Bookkeeping Guide

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    Are you interested in learning more about bookkeeping for your small business? Browse our guides to learn about freelance bookkeeping, when to hire a bookkeeper, and more.

    Chapter 1: Bookkeeping services for independent contractors

    Working as a freelancer requires a lot of juggling. You must be able to handle a variety of activities, including basic bookkeeping. Here are a few pointers to help you stay on top of your everyday finances.

    Recognise the significance of bookkeeping for your company

    One of the most prevalent concerns voiced by freelance workers is over payment. Working as a freelancer gives you the opportunity to collaborate with a diverse range of customers. It is tough to keep track of who owes you money, when they owe it to you, and how much money they owe you all at the same time.

    Because of this, it is absolutely necessary for freelancers to have a fundamental understanding of bookkeeping as well as how to use bookkeeping software. It will be possible for you to maintain track of overdue bills so that you can collect payment for them. You won't be left out when it comes to billing your customers, so don't worry about that. You will also have the ability to quickly evaluate the state of your company's cash flow.

    Almost certainly, you already have an accountant. If you don't have one, you should get one right away. An accountant, on the other hand, may only evaluate your finances once a year. Bookkeeping provides a more immediate view, especially if you make daily adjustments. If you discover that you don't have enough time to keep track of your finances on a regular basis, hiring a bookkeeper will allow you to spend more time doing what you enjoy. Here's how to use bookkeeping to your advantage.

    Make a system that is organised    

    Good bookkeeping necessitates organisation. You won't be able to manage your finances without it. As a result, begin as you mean to go on:

    • As soon as you begin freelancing, get started right away. Don't put it off; else, you'll have trouble remembering all of your previous transactions.
    • Speak with a bookkeeper and get their opinion. Inquire about the software they use. If you and your partner both use online accounting software, your lives will be a lot easier. As a result, you'll be able to transfer data effortlessly and securely from anywhere.
    • Make use of a well-known accounting system. Accounting software will walk you through the basics of bookkeeping. All you have to do now is fill in the blanks and have it reviewed by a bookkeeping or accounting professional at the outset.
    • Set aside time each week to work on your books; if you fall behind, you may find it difficult to catch up. Hiring the correct bookkeeper can make a huge impact in the success of your company.

    Keep track of important aspects of your business

    For each client, record the number of hours you spent working or the number of jobs you accomplished.

    • each client's fee per hour or per project
    • your company's expenses (and keep all receipts)
    • all of your payments, including bank transfers
    • all of the money you get from clients

    All of this should be recorded in your accounting programme. This data can be used by modern accounting software to:

    • generate accurate invoices
    • produce cash flow reports
    • keep track of money owed to you (accounts receivable)
    • keep track of the money you owe to others (accounts payable)
    • identify your best clients – and your worst.

    There are other advantages to accurate bookkeeping. It means, for example, that you'll be ready if the government audits you. It can also be used to prove your income when applying for a home loan or other type of credit.

    Deduct your expenses from your taxes


    Many of your expenses as a freelancer can be deducted from your taxes. The rules differ from country to country, but you can usually offset things like:

    • Expenses for travel, but not to and from a regular workplace
    • Rent for an office, as well as a space in your house
    • Bills for electricity and utilities
    • Computers, printers, and phones are examples of capital expenditures.
    • Bills for internet and phone
    • If you use your automobile for business, you'll need to keep it in good shape.
    • Client entertainment expenses are allowed, although there are some limitations.

    As a result, when performing your bookkeeping, make sure to keep track of all of these details.

    Most of the time, you can only deduct a fraction of your expenses. You may, for example, deduct the rental cost of a single room in your home, but not the entire property. You could also claim fuel costs, but only for business-related mileage.

    Consult your bookkeeper to see what you can deduct, and stay aware of potential traps. Assume you took out a loan to purchase your property. You might be eligible to deduct a portion of your interest payments from your taxes. However, if you do, you may be required to repay that amount when you sell your house.

    Rapid payment

    Getting paid quickly is one of the major advantages of having up-to-date accounts. Many freelancers struggle to collect payment, but bookkeeping can assist.

