Concepts
Bookkeeping
Bookkeeping is the day-to-day recording and organising of a business's financial transactions, such as sales, purchases, payments and bank activity, so that accurate reports, BAS and tax returns can be prepared.
Bookkeeping is the routine work of recording every financial transaction that a business makes. This includes issuing and recording sales invoices, entering supplier bills, recording payments and receipts, processing payroll, reconciling bank accounts and keeping documents in order. The output is a set of reliable records from which reports are produced. Accounting, by contrast, usually refers to analysing and reporting on those records, planning and giving advice.
Good bookkeeping is the foundation for tax compliance. A BAS is prepared from the figures in your records, so if sales or purchases are missing or wrongly coded, the GST amounts will be wrong. Income tax returns, PAYG reporting and super obligations also rely on accurate records. When bookkeeping is up to date, tax time becomes a review and lodgment exercise rather than a scramble to reconstruct the year.
GST accuracy depends on coding. Each sale and purchase needs the right GST treatment: taxable, GST-free, input-taxed or outside the GST system, such as wages. You also need a valid tax invoice to claim credits for purchases over $82.50 including GST. A bookkeeper checks that documents are held and that amounts are allocated to the correct accounts and periods. Errors in coding are one of the most common reasons for incorrect BAS lodgments.
Who does the bookkeeping varies. Many owners do it themselves using accounting software, especially in the early stages. Others engage a bookkeeper, either in-house or external, often on a weekly or monthly basis. If a bookkeeper provides BAS services for a fee, such as preparing and lodging your BAS or advising on GST, they generally need to be registered as a BAS agent or a tax agent. Checking the public register of the Tax Practitioners Board is simple.
Record-keeping rules apply to whoever does the work. Business records generally need to be kept for five years, must explain the transactions and be in English or readily accessible and convertible into English. They can be stored electronically. Regular tasks include entering transactions weekly, reconciling bank accounts monthly, and reviewing outstanding invoices and bills. A routine prevents backlogs and surfaces errors early.
A common misunderstanding is that bookkeeping is only needed at year end. Waiting means missing GST credits, forgetting income and losing documents. Another is treating the bank statement as the entire record. Bank data shows payments but not what they were for or whether GST was included. Keep the supporting invoices and receipts. This is general information only, so confirm your obligations with the ATO or a registered tax professional.
Worked example
A florist enters all sales and bills weekly. At quarter end her records show GST on sales of $7,800 and GST on purchases of $2,950. The net GST payable is $7,800 minus $2,950, which is $4,850. Because she has matched each bill to a tax invoice, including an $880 purchase with $80 GST, all her credits are supported if the ATO asks.
Practical tips
- Enter transactions weekly and reconcile your bank account monthly rather than leaving everything until the BAS is due.
- Keep a valid tax invoice for every purchase over $82.50 including GST.
- If you pay someone to prepare your BAS, check they are registered.