At the inception of your business stage, or the scale of your business is relatively small, you might prefer to have manual bookkeeping system in place to have your books kept in order to be ready for tax return at the end of every and each financial year, rather than use accounting software for it as it might be too complicated for you. Alternatively you would like to use accounting software to record all business transactions but not sure which one is suitable for your business needs. The following are the steps I would like to go through with you to get your head around with basic DIY Bookkeeping.

To start with DIY Bookkeeping process, the first thing you need to do is to open up a Business Transaction Account and a Business Online Saving Account, all business related transactions will be recorded in the business transaction account that totally separate your personal uses from it, transfer any temporary unused fund to online saving account to own some interest and transfer back to transaction account when it is needed.

Bank Reconciliation – First Step of Bookkeeping Process

Bank reconciliation not only helps in identifying any errors may have occurred in the records of the business or the bank, also provides the necessary control mechanism to help protect valuable resource through discovering any irregularities if there is any. Last not the least it will assist in monitoring cash flows of the business. Therefore, regular conduct bank reconciliation process at least once a month is very necessary.

If you don’t use accounting software to record transactions, you may download a file in excel format from here if you are a GST registered business Bank recon template – GST registered and here Bank recon templated – GST not registered if your business is not a GST registered one. The file not only does allow you to enter all transactions as per bank statement and reconcile your bank account, it also calculates GST received and paid for the period so that you even may be able to lodge BAS return by yourself. It is not the end of the story yet it will give you the final figures as profit/loss of your business for the period for you to take it to the accountant for tax return at the end of each and every financial year.

One thing to note: The spreadsheet captures all transactions through bank statement is more likely working out well for cash-based businesses rather than accrual-based ones as all records are based on the time when you receive/make payments of your invoices rather than when you send/receive invoices on the days for the goods and services provided/received.

Filing of Source Documents

Every and each transaction of your bank statement must have source document to support your business related claims for taxation purpose. Paper-based filing system has been a long used traditional way to tidy up their administration side of business and still is being used by majority of businesses, electrical filling system however is a alternative filling system of paper-based which is widely used by a lot of businesses also. The later technology is environment friendly and cost effective, it allows you to have all invoices receipts sent through electrical and fill them via cloud file sharing storage such as Drop Box.

Paper-Based Filing System

There are two ways to fill documents: in date order and alphabetical order. Date order filling system works well for Cash-Based business while alphabetical system is good for Accrual-Based business. However from my past experience and personal opinion, I prefer use alphabetical filling system. Reason? It tends to be easier to manage all suppliers’ invoices and minimise any confusion of paid and unpaid accounts when you need to go back to previous payments details, all the information is ready for you in the same pile rather than go to different folders to locate them…

Date Order Filing

Have two manilla folders on hand, clearly marked as “Payments to be received” for accounts receivable, “Payments to be paid” for accounts payable respectively and one Lever Arch File folder marked as “XX (business name) accounts for the financial year of 2XXX”.

You may have another manilla folder files all business related expense documents that have been paid by other than business account(s) such as cash.

All unpaid invoices/tax invoices to be filed in the first two folders as per A/R and A/P in date order separately. Review them periodically to avoid any of invoices are left behind only for paper-based accounting system. You will be able to print out aging report at any point of time.

Once the payment of the invoice is received or paid, take the invoice out of the folder and file it into the accounts folder accompanied by supporting documents e.g. remittance advice, internet transfer receipt, cheque number etc. You may file all A/R on the top of the accounts folder (the third folder). If you have a lot of monthly invoices, you may have a separate monthly invoices folder for them. (Please note: this only applies to small businesses. Once your business grows to certain scale, the filing systems must be reviewed and changed to suit your business needs).

Alphabetical Order Filing

Have folder(s) ready plus A-Z divider file all documents invoices in alphabetical orders in paid and unpaid invoices with two folders.

Sorting out paper documents of more than one financial year that are all in one shoe box. Owing to various reasons the business owners might have left behind with their accounts for more than one financial year.

Date order filing. In this case, have the number of manilla folders that marry the number of financial year paperwork to be sorted out, plus same number of monthly dividers handy.

Step 1: sorting out documents by year; all the documents for that financial year are in one manilla folder;

Step 2: sorting out documents by month (monthly dividers can do the job);

Step 3: pull out receipts one month at a time, sort out them in date order.

In the end, all the receipts should be in date order, the most recent ones are on the top of the folder. Obtain bank statements, record all business transactions into the accounting software, or in the spreadsheet if you prefer paper-based accounting system.

Alphabetical order filing. Having folders and A-Z dividers ready, following the above first two steps, and pull out invoices in A-Z order. Remember, all of documents of one supplier will stay together and most recent one is on the top.  At least two folders separate them from paid and unpaid invoices with two folders. Once one folder is full, get extra folder to give the first one some space. Always keep document of one supplier at one place.

Keeping Your Records for Five Years for Taxation Purpose

Generally, you must keep your written evidence for five years from the date you lodge your tax return. For more information please refer to ATO website.

The Difference between Invoice and Tax Invoice

Important things to remember – the difference between Invoice and Tax Invoice is if the business has registered GST with ATO. If the business is not GST registered, there is no GST should charge to customers. The documents send to customers for payment for goods supplied or services rendered only can be named as “Invoice” with the note “No GST charged on this invoice” should be appeared on the invoice – underneath of total amount payable. In other words, “Tax Invoice” is only for businesses are GST registered. To verify this, go to ABN Lookup website type ABN or business name of the business you wish to verify with. ABN must be supplied on both invoice and tax invoice with the threshold of $75 or you need to withhold 49% of the amount of the payment you make.

There are a lot of businesses charging GST while not registered. Please make sure you only pay GST to suppliers who are GST registered, or charge GST to customers only your business is a GST registered one.

Accounting Software

Using an accounting software to record your business transactions from the beginning of your business is always a wise choice, but you might ask which accounting software is the best for you? After used more than ten accounting software including payroll software, I can assure you there is no really difference between each other, rather make the right choice based on the size and need of your business. Most importantly, you really need to know what do and don’t when entering transactions into accounting software, in order to let the software produces right financial statements for right purposes.

Above information are a really basic ones to let you start with your DIY Bookkeeping. There are so much information I would like to share with you on this page but it is just too much to be able to publish here. If you wish to involve in accounting side of your business more than just as per above procedure,  I suggest that you need further accounting knowledge or accounting software training through right channel.

Engaging Accounting and Bookkeeping Services

Now it comes to the really interesting part. Let’s get real. We all know there are mixed people in terms of skill and talent in each and every industry. When you consider engaging accounting and bookkeeping services with an accountant or bookkeeper, what are you really looking for? What is your priority, price or quality of services? You could end up getting a real gold with very reasonable rate or a stinker with very cheap rate and have to get someone to fix the problems later on. As business owners, I am sure most of you have are good at your chosen fild, but finance might be not your forte. Every accountant/bookkeeper will always give you positive answers when they response enquires from you or are being asked some basic questions in order to get your business. What if you ask them some potent questions? What questions you really should ask to make sure that you are getting the right person for right services you require?

I love to post all Q and A right here and now. However, I am here to assist you as a business owner, not accountant/bookkeeper who should be capable of getting them all right. Therefore, I have prepared all Q and A for you, all you need to do is to email or call to request the copy, for no cost! Good luck with getting a right person for right services.

Also please read the article, a business owner who made a mistake when engaging accounting services with an accountant without knowing the cost and other issues of in control of accounting software. I hope it helps you to be aware of where you stand when you are in the same situation as he was.

Happy DIY Bookkeeping!