Why Keeping Accurate Financial Records for Your Business Matters
Accurate financial records are legally required and can help your business keep track of its transactions. Learn the benefits of keeping accurate records here.
With companies increasingly held accountable for their actions, it is important to abide by regulations. A business can be more organised and legally protected by keeping accurate financial records. Further, by keeping healthy and updated records, this will increase your chances of receiving a loan from the bank, and can help with lodging tax returns.
Your Company’s Financial Standing
Keeping financial records will help you have an idea of your business’s profit levels and what expenditures need to be cut back. Financial records also help to track inventory, because it will highlight which items are popular.
Financial records include:
- Contracts with suppliers
- Bank statements
- Documents of how the business is financed
Other records such as legal, employee and customer complaints should be kept too. For a full list of required records, visit here.
Different states have different tax requirements, so it’s important that you meet these to avoid legal complications. Tax records should include gross earnings from your business, other money received, and expenses you will claim as a deduction. For an extensive list of what this includes, visit here. If you fail to keep accurate financial records, then you may end up paying more tax!
Generally, records need to be kept for a minimum of 5 years. Additionally, the Australian Government provides a Record Keeping Evaluation Tool to help you know how well you’re keeping your business records.
The Corporations Act 2001 requires all companies to keep accurate and written financial records. This responsibility generally comes under a company’s director, and ASIC will take action if this is breached. The law requires honest financial records to increase transparency and accountability.
The Corporations Act 2001 recognises that handwritten documents are not as common in the modern age of technology. Therefore, it’s important to be mindful that if records are stored electronically, section 288 of the Act requires electronic versions to be convertible into hard copy format. To ensure records can always be accessed, most companies resort to a “cloud” system, to prevent any documents being lost in the case of a fire, or malfunctioning of a storage device.
It is essential to keep accurate financial records, because it exhibits the company’s financial standing. Therefore, in cases of insolvency, a director can be found personally liable for any debts incurred. We recommend speaking with a tax lawyer today, if you are uncertain of any implications you may face.
Keep Accurate Records
By keeping accurate records, you are complying with the law, as well as having a clearer vision of your company’s financial health. Evidently, legal consequences can occur if accurate records are not maintained. Additionally, it’s important to keep records for at least 5 years for purposes of ASIC investigations. Accurate financial records can be what makes or breaks your legal case.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
Kimberly is an intern at Lawpath, who has a passion for advocacy and community service. She currently studies a double degree of Law and Commerce (Economics) and hopes to use her legal knowledge to make effective change in the future.