    • Send invoices on time and frequently. Creating and sending invoices by email takes only a few minutes. There's no need to repeat the process because you've already entered all of the relevant data. Simply click to send.
    • Quickly identify late payments. You can rapidly discover late payers using up-to-date accounts. An aged summary report will show you who owes what and how far behind on each debt each invoice is. You'll quickly figure out which clients are troublesome.
    • Set reminders for both yourself and your clients. You can set up reminders to alert you when an invoice is about to expire. Reminders can also be delivered to the client — automatically – using current accounting software.
    • Chase, with grace and authority. Your client is legally obligated to pay you if you accomplish your work to the agreed-upon standard. So don't feel bad about pursuing payment. It is, after all, your money.

    Set up money for your tax bill

    Unlike a typical employee, you do not have your taxes withheld from your pay. That implies you'll need to budget and be disciplined in order to save money for your tax obligation. It's critical to establish a routine so you don't be caught off guard come tax season.

    Some freelancers use a separate bank account dedicated solely to tax payments. They can calculate their tax bill using reports from their accounting software. Each month, they set aside the proper percentage of their income. Then they'll know if they'll be able to pay the debt.

    This is something you must take seriously. If you don't pay your tax due, the government is unlikely to be sympathetic. As a result, set aside the funds and record them when completing your bookkeeping.

    Make accounting useful to you

    If you work as a freelancer, bookkeeping is an essential component of your business. It aids in the planning of tax payments, the tracking of expenses, and the management of late payers. Above all, it provides you with a comprehensive picture of your company's current situation.

    This is crucial because when you're continuously working for several clients, it's easy to lose sight of the overall picture. You'll have a clear picture of cash flow, income, expenses, and business growth if you keep good records. You'll be stumbling around in the dark without it.

    So take charge of your accounting. It will give you priceless insights into your freelancing business if you use the proper software.

    Chapter 2: When you should hire a bookkeeper

    Bookkeepers can help your business with day-to-day accounts – recording sales and other transactions. But they can do a lot more too. So when does it make sense to hire a bookkeeper?

    The tasks of a bookkeeper    

    A bookkeeper is someone who keeps track of your company's financial activities. They also include:

    • Keeping track of sales, purchases, payments, and receipts is essential.
    • Work on internal business process design, maintenance, and evaluation
    • On a daily basis, organise, collate, and record financial data, and store this information in general ledgers.
    • Keep track of your company's financial data in a common format so that accountants can access it.

    We'll look at what a bookkeeper can do for you and when you should get one for your company in this tutorial.

    Why do you need one?    

    If you founded your own company, you're probably passionate about operating it and focusing on the jobs you enjoy. However, if you're like most business owners, you're not too concerned with meticulously logging every financial transaction.

    Consider the following scenario: you are the owner of a hair salon. You could have:

    • a straightforward business model
    • a high transaction rate with a large number of clients
    • dozens, if not hundreds, of sales per day
    • bills for hair goods from suppliers
    • cash registers or other POS (point of sale) systems are used to track sales.
    • wages of employees must be recorded and paid.

    That's a lot of information to keep track of. You might not love learning about bookkeeping or have the time to do so.

    If good bookkeeping is not in place, it is simple for transactions to go unrecorded and pile up until the end of a financial month. There's a chance that mistakes may be made, and crucial details will be forgotten.

    This is where bookkeepers might come in handy. They can assist the business by lowering the quantity of work that needs to be done. They can eliminate the need to keep daily records of receipts, invoices, and other transactions.

    What do they actually do?    

    Bookkeepers are educated to record financial transactions in the same way that accountants do. They do this so that your accountant can process your financial data fast and easily. They'll do the following:

    1. Take all receipts, invoices, and other transaction information with you.
    2. Use suitable accounting practises to enter the data into accounting software.
    3. Assist you in making sense of the figures, such as allocating costs to individual clients.

    However, bookkeeping entails more than just recording daily transactions. People that work in this field are usually well knowledgeable about accounting software. They'll be able to help you with:

    • POS tools, for example, are add-on solutions that can help you streamline your business workflow.
    • Payroll services to make it easier to pay your employees
    • Rescue labour in bookkeeping, cleaning up mistakes caused by untrained employees
    • Accounting software training for small businesses.

