Whenever you make a business decision, you should always have figures to back it up. On this page, you’ll find accounting basics to keep your business on track and encourage investors.
Your accounting checklist
The steps below can help you to keep your business’ accounting on track.
1. Improving your financial position
Review your business finances with your financial advisor or accountant. Look at whether you met your targets last financial year and what you can do differently this year to help your business grow.
2. Checking your registrations and licences
Your business operations may have changed during the year. Review the current licences, permits and registrations your business holds.
3. Reviewing your bookkeeping system
Keeping good records:
- makes running your business much easier
- maybe needed to comply, depending on your industry
- helps you to keep track of how your business is going financially
4. Updating your business and marketing plans
Take time to set yourself up for the year ahead. Updating your business and marketing plan can:
- help you review your goals and priorities
- assess whether your business strategies are working
5. Getting support and advice
Running a small business can be overwhelming and requires a variety of skills. Don’t be afraid to get help when you need it.
6. Reviewing your insurances
Check that you have the right insurance policies in place for your business, particularly if your circumstances change. You may need to update your level of cover if you’ve:
- moved location
- started employing people
- changed your business structure
7. Backing up and securing your files
Don’t leave it until it’s too late. Backup and store your essential business information in a secure off-site location. Include things like:
- business registrations
- financial information
- customer data
Choosing a professional to do your accounts
The right accountant or bookkeeper can help you maximise your business income. They can also help with your books and the financial health of your business.
The financial professionals to consider using include:
- Accountant – can help with your business’s financial needs, including preparing financial statements, managing your tax and providing financial and business advice.
- Bookkeeper – can keep track of your day-to-day financial transactions, look after your banking, chase overdue payments, pay wages and prepare some financial statements.
- Business activity statement (BAS) agent – can help you prepare and lodge your BAS to make sure you get it right. They’re registered professionals who are specialists in their field.
Even if you have a professional to look after your books or accounts, you’re still responsible for any financial decisions. Read more about where to find financial help for your business.
Check their registrations
Whoever you choose to help with your accounts needs to have the right qualifications for the job. They should also be a member of an accounting or bookkeeping professional body.
The Tax Practitioners Board (TPB) website can check if your tax agents, BAS agents or tax (financial) advisers are registered.
There are two ways you can check:
- Search the TPB register.
- Look for the registered tax practitioner symbol on their website, stationery, brochures or business cards. The registered tax practitioner symbol includes the type of registration and their unique registration number.
Questions to help you decide
Deciding on the right person to do your accounts or giving you financial advice depends on your business needs. To help you decide, shop around and ask yourself:
- Which one can do the job?
- Do they have similar business clients to your business?
- Do others recommend them?
- Do they charge fees within your budget?
- Do you feel comfortable working with them long-term?
There are many financial terminologies that you may need or come across when working with your accountant or bookkeeper. Let’s look at the principles, language, and jargon you may encounter when looking at setting up your accounting package with QuickBooks Online.
Chart of Accounts
What is the purpose of your chart of accounts? Broken down simply, they are a list of stores that classify and summarise where your money is coming in from and where you’re spending your money. In QuickBooks Online, there are specially designated account types broken down into specific type. The primary account types are:
- Bank accounts
- Undeposited Funds
- Equipment, Plant and Machinery, Motor Vehicles
- Accounts Receivable – payments from your customers owed to you
- Credit Card
- Loan accounts
- BAS and PAYG Liabilities
- Accounts Payables – payments you owe your suppliers
- Capital introduced
- Retained Earnings – profit you have made
- Sales Income
- Interest Income – under Other Income
- Cost of Sales
- Materials purchased required for Sales
- Supplies and Stock purchased to sell directly
- Office and Administrative Expenses
- Advertising Expenses
- Insurance Expenses
- Interest Payable – under Other Expenses
When broken down into these separate accounts, the classification and posting of each account with your records needs to be accurate. This is where the information is drawn into different types of reports:
- Balance Sheet
- Profit and Loss
Let’s look at these in more detail.
Balance Sheet Account Types
The balance sheet includes your assets, liabilities and equity accounts. It’s your business’s financial snapshot that gives you insight into your business’s health, what you own compared to what you owe.
Things the business owns have monetary value, such as money in the bank or a motor vehicle or building that can be sold for cash. It can also be money that is owed to the business, such as an unpaid invoice.
Money that the business owes to other people or companies, such as a debt owed to a supplier or credit card payment owed to the bank. It is also money owed to the ATO, such as payroll taxes, your BAS and superannuation owed to staff.
The business owner has initially invested in the business, plus additional contributions into the business or drawings out of the company.
