a fact that you could have been in control of the situation if only you had been keen on hiring a bookkeeper.

Professional bookkeepers are already acquainted with a wide range of tasks that their job entails. These are the people who are a valuable part of your business. Unfortunately, small businesses deem bookkeeper as an additional expense and to save money, business owners would rather rely on DIY bookkeeping. This cost-cutting practice can do more harm than good and instead of saving money, businesses can lose a great investment because the damage cannot be undone if bad bookkeeping practices are discovered a little too late.

You may appoint a relative to take care of your bookkeeping task hoping that you will get the same result as getting a professional bookkeeper, but when you review the financial record, you know that something is not right. There is no undo button once mistakes are committed and the sad part of bad bookkeeping is that you are often the last to know about your finances.

When a set of books are incorrectly completed, this is going to result in bookkeeping catastrophe. If you used to take cashflow for granted, later on, you will realise how important it is in managing your business. Aside from lack of adequate bookkeeping systems, business owners are also faced with problems with financial record-keeping. There are plenty of problems associated with bad bookkeeping such as missing out on identifying the money you owe to the suppliers and the bills that remain unpaid. When bookkeeping is not properly done, businesses can collapse. Aside from the inability to keep track of your finances, you will also have trouble checking your cash flow. You will never know whether or not you have enough cash.

The reason every business owner needs to hire an experienced bookkeeper is to make sure that the performance of your business is closely monitored. It is easy to overlook the most essential detail when your bookkeeper does not have substantial experience. Inexperienced bookkeepers will also have trouble understanding financial management’s importance in a small business and the critical role of accuracy when it comes to recording bookkeeping data. Not hiring a reliable bookkeeper is a costly mistake. Once the essential details are not recorded, it can bring devastating effects to your business that may be difficult to correct.

Put An End To Your Bookkeeping Woes

Without a doubt, January is  one of the busiest months for most businesses because it is the time where recreating financial records is essential. Keeping abreast of your financial records provides you an idea where your business is headed. However, bookkeeping can be really stressful once your mind gets cluttered up with loads of financial information. Bookkeeping does not have to be a daunting task if you can properly manage your records.

You can avoid the stress by following these practices:

1.    Create a system – For sure, you have already identified your business’ areas for improvement and this year, you need to improve your system so you can keep up with the demands of your business. If you continue to follow ineffective practices, your business processes will remain stagnant. Technological advancements can help you speed up the bookkeeping process. For instance, software programs that enter the information quicker than the old process allows you to attend to other business transactions. These software programs also make record-keeping more practical because you get to store essential information in your data base so you can easily retrieve them in the future. You can also closely track your payments for taxes using the software.

2.    Capture data in real time – It might be easy to miss out on capturing unnecessary details such as using your personal card for your business because you forgot to bring your business credit card. However, when using your personal card for business transactions becomes a habit, the expenses can add up causing you to be entangled in a diabolical mess. These details, when overlooked can cause you to pay more income tax than you should. See to it that you record or capture every detail of your transactions so you will know where your business is going.

3.    Have a separate folder for your business expenses – It is easy to include all of your receipts and invoices in one folder, but if you are going to need them for keeping track of your financial activities, you will realise that everything is mixed up. Instead of placing all receipts in one folder, have a separate folder for your expenses so you can easily retrieve them. Not only will you speed up the process of generating your invoices, but you will also save time as the documents you need are already available.

4.    Update your data base regularly – Aside from setting up a system, you should also update your data base on a regular basis so you will know if there is any duplicate entry. However, you should take note that updating your data base does not have to happen every day. It will be greatly dependent on your business needs.

If you always dread bookkeeping, ensuring that your financial records are organised can help you reduce the stress that the process entails. When you do it regularly, you will begin to notice that you save time and attend to other obligations. The next time you recreate financial records, make sure you keep essential information handy.

Record Keeping Essentials For Business Owners

As a business owner, it is important that you have the right record keeping system so your business can run efficiently. Aside from legal requirements, you should also meet the basic record keeping requirements. There is a plethora of benefits you can reap from complying with these requirements such as strengthening your relationship with staff and customers.

Based on specific laws, there are requirements that businesses secure before setting up a record keeping system. For instance, using an electronic record keeping system requires business owners to produce the record’s hard copy once the Australian Securities and Investments Commission (ASIC) and Australian Taxation Office (ATO) request it.

