Institute of Certified Bookkeepers

The Bookkeeping Cycle

The Bookkeeping Cycle

Good bookkeeping requires the extra steps to understand the business processes and then to prove the results that are reported.

Bookkeeping Process – What it Should be, What Does Your Client Need?

Bookkeeping today is far more than entering data and reconciling the bank. Bookkeeping is thinking about the needs of the client, thinking about the processes to get a result.

Firstly, what is expected for standard bookkeeping?

  • Processing purchases, sales, receipts, payments
  • Processing payroll and maintaining entitlements and employee records
  • Bank reconciliation
  • Providing reporting for preparation of a BAS
  • Producing reports for both client and accountant
  • Record keeping

Good bookkeeping now includes above and beyond this standard process to ‘think’ more about each stage and ask the questions ‘can we do this better’ and ‘is bookkeeping part of the natural Business System?’ Have I captured all the relevant information required to produce an accurate result?

Also note that a required standard should be that any other person being a bookkeeper or accountant should be able to step in and work on the file for the business without needing to reinvent or research too significantly.

Processing Business

Purchases and payment

  • What is the natural business process? Do we work from that? Does it provide us with the required information
  • Is there already a purchase order for this invoice?
  • Is there a prepayment for this invoice?
  • Is the supplier’s ABN and invoice valid?
  • What period does the invoice relate to?
  • Is a prepayment journal required?
  • Are there any unassigned credit notes?
  • What is the default (or standard) account to be used?
  • If an asset, what threshold is used for the client >$100 or >$1,000 record somewhere?
  • What terms are assigned to the supplier; is there an early discount % available?
  • How is the supplier paid? Record it somewhere.
  • Add payment details to the card.
  • Check the GST value, is it 1/11th of the invoice or is it mixed supply?

Sales and receipts

  • What is the natural business process? Do we work from that? Does it provide us with the required information?
  • Does the business provide sales on account? If so, have credit applications been received and filed?
  • Are all sales entered; are there any invoice numbers missing from the sequence?
  • Are there any sales orders for the customer?
  • Are there any prepayments for the customer?
  • Which salesperson is assigned to the customer?
  • What are the terms of the client; is there special discounting for the customer?
  • How does the customer pay their account; are they a slow payer?
  • Are there unassigned credit notes?
  • What is the value of outstanding > 90 days, does the client know?

Process Payroll

  1. Is the employer aware of the relevant modern award for their business/industry; do you have a copy for reference?
  2. If you are engaged to do so, define what are the entitlements, allowances, standard pay and any provisions beyond Fair Work National Employment Standards? If not, has the employer provided you with this information in writing?
  3. Have all employees signed a TFN declaration form; where is it filed?
  4. Have all employees been given a copy of the Fair Work Information Statement?
  5. Has the employer chosen a MySuper product to be the default super fund for the business?
  6. Have all employees signed a super choice form; where is it filed?
  7. Have you assigned super fund and employee # to each card?
  8. How are the superannuation payments paid, is there a better way?
  9. What process is in place for employees to provide change of address, personal or annual leave taken?
  10. Is the client aware of the outstanding entitlements – personal, annual, days in lieu, rostered days off and long service leave?
  11. Is the payroll electronically paid, if not why not?
  12. Do the payslips hold enough information for the employee and does it conform to Fair Work requirements?
  13. Check monthly that payroll values equal profit and loss wages?
  14. Check monthly/quarterly outstanding PAYGW is true, has the client paid the right value?
  15. Check monthly/quarterly outstanding super is true, has the client paid the right value?

Bank Reconciliation

  1. Understand all outstanding deposits and withdrawals?
  2. Deposits not cleared, especially at June end, requires detail to the accountant.
  3. No EFT or fee transactions are to be left un-presented unless known; as a rule though direct debit/EFT should be cleared.
  4. Clear un-presented cheques at June end if more than 6 months.
  5. Print a bank reconciliation report each month and especially June end.

Preparation of a BAS

  1. Check software set up, new tax codes, and whether cash or accrual
  2. Compare previous BAS to ensure no changes
  3. Compare GST liability to balance sheet
  4. Review GST summary, check GST is 1/11th of total sales or purchase value.
  5. Verify GST detail; check transactions are coded correctly with GST
  6. Verify GST free and not reportable transactions are correctly coded, e.g., overseas goods, stamp duty, ASIC fees etc.
  7. Print or save to PDF relevant detail GST and audit reports for proof of BAS.
  8. Take a copy of the BAS document.
  9. Finalise BAS; gain written authority to lodge from client; lodge electronically and file lodgement receipt—note method lodged if not electronic.

Reporting / File for Accountant and Client

Review balance sheet, understand every figure and provide detail where applicable

  1. Customer deposits = Which orders / invoices does it relate to?
  2. Inventory value = item list summary.
  3. New assets provide detail.
  4. Debtors value = debtors summary.
  5. Creditors value = creditors summary

Review Profit and Loss

  1. Review all accounts and look for anomalies; re-allocate if necessary.
  2. Ensure wages = payroll summary.
  3. Check superannuation is 9.5% of wages, if not why not, e.g. extra paid via salary sacrifice.
  4. Check insurance value and provide detail for accountant.
  5. Check legal expenses and provide detail to accountant.
  6. Check for transactions in suspense or query accounts.

Review Debtors and Creditors

  1. Any bad debts?
  2. Any negative values, if so, why?
  3. Check that debtors and creditors reconcile to balance sheet.
  • Updated: 4th June, 2018