Many business owners consider audit a nightmare when there is no proper bookkeeping in place. These businesses are often under ATO’s microscope and if there are any discrepancies on the records, ATO can either question financial reports. Bookkeeping may just be a tiny fraction of a business owner’s day-to-day activities, but it creates a serious impact, if it is not done right.
1. Maintain proper records of your income
Although there are many ways you can keep track of your expenses and income these days, such as using bookkeeping software, keeping proper records are still essential because this practice can help you trace your transactions. You should also have a record of your loan and bank statements, copies of expense receipts, canceled checks and other business-related transactions. These records can either be maintained electronically or on paper. You can also use software solutions if you wish to automate record-keeping. The ATO may require you to keep a copy of your tax returns and other supporting documents for a of five years.
2. Choose a reliable software system
As your business grows, keeping track of your income and expenses can be a bit of a challenge let alone reconciling your bank accounts. This is why you need to have a reliable software system that generates report in real time. The software is essential because it helps you to determine how your business is doing. If you are unsure of the software you are going to use, it is imperative that you consult with a bookkeeping professional.
3. Document your income
You will also need to maintain a separate bank account intended for your business. Avoid mixing personal and business income because this can get you into trouble in the end. Keep in mind that your business income will be used for paying employees and other expenses. You should also report all of your income because an auditor will add up all the deposits you made and compare them with the total income you declared.
4. Audit your books
While you may have a dedicated bookkeeper and accountant to help you keep track of income and expenses, you should not forget to self-audit your books as there are will questions asked when preparing your tax return. Your Balance Sheet and Income Statement are going to be important for filing your tax return. Make sure they have all the necessary information. The accountant or bookkeeper must know and understand the adjustments made.
5. Deduct necessary expenses
If you are going to deduct an expense, make sure that it is both necessary and ordinary to your business. This means that your expenses must be accepted in your business. You should also make sure that your business expenses are separated from capital assets. It is also necessary to separate personal expenses from business expenses.