4 things everyone should know about bookkeeping

The origins of bookkeeping can be traced back all the way to the ancient world. Evidence of financial records can be found in the archaeological remnants of civilisations gone by, including Mesopotamia, Greece, Egypt, and Ancient Rome.

The development of modern bookkeeping is most commonly attributed to Luca Pacioli, an Italian mathematician who was active during the late 1400s. In 1494, Pacioli wrote a 615-page long book titled, Summary of Arithmetic, Geometry, Ratio and Proportion. This colossal textbook contained the first detailed account of the double-entry bookkeeping system, a system that’s still in use today over 500 years later.

Today, bookkeeping systems are essential to the proper running of any business, whether it be big or small. At its core, bookkeepers are responsible for maintaining accurate records of financial transactions. However, the role of the bookkeeper has evolved today to include a wider variety of tasks and duties, including:

  • Processing payroll;
  • Producing financial statements (e.g. profit and loss statements); 
  • Preparing and sending invoices and receipts;
  • Cash flow advising;
  • Preparing and lodging Business Activity Statements (BAS). 

 

Why is bookkeeping important in business?

Maintaining a good bookkeeping system and an accurate set of books is essential to the long-term success of any business. It may not be the most exciting or glamorous aspect of running an organisation, but it’s one that can either make or break a business. So, why is bookkeeping so important? Here are just a few reasons:

Bookkeeping allows business owners to better manage their finances

Many businesses fail because of poor financial management. The bookkeeping process ensures that a business’ numbers and figures are well-organised and up-to-date. This, in turn, provides owners with accurate understandings of their business’ financial performance. 

Good financial management demands effective management of a business’ cash flow. If a business isn’t keeping track of their unpaid and delayed invoices, the owners can easily find themselves in disastrous financial situations where they aren’t able to pay their lenders and suppliers on time. These situations can lead to a business’ downfall, even if the business happens to be profitable at the time. With good bookkeeping, these situations can be easily avoided. Bookkeepers can help you create and implement an organised system that provides for up-to-date invoicing, prompt follow-ups to debtors, and on-time payment of suppliers. 

Bookkeeping prepares businesses for tax time

Filing taxes doesn’t have to be an ordeal. A functional and efficient bookkeeping system makes tax preparation quicker and simpler. By maintaining good financial records, businesses don’t have to scramble to find financial information and documents when tax time comes around. A bookkeeping system means that all financial information is organised and stored neatly in one central system. This allows business owners to fulfil their tax obligations easily and efficiently every year. 

Bookkeeping allows business owners to plan for the future

Without a good bookkeeping system in place, it’s easy for business owners to walk blindly into their coming years. By diligently maintaining financial records, owners can use data to measure their business’ progress and to make plans for the future. Since all the figures are kept together, owners can compare their current performance to previous years’ performance, and plan for the future accordingly. Data-backed decisions go a long way in securing the long-term success of any organisation, and bookkeeping allows business owners to draw on this data easily. 

Is bookkeeping and accounting the same?

Bookkeeping and accounting are often thought to be the same thing. Although bookkeepers and accountants both work with financial data, they’re not quite the same profession. Bookkeepers are called to record financial data and maintain systems of record-keeping, whilst accountants are called to interpret and analyse this data. In other words, accountants are asked to analyse and interpret data, while bookkeepers are only asked to gather and manage it. Bookkeepers and accountants often work together to provide financial services to a business. The financial information a bookkeeper gathers and manages, for example, will directly affect how an account will interpret the financial performance of a business.

Are bookkeeping fees tax deductible?

According to the Australian Tax Office (ATO), there are three golden rules for what is accepted as a “valid business deduction”:

  1. The expense must have been for business use, as opposed to private use;
  2. If the expense was for both business and private use, only the portion that was used for business can be claimed;
  3. There must be records to prove that the expense was for business use. 

Since bookkeepers are hired for business use, bookkeeping fees are tax deductible. According to the ATO, these fees are counted as tax-related operating expenses. Most operating expenses are claimed in the same income year within which they were incurred, so be sure to keep accurate and complete records of these expenses as they occur.  

What bookkeeping software should I use?

There are plenty of bookkeeping software systems out there on the market. As rated by consumers in Canstar Blue’s 2020 review, the most popular accounting and bookkeeping software providers in Australia are:

  1. Intuit Quickbooks
  2. Xero
  3. MYOB
  4. Reckon

 

Like with most software, these systems do have a learning curve. By hiring a trained and certified bookkeeper, you don’t have to worry about learning how to use these systems on your own. At Jim’s Bookkeeping, we partner with multiple accounting and bookkeeping software providers, including Intuit Quickbooks, Xero, MYOB, Reckon, and more. If you need some advice on the best software for your business, don’t hesitate to get in touch with one of our bookkeeping experts today. 

If you’re in need of high-quality and reliable bookkeeping services, get in touch with us at Jim’s Bookkeeping today. With trained and certified bookkeepers Australia-wide, we help Australian businesses obtain excellent results. Get in touch today on 131 546 or online to organise a complimentary, no-obligation phone call with one of our bookkeepers.