Profit and Loss Account Types
The Profit and Loss statement is a summary of income fewer expenses within a specific time frame. This is the preliminary financial report that is essential for any business to check its performance. It reflects the company’s past performance and gives you the ability to track how your business is performing, broken down into separate categories.
Otherwise known as sales, money coming into the business as a result of goods or services sold.
Cost of Goods Sold
The purchases directly related to what is being sold in the business. This is not an expense of running your business, for example, costs to produce Income materials, supplies, or possibly labour and subcontractors.
The overhead costs of running your business including administration or rental insurance expenses.
Important Accounts You Need to Be Aware Of
This is found in the Balance Sheet under Assets. They are all the amounts owed to the business by its customers, mainly unpaid Invoices. You need to keep strict control of this account for excellent cash flow.
This is found in the Balance Sheet under Liabilities. They are all the outstanding bills to your suppliers. It is essential to know at all times what you owe to your suppliers. Knowing this information when an account is due will enable you to keep you getting your line of credit suspended.
Also found in the Balance Sheet under Assets. These are funds that you have received by cheque or cash and are not yet banked.
Have You Ever Heard of Debit and Credits?
My first lesson in accounting taught me that there has to be a credit for every debit! More than likely, you won’t have to process a journal – best leave this to your bookkeeper or accountant. If you do have an attempt at processing a journal for any adjustments you have to remember that the amounts on both side of the ledger, which is debits to the left and credits to the right (another phrase that we learnt in our accounting lesson), have to “equal” or “marry”.
We are lucky that today we have accounting software that processes these debits and credits behind the scenes. This means you don’t have to stop and think about which side of the ledger you need to enter when processing your invoice’s or any other transactions. So for every transaction that your process, there is a double entry – debit and credit.
In this invoice above, the sale amount is $825.00, but this includes $75.00 of GST, and net sales are $750.00. Looking at our journal below, you can see how this has been picked up in a debit and credit style ledger.
The total amount of $825.00 has gone to Accounts Receivables (money owed by your customer), then $75.00 has gone to BAS Liabilities Payables (money you owe the ATO for BAS), and the total net sale of $750.00 has gone to your Sales account which is income.
The Bank Reconciliation is the process of matching your bank statement to your bookkeeping records or mirroring what you have on your information to your QuickBooks Online file. I can’t stress enough that reconciliation is required on every bank account, credit card and loan account that you have that is in your file.
This is to prevent you from having inaccurate records. You could be making huge errors, and if the transactions are not verified to your bank accounts, it could result in you overpaying BAS or overpaying tax. Your finances won’t be in a fit state to make decisions that reflect how your business is travelling. There are many reasons you need to reconcile your bank statements.
Every month at the end of the month, it’s wise to reconcile a few areas:
- Transactions not entered or entered incorrectly
- Transactions have been entered twice
- Sales payments are not going in as sales and deposits not being processed. This would mean you are not paying the correct amount in BAS, and if audited, you will have to readjust, which may result in your owing the ATO a significant amount.
Cloud / Online Accounting Software
This is relatively new terminology. Online accounting software is another word for cloud software. This means that you do not have to install any software on your local computer, desktop or laptop. Online software keeps your data stored in the cloud so that you can access this data from anywhere and anytime in the world, provided you have an internet connection.
Other standard terms used.
This refers to the basic rules and guidelines under which businesses keep their financial records and prepare their financial reports. The most likely method that is used is the Accrual method here in Australia. There are the two methods of Accounting Cash or Accruals *** do not confuse this with your GST/ BAS Method **
The period for which financial information is being tracked. Most businesses here in Australia follow the financial year from July 1 to June 30th.
An accounting method used to track the aging and use of assets. Every major purchase the business owns will age and eventually requires replacement.
This is where all the accounts are found, and historical changes are found and summarised.
There are two methods of accounting for GST: cash basis and non-cash basis (accrual). Businesses with an aggregated turnover of less than $2 million can account for GST on either a cash or non-cash basis.
A more significant business over $2 million must use the non-cash method. Using the non-cash method means you account for GST on the BAS, covering the period in which you issued the tax invoice and received the invoice from your supplier.
The account tracks all products that will be sold to customers.
Where the bookkeeper or accountant keeps records of daily transactions, each transaction has its journal.
The way a business pays its employees. Managing payroll is a crucial function and involves managing aspects of payroll taxes to the ATO, including taxes to be paid on behalf of the employee, superannuation, WorkCover and sometimes state payroll tax.
Having insight into what essential accounting terminology means can help you when your business finance. Take time to learn the basics, but always remember your accountant or bookkeeper is there to help you.