    They can also help small business owners on a day-to-day basis. A qualified bookkeeper will help you keep things operating smoothly in your company.

    How are they different from accountants?    

    A crucial service is bookkeeping. But what distinguishes it from accounting? The two services are frequently compared, but they are actually complementary:

    • Bookkeepers handle the day-to-day tasks and ensure that the accounts are accurate and detailed. They can also give you advice on concerns that may arise in the near future, such as cash flow issues or late invoice payments.
    • Accountants will review the accounts that have been generated on a quarterly basis, if not more frequently. They'll make any little alterations that are necessary. They will file tax returns and other official reports based on the information in the accounts. They will also offer high-level business consulting.

    In order for your company to run properly, you'll need both personnel. To handle the day-to-day task, you'd engage a bookkeeper. You'd also engage an accountant to help you with official reporting and high-level business counsel.

    A detailed view of your business    

    Bookkeepers and accountants work with the same financial information from your business.

    They can use cloud-based accounting software to communicate that information. That means they have secure online access to your financial information from anywhere. It allows them to disclose financial statistics regarding your company's health.

    As a result, they can both provide you advice on where your company is now – and where it's going.

    It’s often the case that your bookkeeper will be the constant accounting contact for your business. They'll be in the best position to answer questions concerning money's origins and destinations.

    When should I hire a bookkeeper?    

    The sooner you start, the better. You should hire one as quickly as possible if you haven't already. You should hire one as soon as possible after launching your company.

    You can end up with several months' worth of receipts and invoices to process if you don't. That will take time, and it may be difficult since you will forget which client to bill for a specific expense.

    "What was the purpose of this train ticket?" you might wonder. On July 13th, who did I pay a visit to?" A bookkeeper would be able to tell which client you went to and why. They would then correctly account for the travel expense.

    Finding the right person    

    Whoever you hire must be entrusted with the day-to-day operations of your company's finances. As a result, you should use extreme caution when hiring a bookkeeper.

    You'll have a lot of options because there are so many bookkeeping companies. You might contact one directly or enquire about referrals from your business partners or clients.

    If you have an accountant, you should also enquire. If you can find someone who utilises the same accounting software as your accountant, that would be ideal. They will be able to simply communicate account information this way.

    Accounting software should ideally be cloud-based, which means it can be accessible via the internet. Then you'll all be able to share access to your company's financial data. You may do it securely and remotely from any location.

    Once you've whittled down your list of potential bookkeepers, you can:

    • check their past work record
    • contact their referees and talk to them
    • ask your accountant to have a meeting with your proposed bookkeeper.

    It's a significant step to trust someone with your company's financial information. So, before you hire a bookkeeper, do your homework.

    Get the best out of your business.    

    Bookkeepers offer a vital business service.

    They save you time by handling all of your everyday financial tasks, leaving you to focus on running your business. They can use the real-time data they collect to provide you with new insights into your business.

    When you're attempting to set yourself apart from the competition, this is critical. If you want to make good business judgments, you'll need real-time data.

    A bookkeeper is quite valuable to a small business, as we've shown in this guide, and can provide more services than just financial records and compliance. A bookkeeper's specialisation in a particular area is common, so enquire about it to gain even more value. Hiring a bookkeeper to assist you along your journey will ensure that you get the most out of your business.

    Are you ready to make a choice? Through our Xero adviser directory, we can connect you with an expert bookkeeper.

    Chapter 3: Keeping books to manage your business

    Accountants aid in the organisation of your funds, but bookkeepers are also necessary. So, how do a bookkeeper and an accountant differ? And, more importantly, how can a bookkeeper assist you in running your company?

    Accountants are not the same as bookkeepers.    

    You'll be familiar with juggling multiple duties at once if you're a small business owner. You must create income, maintain client satisfaction, and safeguard financial information in addition to keeping everything operating. However, keeping track of your finances can be difficult, and one of the most pressing concerns you may have is who you should hire to assist you with your finances. Are you looking for a bookkeeper, an accountant, or both? Let's take a look at the situation and debunk some of the myths.

