You’ve taken the first steps toward starting your own business, but you don’t know what to do with your accounting and bookkeeping. Bookkeeping is important to process to boost your business and measure your success.
How to Choose Right Accounting and Bookkeeping Method in Australia?
In Australia, you need to decide which accounting method you will use for your business. There are two types of accounting and bookkeeping services Australia: cash and accrual. Cash accounting are generally used by very small businesses.
Most Important to choose the right method
The method of accounting and bookkeeping you use will affect your business in many ways.
- Each method has a different way of recording income. You also need to make sure that the method you choose is consistent with the way your business records income.
- Either method will provide you with different financial statements that will affect how you evaluate your business’s financial position and make future business decisions. You will need to choose the method that provides the correct financial statements for your business.
- The method you choose will affect how you file your tax returns and claim tax credits. This is because, under the cash method and the accrual method, taxes are due in different periods depending on when the income is earned. You must choose the method that is most appropriate for your tax period.
- Let’s look at what these two bookkeeping methods are and how they work.
Cash accounting and bookkeeping
As the name implies, the important element of cash accounting and bookkeeping is the cash itself. This is the simpler of the two methods. Here, transactions are recorded when customers pay cash, or when money is paid in the form of expenses or payments to suppliers.
Advantages and Disadvantages of Cash Accounting and Bookkeeping
Advantages
- Cash accounting and bookkeeping is simple and has many advantages for micro-businesses that operate entirely on a cash basis.
- It does not require extensive bookkeeping knowledge and is so simple that you do not need to employ an accountant to keep records.
- You don’t need bookkeeping software either, as you can use a simple cash book or spreadsheet to do the bookkeeping work.
- The main advantage of this method is that you record all your transactions in terms of money coming in and going out. This allows you to see exactly how much money you have in your business.
Disadvantages
- While this method is easy to use and gives you an accurate picture of your cash flow, there are some drawbacks to cash bookkeeping.
- Businesses that use cash bookkeeping usually do not use a complete bookkeeping system. This increases the likelihood of errors occurring because there are no built-in error controls.
- This way, you know how much money you have, but not your financial situation. This is because cash bookkeeping do not easily produce the income statements, balance sheets and other reports needed to give an accurate picture of your financial situation.
Conclusion
You can use cash bookkeeping if your business is very small and you are self-employed or a sole trader. You do not sell on credit. This means that you deliver goods without immediate payment and you do not invoice your customers later.
Final Words
You have a simple bookkeeping system. Daily transactions are relatively small and can be recorded in a cash book or spreadsheet.
Read: Accounting and Bookkeeping: Most Important Tips for Your Business