ASIC also has a roadmap-financial reporting which allows business owner to break down reporting requirements based on their business type. It is also recommended that business owners keep record for 5 years. However, there are records that should be kept for 7 years such as:

•    employee records

•    company’s financial records

•    all records of capital gains and fringe benefits.

As part of the basic legal requirements, the following must be kept:

•    bank accounts including deposit books, bank statements and cheque books.

•    financial accounting program or cash book used for recording cash payments and receipts.

•    employment records including benefits, remuneration, hours of work, overtime, leave superannuation benefits, termination of employment, type of employment, personal contact of employee, employment details and employee’s personal details.

•    sales records including receipt books, invoice books, cash register tapes, credit card documentation, credit notes for goods returned and goods used.

•    Work, health and safety (WHS) records such as chemical storage records, first aid incident register, workplace assessments, Material Safety Data Sheets (MSDS), risk register and management plan, workplace incidents and names of key WHS people.

End of financial year records are also very important and to meet legal requirements, a business owner needs to minimise tax bill or maximise tax return at the end of the financial year.

As a requirement, a business owner needs to keep the following records:

•    a list of debtors and creditors for the entire financial year

•    depreciation details such as depreciation schedule, tax invoices, purchase agreements, installation cost and the cost of transporting the items to your business

•    stock on hand details form the beginning and end of the financial year

•    expense records including receipts, cash register tapes, cheque butts, copies of statements, credit card documentation, payment details and log books

•    agreements such as loan agreement, rental agreements, lease agreements, franchise agreements, sale and lease back agreements, trading agreements with suppliers and legal documentation

•    basic accounting records such as accounts receivable, accounts payable and stock records

•    staff and wages details including employment contracts, tax deducted, sick pay, holiday pay, fringe benefits , superannuation

•    other documents such as contracts with telephone companies, deposits with utilities, business name registration certificate and capital gains records.

Keeping these records for 5 to 7 years is also one of the best practices to follow. Aside from the aforementioned records, certificates and licenses are also important. Make sure you also keep customer records, customer complaints, details of any disputes, employee resumes and job applications, insurance policies, quotes given and won and advertising campaigns and success details.

Do You Need A Bookkeeper Or An Accountant?

Keeping meticulous records for the income and expenditure of your business requires a person who is considered an expert at number crunching. Every client has experienced vacillating between choosing an accountant and bookkeeper for their needs especially when there are requirements that need to be complied with. Even when you have already hired someone to assist you with your day-to-day transactions, it can be pretty hard to know exactly where to draw the line. While there are a number of options for you to choose from, the process of choosing is not that easy.

Accounting vs Bookkeeping

Bookkeeping has to do with daily financial transactions including sales, payments, receipts and purchases. A general ledger plays an important role in recording these items, but many small businesses also turn to bookkeeping software for keeping track of various transactions including entries, debits and credits. Bookkeeping involves generating data about the organisation’s activity.

Although bookkeepers do not analyse the financial transactions, they still play a vital role to ensure the business will run efficiently. For instance, recording receipts and payments ensure that correct amounts are paid and received in a timely manner. There are also prescribed procedures that bookkeepers need to follow. They need to see to it that transactions are recorded on a daily basis.

On the other hand, accounting turns data into information. The primary role of an accountant is to verify the data entered, and once data have been verified, they will be used for generating reports, performing audits, analysing the account and preparing financial records. An accountant also ensures that the financial information can be used for forecasts, opportunity for growth, business trends and many others.

The financial data are interpreted as a way of evaluating the business’ efficiency. The accountant will also be the one to decide if there is still a variety of areas and tasks that need work such as management accounting, financial accounting, auditing and financial services.

The key differences between accounting and bookkeeping:

• Financial statement is part of the accounting process, but not the bookkeeping process.

• The process cannot proceed to accounting without taking the first step, which is bookkeeping.

• Bookkeeping does not have the power to disclose correct financial position as it is an accounting job. Accountants help clients see the true and fair view of the business’ financial status and profitability.

• Bookkeeping involves keeping proper records of financial transactions while accounting measures, evaluates, groups, summarises and records transactions.

Bookkeeping and accounting work hand in hand. One cannot function without the other, hence both can be considered inseparable. Bookkeeping is the base for accounting and an important part of the entire process. Every business owner needs both an accountant and bookkeeper to keep the business on its feet.