A company that does not maintain accurate books risks going out of business. You might wonder why it’s that important. This is because bookkeeping creates the financial records necessary for success, bringing order and structure to a business's performance. It also gives a firm's owners and managers a clear view of how well their company operates.
Although a small business's bookkeeping and accounting tasks can sometimes feel overwhelming, you may find that they are more doable than they appear. In this guide, you will learn how to do bookkeeping correctly for your business in Australia. Also, we will explain all the essential bookkeeping aspects that every business owner should know.
What is bookkeeping?
Bookkeeping comprises the day-to-day recording and reporting of an organisation's financial information. It typically entails tasks such as recording sales, purchases, payments, receipts, and other financial transactions in a structured manner. These records serve as the foundation for generating financial statements, such as the income statement, balance sheet, and cash flow statement, which offer insights into a company's profitability, assets, and cash flow.
Bookkeeping vs. Accounting: A Quick Difference
Unsurprisingly, bookkeeping and accounting are some of the most confusing questions business owners ask. Are they the same, or are they just related? Below are the top five differences between bookkeeping and accounting.
Bookkeeping | Accounting |
Bookkeeping is only about finding and writing down financial activities. | Accounting is summarising, analysing, and sharing a business's financial information. |
A bookkeeper prepares the book for the accountant. | An accountant performs audits. |
Bookkeeping doesn’t require any analysis. | Accounting analyses data to create insight for the company. |
A company's financial health cannot be determined from its bookkeeping alone. | Accounting shows a more accurate image of a company's current financial standing. |
Bookkeeping doesn’t require any special skills. | Accounting requires special skills because of its complexity. |
5 Essential benefits of bookkeeping for small businesses
Keeping accurate books goes beyond the need to maintain order. Keeping accurate records of all incoming and outgoing expenditures might assist you in developing a strategy for the future of your business. However, this is not the only reason bookkeeping is essential for companies of this size and scope. These are the top five benefits of bookkeeping for all businesses.
1. Maintain accurate records
Knowing the ins and outs of your company's financial situation is essential for any business owner. Finding out how much money you spend on office supplies is simple. Or, compare the profitability of your new customers to that of your old ones. Accurate records are also helpful in settling disputes between staff, suppliers, and clients.
2. Tax Preparation
Paying business taxes may be nerve-racking, tedious, and time-consuming. However, business owners are subject to tax reporting requirements. If you hire an accountant to handle your tax returns, the documents you keep can make it easier for them. A complete accounting record saves time by eliminating the need to dig through paperwork for your accountant. This way, you can claim eligible tax deductions as a bonus.
3. Budgeting
Accurate bookkeeping for small businesses facilitates budgeting and financial planning. By keeping meticulous records, you can look back at what has happened and determine what to do next. A company's budget serves as its financial roadmap to success.
4. Decision-making
You can make the most informed decisions with your company's data access. Keeping accurate books is essential to developing a successful business strategy. It also helps your accountant classify money coming in and going out correctly. You can use the information from your books to map out the long-term and short-term objectives that will keep your firm afloat.
5. Market research
You can easily keep track of your cash inflows and outflows, as well as your profit and loss, by studying your financial statements. Your company's strengths and shortcomings might be better understood with the help of accurate bookkeeping.
6 Important components of bookkeeping
Bookkeeping is only helpful with its components. Here are the top six components of bookkeeping you should know:
1. Journals
You might consider journals your business diary, where you quickly put down everyday money-related events. This will help you remember what money came in and went out.
2. The ledgers
These are like money trackers since they divide your finances into areas, such as what you own (assets) and what you owe (liabilities), providing a clear picture of your financial situation.
3. A trial balance
A trial balance is a preliminary check that must be performed before any reports can be generated. It verifies that the sum of your debits (money coming in) and credits (money going out) is correct.
4. Financial statements
These financial reports will show you how well your company is doing by detailing its profits, losses, and overall financial health. Using this information, you will be able to make more informed decisions.
5. Charts of accounts
It is a valuable money list that organises income, expenses, assets, and liabilities into several categories. This makes it much simpler to locate financial information and comprehend it.
6. Reconciliations
Reconciling will compare your records to those of the bank to ensure that they are consistent, and you will look for any discrepancies or missing parts.
How to do bookkeeping effectively: 7 Easy steps
Bookkeeping needs to be done effectively; if not, it will lose its purpose. Here are ways you can do your business bookkeeping effectively.
