Book Keeping

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Poor record keeping is one of the main reasons why small businesses fail. Why would you want to have a good record keeping system?

Good record keeping is an essential tool you use to manage your business, why? Because it give you the information you need to understand exactly what your business is doing. Poor record keeping, on the other hand, allows you to delude yourself into thinking that things are fine.

Good business records will help you manage your business, meet your tax obligations and make sound business decisions. It will save you time, money and a great deal of heart ache!

Specifically, good records will help you:

check the health of your business
determine costs and profitability
monitor your cash flow
monitor your stock
demonstrate your financial position to banks and other lenders, or to prospective buyers of your business,complete and lodge activity statements and income tax returns
and pay your tax on time

And the final reason for keeping good records is that the tax laws require you to keep records that explain all your business transactions. This includes any documents that are relevant for working out your income or expenses. You also need to keep records to enable you to work out any capital gain or capital loss if, for example, you sell any of your business assets.

What is a good record keeping system?

According to the ATO your records need to be in writing in the English language or, if they are not in a written form (for example, you keep electronic records on your computer), they must be in a form that is readily accessible and convertible into written English.

We have found that a computerized record system is best because we have the ability to:

look into the accounts and see if there are any areas that need correction
We can print profit and loss statements
We can print the balance sheet
We do the business activity statements with accuracy
We can reproduce records with a minimum of fuss

Any books of accounts, records or documents related to preparing your income tax return must generally be retained for at least five/seven years after they are prepared, obtained or the transaction completed (whichever occurs later).

For capital gains tax purposes, you must keep records for at least five/seven years after the relevant capital gains tax event, for example, the sale of an asset. You can choose to maintain an asset register, which might enable you to discard records that you would otherwise be required to keep for long periods.

What the ATO Expects

The ATO expects small businesses to keep records they need to accurately meet their tax obligations and manage their business, they:

Provide a record keeping evaluation tool – available on their website – which allows you to assess whether you are meeting your record keeping obligations.
Produce fact sheets on record keeping tailored to specific industries.
Provide products and services to help small business operators meet their record keeping obligations, including Record keeping for small business (NAT 3029), the free e-Record record keeping software, and free record keeping workshops.
Work with industry bodies to develop best practices, codes of conduct and incentives to encourage self-regulation of record keeping and other requirements.
Check small businesses’ record keeping practices as part of our cash economy and general compliance activities. This work is being done in two phases:
- Initial assessments – they rate the record keeping practices of a business using our record keeping assessment tool. If the business does not meet the necessary standard, they offer them advice and education on how they can improve their record keeping.
- Revisit assessments – if the initial assessment is less than satisfactory, they may select the business for a further visit to determine whether they have improved their record keeping to the required standard. If they continue to fail, they may apply penalties.
They follow a graduated approach to imposing penalties as detailed in PS LA2005/2 Penalty for failure to keep or retain records.
The penalty reflects the efforts of the business to improve the standard of their records. Where:
- A genuine attempt has been made to improve records – no penalty imposed
- No effort is made – no remission likely to maximum penalty of $2,200
- Some effort is made but the tax liability is still not readily ascertainable – 75% remission of maximum penalty likely, and
- Very little effort is made – 50% remission of maximum penalty likely.

How can we help?

Go to the Business Services section of our web site, where we outline some of the services we provide. Not only can we do your record keeping, we also assist you with: