As a business owner and operator, it is important that you understand the requirements of record-keeping for your business.
You are responsible for keeping detailed records of all transactions related to your tax and superannuation affairs for the lifespan of your business. Essentially, this means any documents related to your business’s income and expenses.
Keeping accurate and complete records for all your business transactions will also help you manage your business and cash flow.
Record-keeping Rules for Businesses
It is a legal obligation to keep records of everything relating to your tax and superannuation transitions during the life of your business. This includes the setting up of your business, any changes to the structure and if you happen to close the business.
It is very important you understand what is required for your business and make sure that keeping accurate and complete records is part of your everyday business activities.
You should ensure that as your business changes and grows that you are reviewing the requirements of what is needed. There can be legal and financial consequences if your business doesn’t comply with this.
What information is required in a record?
The minimum information that needs to be on the record is generally the:
- date, amount, and nature (for example, sale, purchase, wages, rental) and the relevant GST information for the transaction
- purpose of transaction
- any relevant relationships between parties to the transactions
How long are you required to keep records for?
Most records need to be kept for a minimum of 5 years
As a rule, the five-year retention period for each record starts from when you prepared or obtained the record, or completed the transactions or acts those records relate to, whichever is later.
However, there may also be a requirement to keep some records for longer than 5 years in some situations.
Setting Up and Records and Maintaining Best Practices
The first step is choosing a record-keeping system such as digital or manual. However, in this technological age, a digital system such as Xero is the highly recommended option.
The next step is to ensure that on an ongoing basis that all records are kept safe and secure.
You also need to take into consideration what business activities you need to carry out and what will need to be recorded, such as:
- reconciling electronic and cash payments
- issuing invoices and paying bills
- paying wages and superannuation guarantee payments
- lodging activity statements and tax returns
- prepare financial accounts, profit and loss statements and balance sheets.
If you are looking at outsourcing your bookkeeping, you can always discuss these requirements with the bookkeeper you engage and go over systems to put in place to ensure you are following best practice.
If you are just starting out and not entirely sure what may be needed, then it can be best to look for help early on so you can start off on the right foot.
Keeping Records Safe and Secure
You are required by law to keep your records for the Australian Tax Office (ATO) in order to calculate your tax obligations.
These records, whether they are kept electronically or manually, may be at risk of damage or loss if they aren’t stored securely and safely, which may affect the running of your business.
Damage or loss of your records may also affect your ability to:
- accurately report your business income
- claim correct business deductions
- meet other tax, super and employer obligations.
In order to keep your records secure you need to ensure the security of your computer systems as well as secure storage of original documents and have a backup system in place.
Record Keeping Tips
Making sure that you understand what is required and making it a priority can help to avoid the various penalties that may apply if you fail to meet these requirements.
Based on some common bookkeeping errors, here are some tips to help you get it right:
- Keep accurate records of all cash and electronic transactions
- Complete regular reconciliations of sales (both cash and EFTPOS) and enter the amounts into your main business accounting software system. Depending on your business, this may be daily, weekly or monthly
- Where business expenses have both business and private use portions, work out and record the business portion accurately
- Sufficient records to back up any deductible business expense claims
- Don’t use estimates to prepare your tax returns and business activity statements (BAS). Ensure you have complete and accurate records to substantiate the information you include in them.
If you feel you need help keeping on top of all the bookkeeping requirements for your business Sense in Numbers are registered BAS agents who are happy to make sure you are meeting your obligations.