1. Separate your business and personal expenses
Small business owners need to be prudent when keeping their personal and corporate finances separate. If you fail to do so, your financial data could become inaccurate, which will cause potential lenders and investors to reject the idea of working with you. You are strongly advised to keep your personal finances and professional dealings in separate bank accounts. You can avoid your finances from being badly affected by the business and vice versa by establishing separate credit ratings for your company. Another option is to generate separate credit scores for your business.
2. Choose a bookkeeping method: double-entry or single-entry
When establishing your business's financial tracking, you must choose between two bookkeeping methods: double-entry or single-entry.
- Double-Entry: This method involves recording every transaction with two entries: a debit and a credit. It provides a comprehensive view of financial activity, aiding in error detection and complex financial analysis. It is ideal for larger, intricate businesses where accuracy and detailed reporting are crucial.
- Single-Entry: In contrast, single-entry bookkeeping involves recording each transaction once. While more straightforward, it lacks the depth and accuracy of double-entry. This method is suitable for small businesses with straightforward finances.
Choosing the proper method hinges on your business's size, complexity, and reporting needs.
3. Choose your accounting method: accrual or cash basis
Because it provides a more accurate depiction of the cash balance of the company, the cash method of accounting is the one that is used most in small enterprises. However, as the company expands, it may become less vital to know the exact cash balance of the company and instead become more relevant to focus on its current health. To solve this problem, accountants use something called the accrual approach. The accrual method of accounting eliminates the impact of payment delays on assessing the company's overall financial health since it records expenses at the time they are incurred and revenues when they are received rather than when they are paid for.
4. Assign transactions to specific accounts
When keeping a company's books, transactions must be categorised to have accurate financial tracking. When you want to assign transactions to particular accounts, you must first categorise each type of financial activity into the appropriate buckets, such as sales, expenses, or investments. This helps simplify reporting and analysis, allowing for a better understanding of cash flow and the overall health of the financial position.
5. Carry out journal entries to the debit and credit accounts
Journal entries are the building blocks upon which double-entry accounting is constructed. Through the use of debits and credits, they guarantee the correct recording of monetary transactions. In accounting, debits suggest incoming funds or an increase in assets. In contrast, credits indicate outgoing funds or an increase in liabilities. This two-pronged strategy ensures that the accounting equation remains in equilibrium (Assets = Liabilities + Equity) and permits accurate financial activity monitoring.
6. Post entries to the ledger account
The ledger acts as a complete record of individual transactions grouped by their account type. When you post journal entries to the ledger, you transfer transaction details to the appropriate accounts. The phase that follows this one will systematically organise the financial information, making it much simpler to refer to and examine. Ledger accounts offer an all-encompassing perspective of a company's financial landscape and contribute to generating reliable financial statements.
7. Adjust entries at the end of each accounting period
To maintain accurate financial records, periodic adjustment entries are required. Adjustments are made to resolve differences between the recorded and real financial position after an accounting period, such as a month or a fiscal year. Considering accumulated revenues, expenses, prepaid items, and depreciation, these adjustments ensure that financial statements accurately assess the company's financial status. Informed decision-making and regulatory compliance are both aided by financial statements that have been appropriately updated.
5. Different methods of bookkeeping
There are different methods of keeping track of your finances. Let's check them out and see how they can help your business.
1. Electronic bookkeeping
When an organisation uses computerised bookkeeping, it makes it much simpler and more efficient for the bookkeeper to keep track of the many complex business transactions. Usually, an accounting software program is used to enter the accounting data. Compared to traditional bookkeeping methods, one of the major benefits of using this system is how simple it is to generate reports and perform computations. Consequently, it is possible to carry out complicated calculations promptly and precisely.
2. Manual bookkeeping
Manual bookkeeping requires either a journal book or a ledger book, and the bookkeeper is responsible for maintaining a record of the numerous accounting entries that pertain to the company's business operations. Manual bookkeeping is still widely used in the small business world because it is more cost-effective than its electronic counterpart and may be used to keep track of transactions with a lower level of complexity.
3. Spreadsheet accounting
Spreadsheet accounting refers to using spreadsheets to perform accounting functions and manage financial data. Businesses of all sizes have widely used this bookkeeping method for many years. However, with the advent of web-based bookkeeping and accounting software, the landscape of spreadsheet accounting has undergone significant changes.
4. Web-based bookkeeping
Web-based bookkeeping platforms allow businesses to access their financial data from anywhere with an Internet connection. This eliminates the need for physical storage of spreadsheets and allows for real-time collaboration among team members. Users can log in to the web-based platform and enter their financial data directly into the system, eliminating the need for manual data entry and reducing the risk of errors.
