Concepts
Accounting software
Accounting software is a program or online service that records transactions, tracks GST, produces reports and can help prepare and lodge your BAS with the ATO.
Accounting software is a tool used to record and manage a business's financial transactions. It lets you issue invoices, enter bills, reconcile bank accounts, run payroll, track inventory and produce reports such as profit and loss and balance sheet. Most modern packages are cloud-based, so you and your adviser can access the same data from anywhere. They are now the standard way small businesses meet their record-keeping obligations.
For GST, the software applies tax codes to each transaction and keeps running totals of GST collected and GST paid. At the end of a period, it can produce a GST report and, in many cases, a draft BAS with the relevant labels filled in. The accuracy of the result depends on the coding of every transaction, so the software does not remove the need to understand how GST applies to your sales and purchases.
Many products can connect to the ATO through approved channels, allowing you to lodge a BAS or run payroll reporting through Single Touch Payroll directly from the software. The developers of such products are often called digital service providers, and they must meet ATO security and operational requirements. Using an established product helps keep your data secure and meets lodgment standards.
Choosing software depends on your needs. A sole trader with few transactions may need only a simple invoicing and expense tool. A business with employees, stock and several locations may need payroll, inventory and multi-user access. Consider costs, support, whether your bookkeeper or accountant uses the same product, whether it handles Australian GST, super and payroll rules, and how easily you can export your data if you change providers.
Software can make mistakes easier to see, but it cannot make decisions for you. Bank feeds can import transactions with suggested categories, but the suggestions need review, particularly for GST. Setting up the chart of accounts and default tax codes carefully at the start saves time. Regular backups and sensible access controls are important, as the data includes sensitive financial and employee information. Records generally must be kept for five years and be accessible to the ATO if requested.
A common misunderstanding is believing that software guarantees a correct BAS. If a purchase is coded as GST-free when it should include GST, the software will happily produce the wrong figure. Another is failing to keep source documents because the software shows the transaction. You still need valid tax invoices to support credits. This is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A café owner uses cloud accounting software with a bank feed. In the quarter, the software shows GST on sales of $9,600 and GST on purchases of $4,100. It drafts a BAS showing net GST of $9,600 minus $4,100, which is $5,500 payable. Before lodging, she checks the coding of a $1,320 equipment purchase, which includes $120 GST and had been wrongly coded as a general expense.
Practical tips
- Set up the chart of accounts and default tax codes carefully when you start.
- Review bank feed suggestions rather than accepting them automatically, especially GST codes.
- Keep source documents and back up your data, as software does not replace the need for valid tax invoices.