Why keep records?
Ideally, your small business record keeping should include setting up systems that allow you to easily monitor the progress of your business and track business improvement, which items are selling and the changes that will help your business.
The other important reason for keeping good records is that it’s a legal requirement for you to do so.
Good record keeping will also enable you to:
- Prepare accurate and meaningful financial statements
- Identify the source of receipts and invoices, and money received and spent
- Differentiate between business and non-business receipts, and taxable and non-taxable income
- Keep track of deductible expenses
- Prepare tax returns or make it easier for your accountant to complete the annual tax return for your business
- Monitor your financial situation and assist you making sound investment decisions
What kind of records should you keep?
In summary, your records must support the income, expenses and credits you report on your tax returns. The nature of the additional records you should keep depends on the type of business you’re involved in. It is always best to set up your books using an accounting method that clearly shows your income for your selected tax year.
If you’re involved in more than one business, it’s best to keep completely separate records for each business.
Lost or destroyed records?
When a natural disaster occurs, tax and other business records may be lost, damaged or destroyed, so you may need to get copies of your tax records.
After proof of identity has been established using information such as your date of birth and your bank account details, the Australian Tax Office (ATO) can re-issue or supply copies of tax documents, such as your income tax returns, your activity statements and your notices of assessment.
Your tax agent, financial institutions, employers and parties with whom you hold trading accounts should be able to provide you with copies of the records you need for tax purposes. If there’s a charge for obtaining these records, you can claim the expense as a cost of managing your tax affairs.
Under these circumstances, the ATO will generally give you or your tax agent extra time to lodge your tax return or activity statements and to get your financial records from banks, employers, suppliers and purchasers. Even if it does prove impossible to reconstruct records or obtain the original documents, the ATO can accept a “reasonable estimate” without substantiation in some circumstances.
If you need assistance in reconstructing your records or bookkeeping, it’s important that you seek the help of a professional.
Got any questions about small business record keeping? Please ask them below.