Basics of good record keeping

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19 / Sep / 2011

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The most important reason for keeping good records is that it is a legal requirement. By law, you must keep business records:

• for five years after they are prepared, obtained or you complete the transactions, whichever occurs latest

Other reasons for keeping good business records are to:

• make it easier to complete your activity statements and prepare your annual income tax return
• monitor the health of your business and be able to make sound business decisions – for example, by keeping track of debtors and creditors
• help you manage your cash flow so you can pay your tax when it falls due
• demonstrate your financial position to banks and other lenders, and also to prospective buyers of your business
• make best use of your tax adviser. Rather than paying them to sort through a shoebox of paperwork, give your tax adviser well-prepared records and pay them to help you with your business and financial planning

The records you must keep for reporting to the ATO include:

• sales records – invoices, cash register tapes, bank deposit books, bank statements
• purchase/expense records – invoices, receipts, cheque butts, credit card statements
• motor vehicle expenses
• debtors & creditors lists
• stocktake sheets
• depreciation schedules
• capital gains tax records
• employee records – TFN declarations, payment records, super records, fringe benefits records

Regardless of the accounting system you use, cashbook or electronic program you need to keep the paper source documents listed above.

Another important step in managing and planning for your business is to prepare a cashflow budget:

• prepare a sales forecast – be realistic and remember to take into account seasonal fluctuations
• estimate your cash inflows – this is the cash you expect to actually receive in the period
• estimate your cash outflows – this is the cash you expect to actually payout in the period
• remember to allow for tax payments – including GST, PAYG Withholding for your employees
• calculate your net cash position for the period – if it looks like you might run out of cash, plan early