Over the past few years, the Australian Taxation Office has been having a "blitz" on record-keeping. Teams of auditors have descended on selected areas and conducted "record-keeping audits" with each business-owner. According to Tax Office figures, almost 80% of small businesses need to make some improvement in their records.

Should you rely on your accountant/tax agent to create the necessary records after the end of the financial year? Or should you do some of the bookwork yourself and cut down on the end-of-the-year accounting fees?

Section 262 of the Income-tax Act lays down that every tax- payer must keep records (in the English language) of his income and expenditure. The records must be kept in such a way as to enable the business's assessable income and allowable deductions to be readily ascertained. The records must be retained for five years. The records may be retained on a computer.

For each business vehicle, a log-book for a 12-week period should be kept. It is also a good idea to keep the odometer readings of the vehicle at 30th June each year. Receipts and invoice for all vehicle expenses must be retained.

The Tax Office has the right to enter the business premises at any time and inspect the records. The maximum penalty for failure to keep proper records is $3,000. If the Tax Office decides to carry out an audit, they will require substantiation of the book entries. Consequently, it is imperative to keep all supporting documentation such as receipts, invoices, statements, bank statements deposit books etc as well for a period of five years. The Taxation Office is now insisting that cash register tapes also be kept for a period of five years.

Capital Gains tax was introduced on 19th September 1985. A sale of any asset after this date may, and probably will, give rise to a Capital Gains tax liability. This could arise many years later. Twenty or thirty years would not be unusual. The Act requires tax-payers to keep the following records for assets subject to Capital Gains tax: 1) the date the asset was acquired, 2) the cost of the asset, 3) the date of disposal of the asset and 4) the selling price.

The tax-payer must also keep records of all fringe benefits provided to employees, including directors of a private company.

If you own a retail or manufacturing business, you must do a stocktake at the 30th June each year. You must keep a record of the stocktake.

If the business has been incorporated as a company, additional requirements of record-keeping are imposed by the Corporations Law. It requires the company to keep accounting records to correctly record and explain its transactions and financial position. It must be possible to prepare true and fair Financial Statements from the records. It must also be possible to properly audit the records.

All of the above requirements may seem quite intimidating. However, most businesses rely heavily on their professional accountants to comply with the law. Generally speaking, for a small business, the business itself need keep only sufficient records to run the show. It then delivers the books and records to the accountants at the end of the year and leaves it to him to prepare any further records that are necessary. When a business expands sufficiently, it will employ a qualified accountant on a full-time basis. Generally, a business will think of employing a full-time accountant when its total employment approaches 20 staff. Below this number, it would be uneconomic. A sole proprietor such as a shopkeeper or tradesman without any employees can usually get by with a bank account and some basic books such as quote book, invoice book, receipt book etc. However, once even one employee is taken on, additional records must be kept. Tax must be deducted for the employee. An Award will usually have to be consulted. The occupational superannuation will have to be paid. Once there are one or more employees in the business, husband and wife teams are popular. The husband runs the operating side of the business and the wife runs the office side of things. At a later stage, it may be desirable to hire a part-time bookkeeper.


If it is your responsibility to keep the books, should you attend night-classes in double-entry bookkeeping?

I would advise against it. Double-entry bookkeeping is difficult to learn and, in practice, only professional accountants make use of it.

It would be far better to learn some basic rules of record- keeping. I have set out these rules below. However, it would be desirable for the record-keeper to at least learn typing. The typewriter and the computer have now almost merged into one machine. Consequently, any skills acquired as a typist can be used to operate a computer.

Should your business buy a computer? I would suggest that you seriously consider it once your employees reach five in number. You will find that it will save a lot of time in paying wages, invoicing etc. These days, more and more businesses are keeping their Cash Book on computer. At the end of the year, you can give your accountant either a floppy disk or a print-out of the Cash Book. Once you have decided to buy a computer, I would recommend attending night-classes or a training program to learn how to use the software packages that you intend buying. Do not even think about learning to program unless you have some special interest in this field. Learning how to pay wages is another desirable skill to acquire. This will mean making yourself acquainted with a software package or the Kalamazoo system. You will also have to learn how to use the tax tables and deduct the correct amount of tax. You will also have to study the Award that is applicable to your business.