5. Accounting software
Accounting software offers a wide range of features and functionalities that streamline the bookkeeping process and make it more efficient. The best accounting software often integrates with other business systems, such as inventory management and customer relationship management (CRM), to provide a comprehensive view of the company's financial health.
5 Essential tips on doing bookkeeping the right way
You can do your bookkeeping without errors or mistakes. Shocking right? Follow these bookkeeping tips if you wish to do bookkeeping the right way
- Automate with accounting software
- Separate your business account from your account
- Always do a quarterly review of your books
- Make plans ahead for major expenses
- Always set money aside for tax
Doing bookkeeping right only requires you to be determined to follow experts’ tips and guidelines always.
Recommended read: 5 Benefits of Outsourcing Bookkeeping Services
3 Essential tips on doing bookkeeping the right way
Your bookkeeping is successful only when your records are accurate and up to date. These are ways you can ensure your records are accurate.
1. Record data as they happen
Simply put, if you can't see it, it doesn't exist. Start your business with the practice of documenting everything. The more you do it, the more natural it will feel. Don't lose track of the money going into and coming out of your business. Don't stress out about what to do with the data just yet. It's just a matter of making recording it a habit. Always record the date, the amount, and a detailed description of the item you're recording.
2. Set aside a time weekly
If you intend to keep and maintain your company's records, you should have a specific time every week to commit to maintaining the most recent version of your data. Set aside some weekly time to handle your accounts receivable and payable and analyse your income and expenses. Establishing a routine will help you stay on top of your financial record, provide you with the essential overview of how well your company is performing, and enable you to maintain control over its cash flow.
3. Backup and secure your data
We live in an era when data breaches and natural calamities are rising. To avoid disaster, try to back up and secure your data. Records kept on paper or hard drives should be duplicated in at least one additional location. Digitise all papers to protect data that could be lost, stolen, or destroyed.
Storing documents using cloud-based software reduces the danger of loss while increasing the potential for theft. Your company's records contain sensitive information, such as employee Social Security numbers (SSNs). When storing company records online, use a unique, strong password and enable two-factor authentication.
5 Free small business bookkeeping templates
Technology has been of great help to business bookkeeping. Business owners now have free templates to record important details for their businesses. Here are the top five free bookkeeping templates you can try out.
1. Google Sheets Ledger Template
When you use a ledger template in Google Sheets, it will be easier to keep track of all of your financial activities, from the salary you paid to the profits you made from sales. For your convenience, this template is reasonably straightforward; nevertheless, you are free to modify it and adapt it to meet the requirements of your organisation. The ledger spreadsheet comes equipped with automated functions to limit the risk of human error (for example, calculations of your balances). In addition, it comes with dropdown lists, which allow you to conveniently select a particular account category based on the kind of transaction that you are doing.
2. Balance Sheet Accounting
This is a straightforward spreadsheet in Microsoft Excel that might assist you in preparing a balance sheet. It displays the current state of the company's finances at any given time. If you own a limited company and are legally required to produce your firm's accounts, one of the financial statements you must include is a balance sheet. The balance sheet with the Excel accounting templates helps look at financial ratios to understand how well the business is doing.
3. Bank Reconciliation Worksheet
This is a straightforward spreadsheet in Microsoft Excel that might assist you in preparing a balance sheet. It displays the current state of the company's finances at any given time. If you own a limited company and are legally required to produce your firm's accounts, one of the financial statements you must include is a balance sheet. The balance sheet with the Excel accounting templates helps look at financial ratios to understand how well the business is doing.
4. Budget Worksheet Excel Template
You can plan out your finances and keep tabs on your annual expenditures with the help of the budget worksheet in Excel. You can write the entire budget on a single sheet and revise it yearly in response to shifting priorities or other factors. You can view the disparities between your budget and the real data when you enter the transactions from your bank account. If money is tight or you want to save some money, this bookkeeping template for Excel is helpful.
5. Payroll Spreadsheet
Because employees are essential to the success of any company, those employees must receive adequate compensation. One approach to achieving this goal is using a payroll spreadsheet to record the hours employees work accurately.
This template not only does that function but also takes advantage of built-in formulas and performs computations automatically. In addition, it includes areas for vacation time and sick leave (just in case you use a different payment system for these types of absences).
3 Ways bookkeeping software streamlines business bookkeeping efforts
Using appropriate accounting software with integrated inventory management features may make all the difference in your business. Let's check out the top accounting software small businesses can use.
1. Xero
Xero is the greatest bill-tracking and payment software. It helps avoid late penalties and preserve good relationships with suppliers and creditors. With Xero, you can ensure positive cash flow to avoid shortfalls while paying.