    Accountants and bookkeepers do a variety of tasks and have a wide range of duties. The main focus of an accountant is on:

    • the process of creating and submitting statutory returns
    • advice on the formation of legal entities
    • delivering broad financial and business guidance.

    To practise as an accountant nowadays, you almost always need to be a member of some sort of professional organisation. Certified public accountants (CPAs), chartered accountants (CAs), and other titles may be used by qualified and registered accountants depending on the country in which they practise. CPA stands for certified public accountant. CA is for chartered accountant. Other titles may also be used. Certified Public Accountant is what people refer to when they say "CPA." Chartered Accountant is abbreviated as CA.

    Within a smaller organisation, bookkeepers could be accountable for a variety of tasks at the same time. On the other hand, during the operational existence of a small firm, the organisation, documenting, and reporting of financial transactions constitutes the primary focus of attention that must be paid. Over the course of the past few years, many bookkeepers have begun to take on extra responsibilities, including the following:

    • clients are taught how to use accounting software
    • In order to improve the effectiveness of the firm, methods for managing documents and controlling inventory are being implemented.
    • Systems called POS (point of sale) are used to record regular transactions in a retail setting.
    • Developing, putting into action, keeping, and evaluating the procedures of an internal business should be done.

    You'll often find that a bookkeeper has a speciality, and it's a good idea to enquire about it when you're considering hiring them for services.

    Who are the bookkeepers?

    Here are some of the bookkeeper's responsibilities that will help your business run smoothly:

    • Monitoring daily transactions, The recording of day-to-day bank transactions can be handled by a bookkeeper. This is a wonderful tool for your bookkeeper to use if your accounting programme supports daily automatic bank feeds. It's lot easier to keep track of cash flow when your bank statement lines are fed into your accounting software, and it also saves time on data entry.
    • Managing the accounts receivable ledger and sending invoices
      In most businesses, the task of producing invoices and delivering them to customers is delegated to the book-keeper. In addition to this, it is typical for a bookkeeper to be in charge of the accounts receivable ledger and to be responsible for chasing overdue payments.
    • Handling the ledger for the accounts payable
      Bookkeepers are typically the ones who make payments on the company's behalf up to a specified financial threshold. Costs, petty cash, and supplier invoice payments are all covered.
    • Observing the cash flow
      The major responsibility of a book-keeper is to monitor the cash flow of the firm on a daily basis and to verify that the available cash is sufficient to pay for all of the expenses incurred by the organisation. They will be successful in accomplishing this objective if they maintain a vigilant watch on the proportion of their revenues to their expenditures. After that, they are in a position to take action or provide counsel if it appears that the company needs additional cash on hand, and they can do either of these things immediately.
    • Getting the books ready for the accountant to look over
      When the accountant requests the accounts, it is the bookkeeper's responsibility to ensure that they are accurate and current at the time of the request. Because of this, the accountant is able to use their expertise and experience to provide counsel to company clients, report to the board, and file tax returns for the corporation.


    In essence, the bookkeeper is responsible for handling day-to-day tasks so that the accountant can focus on strategic financial operations. As a result, bookkeepers serve a crucial role; without them, accountants would be unable to do their duties.

    If you require help with your bookkeeping, you can give us a call on (03) 9571 5333 or email us on

    A collaborative effort between bookkeepers and accountants

    Both accountants and bookkeepers are likely to be employed by a well-run business. The importance of labour division cannot be overstated. Here's how things could go:

    • Organisation creation
      You should seek the assistance of an accountant while establishing your company, as was recommended in our previous piece on the topic of employing an accountant. Accountants are able to assist you in formulating a business strategy and organising your organisation in a manner that is optimal for your company.
    • Accountancy programmes
      You may also benefit from having an accountant or book-keeper assist you in selecting the appropriate accounting software and assisting you in setting it up for yourself and your employees, particularly your bookkeeper.
    • Work in bookkeeping
      After you've finished the aforementioned tasks and hired a bookkeeper, you can focus on maintaining your company's records up to date on a daily basis.
    • Reconciliation of accounts
      It is anticipated that the bookkeeper and the accountant will get together on a consistent basis, most likely once per month. They had the option of physically gathering together or working remotely using accounting software that was hosted in the cloud. In either scenario, the accountant is going to look over the data from the accounts, and the book-keeper is going to clarify any numbers or decisions that aren't clear.
    • Reporting
      The findings that the accountant has obtained will be presented to the owner of the company as well as the board of directors. To ensure that the board of directors and the owner have a comprehensive understanding of the state of the company's finances, the accountant will produce a report detailing the current situation of the finances. Making use of something that is known as management accounts, a book-keeper is also able to provide reporting, but in a manner that is less formal and more frequently done. The owner of the company will frequently refer to these reports as checkpoints to determine the course that the company will take during each week.
    • Strategy
      The findings will be presented by the accountant to both the owner of the company and to the Based on the most recent information, the accountant will provide the owner of the company as well as the board of directors with recommendations. The accountant will be consulted regarding any planned expansion or investment before to moving forwards. They will also tell you whether or not your business has the financial means to develop into other regions as well as other financial strategies.
    • Legal observance
      The information that was obtained by the book-keeper will be used by the accountant to generate the reports for the company. These reports will include not only income and expenses, but also nett profit, assets, and liabilities, as well as tax information. In addition, the accountant is responsible for preparing and filing the company's tax return forms and coordinating the company's tax payments.

    This is a sensible way of sharing the workload. The accountant does the work they have been trained to do, while the bookkeeper provides the necessary financial data.

    There are five ways a bookkeeper might benefit your company

    If your business is on the smaller side, you might have to keep the books yourself – at least in the beginning, before you can afford to hire someone else to do it. When your company reaches a particular size, it makes sense to hire someone to manage the bookkeeping so that you don't have to worry about it. The following are five ways in which a book-keeper can be of assistance to you:

    1. Pay attention to your business plan
      Bookkeeping entails keeping track of minute details and entering them into accounting software. Working with numbers might make it difficult to see the big picture. As a result, it's generally preferable to delegate this task to someone else.
    2. Spend less on accounting
      Do you use an accountant to keep track of your everyday activities and process your payroll on a monthly basis? If that's the case, hiring a bookkeeper to handle the work for you could save you a lot of money.
    3. Be a second set of eyes to keep a check on your cash flow. Keep an eye on your financial flow if you don't want to run out of money unexpectedly. This is something we talked about in our cash flow management handbook. It's helpful to have someone else double-check the numbers here to ensure that your money keeps flowing. That's something a bookkeeper can accomplish.
    4. Get rapid access to important numbers.  It is essential to have a professional accountant take care of the monthly business reporting and reconciliation tasks. What should you do, though, if you need financial data in the middle of the month? Bookkeepers may be able to supply you with the information you require in a timely manner, freeing you from the need to wait for your accountant to respond.
    5. Take charge of your financial information.  The majority of accountants work for their clients on a part-time basis because so few small businesses are able to afford to retain their own accountant. If they use reliable online accounting software to manage your accounts, collaboration will be lot simpler for everyone involved. Your book-keeper and your accountant will be able to collaborate on the same data collection when using quality software. They are able to work together to give you the best possible outcomes and to assist your organisation in achieving its goals.

    Bookkeeping makes your company work more efficiently

    Bookkeeping is a crucial function for any organisation. This is the case regardless of whether you do the task yourself or whether you pay someone else to do it for you.

    In the event that you do not keep appropriate bookkeeping, your financial statements will be erroneous. This indicates that you won't be able to make strategic decisions for your company's business because your accountant won't have a complete picture of your company's financial situation.

    In addition, the law mandates that your organisation have an accurate accounting system and file reports regarding the business. As a direct consequence of this, getting it right yields positive results.

    Bookkeeping will not only make all of this more manageable for you but will also provide you with insightful information regarding the state of your company's finances.

    You may find an experienced book-keeper by using the Xero adviser directory to help you connect with them.

    Chapter 4: Small business bookkeeping for beginners

    Bookkeeping keeps you informed about the state of your small business and helps you stay on track with the ATO. So, what exactly does it include, and how can you make it less tedious? For those who are new to bookkeeping, we break it down for you.

    What is bookkeeping? 

    Bookkeeping entails keeping track of and classifying all of your company's financial transactions. It's keeping track of how much money your company spends and how much money it receives.