The following basic accounting rules are suitable for a business that does not have a full-time accountant or bookkeeper.

Rule No. 1.

Keep separate bank accounts for business and private purposes. This rule may not be convenient to follow if the business is not large enough. In that case, you should try to keep personal cheques to a minimum. It is suggested that you pay personal expenditure as far as possible in cash and that you pay all business expenditure by cheque. You should use a) a cheque-book containing not less than 100 cheques and b) a large duplicate deposit-book.

Rule No. 2.

Bank all moneys received intact. By "intact" is meant banking all cash and cheques received. Do not take out any cash to pay business expenses or pay yourself a wage. You should bank all moneys daily. Use the bank's night-safe facilities if necessary. Your accountant, at the end of the year, will total up all your bankings and will use this figure as your gross taxable income. Consequently, you must tell your accountant if you have included any non-taxable items in bankings. Typical examples of non-taxable items included in bankings are 1) loans received, 2) savings paid in by yourself and 3) proceeds of the sale of equipment. It is best to mark non-taxable items on the bank deposit book.

Rule No.3

Pay all expenses by cheque. This is the most important rule. If you pay expenses in cash, you will often forget to record the amount. Consequently, you will overpay your tax. Some persons do not like receiving cheques with their name on the cheque. In such a case, you can make the cheque out to "Cash". However, if you do not fully follow this rule and you pay some expenses in cash, be sure to keep a list of them. Give the list to your accountant at the end of the year.

Rule No. 4.

Check all suppliers' invoices before paying them. Make sure the goods have been received or the service rendered before paying. It is a good idea to have somebody "OK" all invoices before the bookkeeper pays them. Do not fall for the fake invoice trick, for example, by paying for a bogus directory listing! It is a good idea to draw cheques at the end of each month to pay the amount shown on the suppliers' statements. It is also a good idea for the small business to keep two "concertina" files for the filing of Statements and invoices. One file is for paid invoices and the other is for unpaid invoices. Write on each paid Statement or invoice the date of payment and relevant cheque number.

Rule No. 5.

Raise an invoice promptly for all goods sold on credit. Also, raise an invoice promptly for all work carried out for which you are not paid immediately. This is important for tradesmen and professional people. Use a book and stamp the carbon-copy "Paid" when the invoice has been paid. At the end of each month, you should send out a statement of account to each person who has not paid.

Rule No. 6.

Keep proper wages records. This will mean keeping a wages book. This is required by law. Make sure that you have notified the Tax Office and that you have received a wages tax-pack. This should include a Group Number. You should obtain a copy of the relevant award from your Arbitration Inspectorate.

Rule No. 7.

Have a business plan. Know where you are going and how you are progressing. Do not fly blindly. "Seat-of-the-pants" management style is to be avoided. This means that you should prepare a business plan before the beginning of each financial year. This plan should show your forecasted a) gross income for next year, b) expenses for the next year, c) your expected net profit for the next year and d) the tax payable on the forecasted net profit. Your accountant can help you prepare this.

In addition, you should prepare a cash flow forecast for three months in advance throughout the year. The purpose of doing this is make sure that you will have enough money in the bank to pay the wages and pay the suppliers when the payments become due. To prepare the cash-flow forecast, you will have to forecast a) your cash and cheques receivable for the next three months and b) your expected expenditure for the next three months. You can then see your expected balance in the bank in three months time, taking into account, of course, your present balance at the bank.

Rule No. 8.

Retain all records. Hand the following to your accountant at the end of the year: 1) cheque-book butts, 2) bank deposit book, 3) bank statements, 4) finance company agreements and 5) vehicle log books.

Your accountant will write up a Cash Book from these records. He will agree the balance per the Cash Book with the balance per the bank statements. This ensures 100% arithmetical accuracy. If you feel you are up to it, you can save yourself accounting fees by writing up the Cash Book yourself. It is a tedious job of writing in the details of each cheque drawn during the year. You must then analyse the cheques drawn into appropriate expense columns. You must also write up the bankings during the year. This is generally done at the back of the Cash Book. Bookkeepers generally leave the job of agreeing the Cash Book balance with the bank statements balance to the accountant.

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Copyright 1994.