STEP 7: Keeping financial records

As a business owner, it is a legal requirement that you keep record of all your business transactions for a period of at least five years.

Keeping well-prepared business records will assist with:

  • completing your activity statements and the preparation of your annual income tax and fringe benefits tax returns
  • monitoring the health of your business and making sound business decisions - for example, by keeping track of debtors and creditors
  • managing your cash flowso you can pay your debts when they fall due
  • demonstrating your financial position to banks and other lenders, and also to prospective buyers of your business
  • completing your activity statements and the preparation of your annual income tax and fringe benefits tax returns
  • monitoring the health of your business and making sound business decisions - for example, by keeping track of debtors and creditors
  • managing your cash flow so you can pay your debts when they fall due
  • reducing your accounting bill by providing well-prepared records rather than a shoebox of paperwork

Deciding whether to keep electronic or manual records

Recording your transactions manually can be as simple as using an exercise book or cash book ledger.

Keeping records electronically refers to the use of an electronic spreadsheet (templates are available from us on request) or a software accounting package (there are various commercial packages available, ranging from simple systems to complex ones).

The advantages of an electronic record keeping package are that it:

  • helps you record your business transactions, including income and expenses, payments to workers, and stock and asset details
  • automatically calculates amounts and provides ready-made reporting
  • can produce invoices and provide summaries and reports for GST and income tax purposes
  • keeps up with the latest tax rates and tax laws, and rulings
  • requires less storage space
  • allows you to back up records and keep back-ups in a safe place in case of fire or theft
  • is more time efficient

But keep in mind that with electronic record keeping:

  • it may initially be more expensive to set up
  • you will need to know how to operate a computer and use the software
  • you will need to be familiar with accounting principles and understand how the software calculates and treats your information or employ a bookkeeper

Business records you must keep

In relation to Income tax and GST:

  • sales records
  •  records of purchases/expenses
    • purchase/expense invoices, including tax invoices
    • purchase/expense receipts, which include an ABN
    • cheque butts and bank account statements
    • credit card statements
    • records showing how you worked out any private use of something you purchased
  • year-end income tax records
    • motor vehicle expenses
    • debtors and creditors lists
    • stock take sheets
    • depreciation schedules
    • capital gains tax records

In relation to Payments made to Employees:

  • tax file number declarations and withholding declarations
  • withholding variation notices
  • worker payment records
  • Pay as you go (PAYG) payment summaries
  • annual reports
  • super records
  • records of any fringe benefits you provided

In relation to PAYG withholding for your business payments:

  • records of amounts you withheld from payments where no ABN was quoted
  • a copy of any PAYG withholding voluntary agreements
  • records of voluntary agreement payments
  • all PAYG payment summaries including PAYG payment summary – employment termination payments
  • all PAYG annual reports

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