    These tasks were previously managed through the use of books and ledgers, hence the term "bookkeeping." The transactions were originally documented in daybooks, cashbooks, or journals before being converted to a ledger.

    The necessity for physical books has mostly been eliminated by bookkeeping software.

    Why do small businesses need bookkeeping?    

    A set of precise, well-kept books is a wonderful place to start when it comes to running a profitable business. This is why:

    • You can see if you're making more money than you're spending by looking at your bank account.
    • For planning and budgeting purposes, you'll have accurate financial data.
    • By keeping track of when you need to pay suppliers and when you expect payment from consumers, you may predict when a cash crunch is coming and take actions to avoid it.
    • You're more likely to come across errors (or even fraud) that could cost you money.
    • You have the ability to prepare proper tax returns.
    • It is easier to engage with other parties such as lenders, investors, and accountants if you have your financial information organised.

    How to do bookkeeping    

    Recording and reconciling are the two most crucial aspects of inefficient small business bookkeeping. Let's take a look at each one individually.

    Recording every transaction

    Keep track of your sales. Traditionally, this was accomplished by writing them down in a cashbook or punching them into a spreadsheet. Business owners are increasingly downloading sales data from point-of-sale or invoicing software directly into their books.

    Keep track of your transactions. Every purchase made in the course of business must be documented. If you plan to claim that expense as a tax deduction, you should keep the evidence of purchase as well. You can write these details down in a book or a spreadsheet once again. Alternatively, you can automate the process so that all debits from your business bank account go into your accounting software.

    Depending on whether you use cash or accrual accounting, you can record income and expenses at different times.

    Reconciling every transaction

    Reconciliation is comparing your business books to your bank accounts on a regular basis to ensure that the transactions and balances match – and determining why they don't if they don't. Bank fees, interest payments, deposits, and payments that have not yet arrived in your bank accounts must all be accounted for.

    Depending on the quantity of transactions that pass through your firm, you may undertake bank reconciliation daily, weekly, monthly, or less frequently. However, you will very certainly be forced to reconcile your books before filing tax reports.

    The sooner transactions are reconciled, the sooner problems may be identified and addressed. It's best to do it frequently – perhaps daily – to avoid work piling up. More information on how to do bank reconciliation may be found in our guide.

    Other minor bookkeeping responsibilities

    If you work as a bookkeeper for a small business, you can be in charge of:

    • accounts receivable (issuing invoices and making sure they’re paid)
    • accounts payable (paying bills on time)
    • payroll (paying employees)

    Other services provided by professional bookkeepers include assisting with financial reporting (profit-and-loss, balance sheet, and cash flow report) and assessing business performance. Bookkeepers are frequently BAS agents and can assist you in filing your taxes.

    How software can help    

    To speed up these tasks and reduce the chances of human data input errors, many small firms employ online bookkeeping software. These tools can be used to:

    • Obtain transaction data directly from the point-of-sale (POS) system, invoicing software, and financial institutions.
    • Bank reconciliation will be significantly accelerated.
    • Bills are automatically paid
    • People who owe you money should receive automated invoice reminders.
    • Notifies you when sales invoices are paid
    • Enables you to monitor your cash flow from your phone

    Outsourcing small business bookkeeping    

    If you’re too busy to do the bookkeeping for your small business, then you can find someone to do it for you. Bookkeepers frequently provide you the option of selecting different service levels based on your budget. As a result, you can begin with basic bookkeeping at a low cost and work your way up to more comprehensive services as your company expands. Bookkeepers can be found on the Xero advisor directory.

    Bookkeepers are responsible for providing accurate, up-to-date financial information about a business. They're always taking the pulse of a business. Most often, their reports go to business owners and managers to help them make decisions. Some bookkeepers, however, are actually involved in strategy development.

    Basic Accounting and Bookkeeping Skills
    • Accounting.
    • Accounts Payable.
    • Accounts Receivable.
    • Accrual Accounting.
    • Auditing.
    • Balance Sheets.
    • Bank Deposits.
    • Bank Reconciliation.

    While bookkeeping is all about recording of financial transactions, accounting deals with the interpretation, analysis, classification, reporting and summarization of the financial data of a business.

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