Wednesday, 24 Jul 2024
Businesses have to keep track of their income and expenses to know how the capital is being utilised and generated. Bookkeeping offers an effective solution for this purpose through accurate recordkeeping. It involves categorising and recording income and expenses without anomalies to ensure the entrepreneur has a clear picture of the financial status of the entity. It allows the bookkeeper to set the budget for the upcoming quarters and find ways of maintaining a positive cash flow.
Updated and error-free records enable entrepreneurs to pay taxes correctly and determine the financial health of the business at any given point. Thus, organised records help gain insight into what is coming in, what is going on and how to manage it better. Professional bookkeepers in Melbourne take charge of this task by monitoring all transactions (online and cash) to keep the books up-to-date. Here is how entrepreneurs can categorise their income and expenses accurately. It is vital for making crucial business decisions and complying with legal obligations.
The first rule of effective bookkeeping is keeping the business and personal bank accounts separate. Entrepreneurs must open a business bank account to ensure all business capital is saved in one place and bills are paid from it. Bookkeepers recommend a separate business account and using a corporate credit card to avoid using business funds for personal use or vice versa. Common accounts can create problems while identifying tax-deductible business expenses during the tax season.
Spreadsheets are out-of-date, and even small businesses are using accounting software to maintain accurate financial records. Skilled bookkeepers in Melbourne recommend Xero, QuickBooks, and FreshBooks. Entrepreneurs must choose a customisable tool that is user-friendly and can be easily used by authorised members.
The cloud-based software allows managing accounts receivable and payable. It ensures there is no human error or time lag in recording income and expenses. The entrepreneur must choose the accounting method (cash or accrual) before tracking the transactions.
Income can be categorised into earnings from sales of goods and services, rental income from real estate, return on investments and income from other sources. The business expenses must also be categorised to help with financial reporting and claiming tax deductions. Businesses that provide services to several clients can also categorise income and expenses under different clients. It helps to identify which projects are profitable and which are not.
The expenses that can be claimed include the cost of vehicles, repair and maintenance of equipment, rent, wages and salaries, marketing, office supplies, interest paid on debts, improvement of equipment and property, and super contributions. The income and expenses must be labelled correctly to file accurate tax returns and avoid audits.
Recordkeeping is the main responsibility of your Melbourne bookkeeper because this data is needed to generate financial reports and file taxes. Thus, they ensure the business preserves all invoices, receipts, and bank statements for five years to comply with the regulations.
They can maintain digital records by scanning paper receipts and using them for claiming tax deductions. A record of the invoices helps to identify the payments made by the business in a specific period. Thus, the bookkeeper must save copies of all invoices. In addition, if the employees are using corporate credit cards for work-related expenses such as travelling costs of outstation meetings, they must be trained to record the expenses with correct labelling.
Bank reconciliation is an important step in recordkeeping. It involves comparing the categories and records of income and expenses with the bank statements to ensure accuracy. The reconciliation helps to identify mistakes like duplicate entries, missed entries and unrecorded refunds.
This process allows identifying the problems in the records and rectifying them. For example, if a payment is pending, the bookkeeper will follow up with the client to get the amount. The last balance on the bank account statement and the books should be the same. Ideally, bank reconciliation must be performed every month for small businesses and weekly for large businesses.
The financial statements include the balance sheet, income statement and the cash flow statement. The accounting software can automatically generate these and are based on the records maintained by your bookkeeper in Melbourne. These reports are used to determine the flow of incomings and outgoings. Thus, accurately maintained records are needed for forecasting, decision-making, budgeting, filing taxes, identifying fraud, etc.
They help maintain transparency as the information can be accessed by stakeholders, business partners, and financial institutions. Entrepreneurs use these reports to make pivotal decisions and forecast the budget for the financial year. Bookkeepers use this data to improve processes for higher productivity and profits.
Businesses must be aware of their income and expenses. Categorising them helps organise the data effectively and makes it easy for people from non-accounting backgrounds to comprehend. Using the right tools and guidance can help track, label and record the information accurately.
