Bookkeeping is the routine recording of a business's financial transactions — every sale, every purchase, every payment — so that the accounts can be prepared and the ATO reported to. In Australia it is not optional: you are required to keep records that explain your transactions, in English or a form readily convertible to it, and to keep them for five years. Everything beyond that is a question of how much structure you need, and for one person the answer is usually "less than you fear".
Bookkeeping vs accounting
The words get used interchangeably and they are not the same job.
- Bookkeeping records. It captures transactions accurately and in the right category, reconciles them against the bank, and keeps the evidence. It is a continuous, mostly mechanical activity.
- Accounting interprets. It takes those records and produces financial statements, applies tax law, makes year-end adjustments, and advises. It is periodic and it is judgement.
There is also a licensing line worth knowing about. Anyone can keep their own books. But someone who lodges your BAS for a fee must be a registered BAS agent, and someone who prepares your income tax return for a fee must be a registered tax agent. Both registers are public, at the Tax Practitioners Board.
Single entry and double entry
Single entry is a list: money in, money out, running balance. It is what a spreadsheet does, and for a very small services business with no stock and no debtors it can be enough.
Double entry records every transaction twice — once as a debit and once as a credit — so that the books balance to the accounting equation:
Assets = Liabilities + Equity
Paying $110 for a tool is a $110 increase in expenses and a $110 decrease in the bank. Invoicing $2,200 is $2,000 of income, $200 of GST owed and $2,200 of money owed to you. Because every entry has two sides, an error shows up as an imbalance instead of hiding. That is the whole argument for it, and it is why every accounting package uses it whether or not it shows you.
What you actually have to record
| Record | What it covers |
|---|---|
| Sales | Every invoice you issued, and the receipts or bank entries showing what was paid against them. |
| Purchases and expenses | Supplier invoices and receipts for anything you intend to claim. A tax invoice is required for GST credits over $82.50 including GST. |
| Bank | Statements for every account the business uses, including any card. This is what everything else is reconciled against. |
| GST | GST collected on sales and paid on purchases, if you are registered — the figures behind your BAS. |
| Assets | What you bought, when, and what you paid, for anything being depreciated rather than claimed outright. |
| Payroll | If you have employees: wages, PAYG withholding, superannuation, and Single Touch Payroll reports. Fair Work requires employee records for seven years, not five. |
| Vehicle and home office | Logbooks and diaries substantiating any apportioned claim. The record has to be made at the time, not reconstructed later. |
The ATO's requirement is that the records explain your transactions — enough for someone else to see what happened and why a figure on your return is what it is. A bank line saying "EFTPOS 1487" does not explain anything on its own; the receipt attached to it does.
Bank reconciliation
Reconciling means checking that what your books say happened matches what the bank says happened, and explaining every difference. It is the single most valuable bookkeeping habit, because it is the only step that catches things you did not know about:
- A payment from a client you never invoiced, or invoiced twice.
- A subscription that renewed at four times last year's price.
- A duplicate charge, or a card you thought you had cancelled.
- A transaction that never arrived — the classic sign of a client whose payment bounced.
Do it monthly at minimum, weekly if money moves often. Reconciling a month of a one-person business is fifteen minutes if you do it monthly, and most of a Sunday if you do it in June.
The smallest system that works
If you are starting out, this is the whole thing. Set it up once and the routine takes minutes a week:
- Separate the money. A dedicated bank account for the business, even as a sole trader where it is not legally required. Mixing personal and business transactions is what turns bookkeeping from ten minutes into an afternoon.
- Invoice from one place, with sequential numbers, so your income is a list rather than an archaeology exercise — see what is an invoice?
- Photograph receipts on the day. Thermal paper fades to blank inside a year and the ATO accepts digital copies.
- Categorise weekly, using a short chart of accounts that maps to your tax return.
- Reconcile monthly against the bank.
- Set money aside as it comes in — for GST if you are registered, and for income tax. A separate savings account and a fixed percentage of every payment is cruder than a forecast and works better.
- Keep everything for five years, in folders by financial year.
Balaana does the first four on the free plan, which is why it exists.
What goes wrong
- Leaving it until June. Eleven months of unsorted receipts is not a bookkeeping problem, it is a weekend, and you will forget what half of them were.
- One account for everything. Every personal transaction becomes something you have to decide about.
- Treating a bank feed as bookkeeping. A feed imports transactions; it does not categorise them correctly, attach the evidence, or notice what is missing.
- Recording drawings as wages. Money you take out of a sole trader business is not an expense and is not deductible — see how a sole trader is taxed.
- Not keeping the evidence. A number in a spreadsheet with no receipt behind it is a deduction you may lose.
Related reading
- Chart of accounts — the categories everything gets sorted into
- Cash vs accrual accounting — when a transaction counts
- Sole trader tax deductions — what the records are for
- Expenses and receipts — capturing the evidence as you go
Frequently asked questions
You have to keep records that explain your transactions, in English or a form readily convertible to English, and keep them for five years. There is no prescribed format — a spreadsheet with the evidence attached can satisfy it. What is not optional is the evidence: a figure with no receipt behind it is a deduction you may not be able to defend.
Bookkeeping records transactions accurately and continuously. Accounting takes those records and produces financial statements, applies tax law and advises. There is also a licensing line: anyone can keep their own books, but lodging a BAS for a fee requires a registered BAS agent and preparing a tax return for a fee requires a registered tax agent.
Not as a concept you have to understand, but in practice yes — every accounting package uses double entry internally, and it is what makes errors show up as an imbalance rather than passing unnoticed. A single-entry spreadsheet can work for a very small services business with no stock and no unpaid invoices, but it stops being enough quickly.
Categorise weekly and reconcile against the bank monthly. The work is roughly linear if you keep up and roughly exponential if you do not — a month takes fifteen minutes, and a year takes a weekend plus the things you can no longer remember. If you are registered for GST, the quarterly BAS deadline enforces a floor on this anyway.
You are not legally required to have one — a sole trader and the individual are the same legal entity. It is still the single highest-value thing you can do for your bookkeeping, because it removes the need to decide about every personal transaction and makes reconciliation possible at all. Most banks offer a low-cost or free everyday account that will do.
Sources
Record-keeping obligations and the five-year retention rule come from the Australian Taxation Office; BAS and tax agent registration requirements from the Tax Practitioners Board. Confirm the current position at ato.gov.au or with a registered tax agent. Balaana is bookkeeping software, not a tax agent — this article is general information, not personal tax advice.