Guide to Small Business Accounting

Accounting for small businesses involves keeping a detailed, complete record of all financial transactions. It’s vital to keep your records in order to maximise cash flow, generate and pay invoices, and ensure everything’s in order for tax season.

Bookkeeping for small business: the basics

Before we get started with discussing how to set up your small business bookkeeping system, it’s helpful to look at Australian Tax Office (ATO) requirements. These should be at the forefront of any small business owner’s mind.

• Payroll reporting: If your business employs fewer than 20 employees, you must lodge reports with the ATO using Single Touch Payroll software.

• Business activity statement: All businesses must submit a business activity statement on a monthly, quarterly, or annual basis. This is used to report and pay your goods and services tax, PAYG instalments, withholding taxes, and other obligations. You’ll need an Australian Business Number (ABN) to register first.

• Financial year reporting: The Australian tax year runs from 1 July to 30 June, so you must lodge your income tax return covering this period.

Here’s a quick rundown of the basic records that must be kept as a part of small business bookkeeping:

• Income and sales records including invoices, receipts, and cash sales

• Purchases and expense forms including tax invoices and cheque book records

• Year-end records including stocktake sheets, depreciation schedules, and a list of debtors and creditors

• Bank statements

• Goods and services tax invoices from supplies

• Employee records including tax filing numbers, payroll statements, and superannuation records

For your own small business accounting purposes, you’ll also want to keep financial transactions handy with the usual accounting books.

• Journal entries are recorded in a journal in chronological order, using the double-entry bookkeeping system to list debits and credits.

• Adjusting journal entries update the accounts at the end of each accounting period to keep statements accurate.

• The general ledger is where accounts are kept for reference.

• Financial statements include the income statement, profit and loss statement, balance sheet, and statement of cash flow.

You’ll also need to keep separate accounts payable and accounts receivable records, so that you can manage money owed and money paid in. 

Getting started with small business accounting

As you can see, there are a lot of different accounts to keep so it’s important to stay organised right from the start. Here’s how to get your system up and running.

Step 1: Open your business bank account.

You’ll need to keep your personal finances separate from your business accounts to avoid errors and confusion.

Step 2: Choose your accounting method.

There are two methods you can choose from to record income and expenses. The cash basis of accounting records income and expenses at the point of receiving cash for your service or product. The second option is the accrual basis of accounting, which records income at the point of sale. Even if you haven’t received the funds into your account yet, you would still record this income using the double-entry accounting system.

Step 3: Set up your small business bookkeeping system.

It makes sense for most businesses to opt for accounting software, which keeps all of your statements and worksheets in a single place for reference.

Small business bookkeeping maintenance

With a bank account and bookkeeping system, you’re off to a great start. Yet accounting for small businesses also involves regular maintenance. Don’t put these tasks off until the last minute, or you run the risk of accounting errors.

Daily business accounting tasks

Start your morning by checking your business ledgers to find out how much cash you have on hand. You should do a quick scan of what’s in the bank and what you expect to receive throughout the day. Cash flow maintenance is very important for the day-to-day operations of a small business.

Weekly business accounting tasks

At the end of each business week, there are a few tasks to tick off your to-do list.

1. Record all transactions in your accounting software or spreadsheets.

2. Document your receipts, including cash payments, bank deposits, and cheques.

3. Review any unpaid bills on your accounts receivable statement.

4. Pay any invoices that are owed to your vendors, taking care to record the transactions.

Monthly and quarterly accounting tasks

The need to take care of these small business accounting tasks will depend on the size of your business. If you’re a small, service-based business you probably can err on the monthly side.

1. Take stock of your inventory, ordering new products as needed.

2. Review past-due accounts receivable and send reminders for overdue payments.

3. Process payroll each month and make sure you’re paying all applicable taxes accurately to the ATO.

4. Review the balance sheet from one quarter to the next to see how you’re managing your liabilities and assets.

5. Review your profit and loss statement to see how you’re measuring up against your quarterly budget.

Annual accounting tasks

The end of the financial year brings tax season along, so the main task is to prepare your business activity statement for the ATO. You can also use this time to review your year-end financial reports, checking for accuracy and noting any areas that could use improvement. Use this as a jumping-off point for next year’s budget.

It’s often worthwhile to hire a professional accountant to help bring your small business up to speed with these bookkeeping tasks. Accounting software takes a lot of the busywork out of admin as well, for speedier small business bookkeeping.

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