The simple interface shows your business's finances immediately. Fortunately, cloud-based Xero requires no downloads or installations. It does professional double-entry bookkeeping bulk-partnering transactions as debits and credits. This program lets you arrange and bulk-pay vendors, therefore saving you time.
2. Wave
Wave is one of only two online accounting programs you may use without paying a fee, provided that you do not make payroll and payments. Wave adheres to generally accepted accounting principles and is adept at managing transactions and billing. It is one of many software that is the easiest to comprehend and most straightforward. It can support several currencies and provides useful capabilities for extremely tiny organisations.
3. Freshbooks
You can not only make professional invoices that match your brand, but you can also track the progress of invoices so you know when customers got their bills and when their balances are due. It also makes it easy for people to pay you online so that they can pay you right from the invoice.
The FreshBooks platform is easy to use and has tools for tracking time and expenses, managing projects, and making proposals you can send to potential clients. The double-entry accounting method ensures you are organised and ready for tax time. If you have workers, you can give them access to their projects and track how much time they spend on them and what other costs they incur. FreshBooks has over 100 partners, so you can add many features and connect them to other business tools.
Simplify Your Bookkeeping with The Kalculators
Staying on top of your finances is critical for success in today's fast-paced corporate world. As a business owner, you need precise and efficient bookkeeping to make educated decisions and maintain your financial records in order. This is where The Kalculators, a well-known accounting business in Australia, can assist.
The Kalculators is a qualified team at streamlining bookkeeping operations for organisations of all sizes. Our bookkeeping services streamline your tasks using updated knowledge and innovative software solutions, saving you time and lowering the possibility of errors. One of the primary advantages of working with The Kalculators is our dedication to accuracy. Our expert accounting team ensures that every transaction is properly recorded, allowing you to prevent costly mistakes and any legal concerns.
In conclusion, collaborating with The Kalculators is a great decision for any company wishing to simplify its bookkeeping. Contact us today to discover the benefits of streamlined bookkeeping firsthand. To schedule a consultation, visit our website or phone our specialised team. With The Kalculators, you can simplify your bookkeeping and unlock the full potential of your business.
Frequently Asked Questions:
Can I be my bookkeeper?
Yes, you can be your bookkeeper with the necessary knowledge and skills. However, it requires a good understanding of bookkeeping principles and practices and the ability to use bookkeeping software effectively.
What is the simplest form of bookkeeping?
The simplest form of bookkeeping is the single-entry system. This system makes only one entry for each transaction, typically in a cash book. It records cash inflows and outflows but does not track individual accounts or provide detailed financial reports like the double-entry system.
What does a bookkeeper do?
A bookkeeper is responsible for recording financial transactions, maintaining accurate and up-to-date records, reconciling accounts, and producing financial reports. They also help with invoicing, payroll processing, and managing accounts payable and receivable.
What are bookkeeping templates?
Bookkeeping templates are pre-designed spreadsheets or software tools that provide a structure for recording financial transactions. They include categories and formulas to calculate totals and generate reports. Using bookkeeping templates can help streamline the bookkeeping process and ensure consistency in record-keeping.
Do small businesses need bookkeeping?
Small businesses need bookkeeping to maintain accurate financial records and make informed business decisions. Bookkeeping helps track income and expenses, manage cash flow, monitor profitability, prepare tax returns, and comply with legal and regulatory requirements. It enables small business owners to understand their financial position and performance clearly.
What skills does a bookkeeper need?
A bookkeeper needs various skills, including knowledge of accounting principles, proficiency in bookkeeping software, attention to detail, organisational skills, and the ability to analyse financial data. They should also have good communication skills to interact with clients, suppliers, and other stakeholders.
What is the cost of small business bookkeeping?
The cost of small business bookkeeping can vary depending on factors such as the size of the business, the complexity of its financial transactions, and the level of service required. It can range from a few hundred to a few thousand dollars monthly. Some businesses hire bookkeepers hourly, while others opt for monthly or annual packages.
Is a bookkeeper cheaper than an accountant?
Generally, bookkeepers are less expensive than accountants. Bookkeepers typically handle day-to-day financial tasks such as recording transactions and producing financial reports, while accountants provide higher-level financial analysis, tax planning, and auditing services. However, the specific cost will depend on the expertise and services required
What accounting do I need for a small business?
For a small business, here are the top business bookkeeping basics you should practise:
- Maintaining a general ledger.
- Recording transactions.
- Reconciling bank statements.
- Preparing financial statements (such as income statements and balance sheets).
- Tracking accounts payable and receivable.
It is also important to keep tax records and comply with legal and regulatory requirements specific to the business's industry or jurisdiction.