Posted by Mary Milorrie Campos
Jul 31, 2021
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Good records give you a clear overview of your business growth and help you lodge your legal requirements on time. Keeping in mind these record-keeping best practices will ensure you’re always on track with your key requirements and responsibilities.
Here are the record-keeping practices to consider
Stay on top of your finances by observing these record-keeping best practices:
1. Go for paperless record-keeping
If you’re still using manual bookkeeping, now’s the time to move your financial records online. Doing so will not only help you save resources — time, money, and effort — but would also give you an extra layer of security and convenience.
Read Next: Going Paperless Business Through Cloud Accounting Software
2. Use cloud accounting software
In particular, we recommend the use of cloud accounting software in storing and organising your records. Most accounting software can generate customer invoices and record accounts receivables.
One of the best things about this is its automated features. With this, you don’t need to manually enter your data anymore.
A practical application of it would be:
Integrating your bank account into your software. This way, your sales data, income, or purchases will be automatically transferred to your cloud accounting software. There’s no need to transcribe these data for hours and risk the chances of data entry errors.
The top cloud accounting software for most businesses and accounting firms include the following:
- Xero
- QuickBooks Online
- FreshBooks
- Sage
- Netsuite
How about using legacy software or Excel?
Using legacy software and/or Excel spreadsheets in organising record-keeping requirements is still possible. However, you might encounter several limitations with these options.
A legacy accounting software, for instance, requires a bigger budget for installation, maintenance, and updates. Because it’s installed directly on your computer, you may not be able to access your data outside the office. It will also become outdated over time, requiring you to shell out more money to get its updates.
Utilising Excel for record-keeping, on the other hand, is time-consuming. Users must also possess extensive knowledge of this software to maximise its automated functions. Include to this the risk of data entry errors which could bring financial damages to the company.
An option for sole traders
The Australian Taxation Office (ATO) recommends the use of the myDeductions tool for sole traders. This free tool provides an easy and convenient way to record income and expenses, including images of invoices and receipts. You can also use this for some tax-related matters.
Because it’s a free service, its features are not as extensive as any cloud accounting software.
3. Establish a good document and records management system
A good document and records management system promotes operational efficiency and minimises bad data.
Document management pertains to your daily data capture, storage, modification, and file-sharing using a cloud-based system. Its goal is to speed up document approval and automate repetitive tasks to reduce manual data entry.
Records management, on the other hand, refers to your organisation’s policies and standards in managing different types of records. To establish a good records management system, it’s vital to:
- complete the inventory of records,
- identify the owner of each record,
- determine how long to keep these records,
- implement best record-keeping practices to preserve records throughout their lifecycle,
- manage document disposal,
- create a disaster recovery plan, and
- audit and update the procedures to address any weak points.
4. Keep records for at least five years
The ATO requires businesses to keep most records for at least five years. This includes the following documents:
- All GST documents
- Tax invoices
- Wage and salary records
- Records on tax returns, activity statements, fringe benefits tax returns, and contributions to employee super.
- Receipts and other records of all business transactions (sales and purchases)
- Records of the purchase, sale, and other related costs of business assets, including office equipment, buildings, or land.
Some records, meanwhile, must be kept for a longer time. These are the:
- Records of assessments that are amended by the ATO. On top of the five-year rule, you must keep the following records within their amendment period.
- Income tax returns – 2 years for individuals and small businesses and 4 years for other taxpayers from the day after the notice of assessment is received.
- Business activity statement (BAS) – 4 years after receiving the notice of assessment.
- Fringe benefits tax return – 3 years from the day of lodging.
- Records you reused for another financial year.
- Records of your depreciating assets. You must keep it as long as you have the asset in possession. Once you sell or dispose of the asset, you must keep it again for at least 5 years unless it belongs to a low-value pool.
- Records of capital gains tax assets. You must also keep it for as long as you have the asset and another 5 years from the time you sell or dispose of it.
- Petroleum resource rent tax (PRRT) records must be kept for 7 years or more.
5. Back up your records
Keeping your records online keeps it safe from physical threats. However, it may still be at risk of data breaches. Creating a disaster recovery plan can strengthen the security of your sensitive data.
6. Follow ATO’s guidelines
Above all, the best record-keeping practice is to keep yourself informed of the official guidelines from the ATO.
Aside from the five-year rule, here are the other record-keeping requirements set by this revenue collection body:
- Do not modify your records. All records must present true, accurate, and complete information. Take note that manipulating your records can subject you to tax evasion.
- Store your records in a way that protects the record from being damaged and restricts the modification of information.
- All records must be written in English or should be easily converted into English.
- You must provide your records to the ATO on request.
You can also visit ATO’s official website to learn more about their record-keeping guidelines.
Adapting these record-keeping best practices in your entity gives you a transparent picture of your business’ health, manage your cash flow better, make good business decisions, meet your tax and super obligations, and demonstrate your financial position clearly to banks and investors.
And if you ever need help in organising your financial records, you can rely on D&V Philippines. Our CPAs use the latest cloud accounting software and follow record-keeping best practices. You can get in touch with us today or read our whitepaper, Finding the Right Talents: D&V Philippines’ Solutions to Modern Accounting Firms, to learn more about our services.
