How to Do Bookkeeping for Small Business in Australia

What does bookkeeping actually involve?

Bookkeeping is the process of recording, organising, and maintaining your business's financial transactions. Done correctly, it gives you an accurate picture of where your money is going, keeps you compliant with ATO obligations, and means your accountant can prepare your tax return without spending hours untangling your records.

For an Australian small business, bookkeeping typically covers five core areas: recording income and expenses, bank reconciliation, payroll, BAS preparation, and record keeping. How complex each of these is depends on the size and nature of your business.

Set up your accounting software

The foundation of good bookkeeping is choosing the right accounting software and setting it up correctly. In Australia, the three main options for small businesses are Xero, MYOB, and QuickBooks Online. All three handle GST, payroll, and BAS preparation — the choice comes down to your accountant's preference, your existing setup, and ease of use.

Xero is commonly recommended for Australian small businesses due to its strong accountant adoption and extensive app ecosystem. If your accountant is already on MYOB, staying on MYOB avoids migration complexity.

Whichever platform you choose, the setup steps are the same:

Chart of accounts. This is the list of categories your transactions are sorted into — revenue, cost of goods, operating expenses, assets, liabilities. Your accountant should advise on the right structure for your business type.

Bank feeds. Connect your business bank accounts and credit cards so transactions flow into your software automatically. This eliminates manual data entry and is the backbone of efficient reconciliation.

GST settings. Set your GST reporting frequency (quarterly or monthly), your accounting method (cash or accruals), and your GST registration date. These settings determine how your BAS is calculated.

Payroll setup. If you have employees, set up each employee with their tax file number, superannuation fund, pay rate, and leave entitlements. This needs to be done before you run your first pay cycle.

Record every transaction

Every financial transaction your business makes — every sale, every purchase, every bank transfer — needs to be recorded in your accounting software. With bank feeds connected, most transactions will appear automatically. Your job is to code them correctly.

Coding means assigning each transaction to the right account in your chart of accounts, and applying the correct GST treatment. This is where most bookkeeping errors occur — incorrect coding flows through to your BAS figures, your profit and loss, and ultimately your tax return.

GST coding — the basics

In Australia, most business expenses include GST — but not all. The most common GST treatments are:

Note that "No ABN withholding" — where you withhold 47% from payments to suppliers who haven't quoted an ABN — is a PAYG withholding obligation, not a GST treatment. It applies at the payment level and is reported separately through your BAS under the PAYG withholding labels.

Setting up coding rules in your accounting software means recurring transactions — like your monthly software subscription or regular supplier invoices — are coded automatically. This saves time and reduces the chance of human error.

Reconcile your bank accounts monthly

Good bookkeeping also enables timely management reporting — helping you monitor profitability, cash flow, and key performance indicators throughout the year, not just at tax time.

Bank reconciliation is the process of matching the transactions in your accounting software to your actual bank statements. It confirms that every transaction has been recorded, correctly coded, and accounted for — and that your software balance matches your bank balance.

This should be completed at least monthly. Leaving reconciliation to quarterly or annually means errors compound, missing transactions become harder to find, and your BAS figures are unreliable until you catch up.

The reconciliation process in Xero, MYOB, or QuickBooks is largely automated — your bank feed pulls in transactions and the software suggests matches based on your coding rules. Your job is to review, confirm, or correct each suggestion, and investigate anything that doesn't match.

At the end of reconciliation, your software balance should equal your bank statement balance. Any difference indicates a missing transaction, a duplicate, or a coding error that needs to be found and fixed.

Process payroll correctly

If you have employees, payroll is one of the most compliance-heavy parts of your bookkeeping. Australian payroll involves more than just paying wages — it includes PAYG withholding, superannuation, leave accruals, and Single Touch Payroll (STP) reporting to the ATO.

PAYG withholding

You must withhold tax from your employees' wages and remit it to the ATO. The amount depends on each employee's income level and their tax file number declaration. Your accounting software calculates this automatically once employees are set up correctly.

Superannuation

You must pay superannuation at the current Superannuation Guarantee rate (12% in 2026, up from 11.5% from 1 July 2025) for most employees. Super must be paid at least quarterly — late payments attract the Superannuation Guarantee Charge (SGC), which is more expensive than the super itself. Many businesses pay super more frequently to avoid cash flow surprises.

Single Touch Payroll (STP)

Every time you run a pay cycle, you must report it to the ATO via Single Touch Payroll Phase 2. Your accounting software does this automatically when you finalise a pay run. At year end, you finalise your STP submission instead of issuing payment summaries — your employees access their income statement via myGov.

Prepare and lodge your BAS

Most small businesses lodge a Business Activity Statement (BAS) quarterly, although some businesses choose or are required to lodge monthly. Your BAS reports the GST you collected on sales, the GST credits you are claiming on purchases, and your PAYG withholding from payroll.

If your books are reconciled monthly and your transactions are coded correctly, BAS preparation at quarter end is straightforward — the figures are already in your accounting software. If your books are not up to date, BAS preparation requires catching up on months of reconciliation first.

Most small businesses use the cash method of GST accounting, while larger businesses often use the accruals method. Your accountant can advise which method is appropriate for your situation.

Quarterly BAS due dates are 28 October, 28 February, 28 April, and 28 July. Businesses using a registered BAS agent receive extended deadlines.

If you have employees, note that annual STP finalisation must also be completed by 14 July following the end of each financial year.

Keep your records

Most business records must be retained for at least five years from when the record was prepared, obtained, or the transaction was completed — depending on the type of record. Some records, including certain company and employee records, may need to be retained for seven years or longer. Records covered include:

Sales records — invoices, receipts, and records of cash sales.

Purchase records — supplier invoices, receipts, and import documents.

Bank statements — statements for all business accounts.

Payroll records — pay runs, leave records, superannuation payments, and STP submissions.

GST records — records supporting the figures in each BAS.

Most cloud accounting platforms store your records digitally and provide an audit trail of all transactions. Physical receipts can be photographed and attached to transactions directly in your software.

How often should you do each task?

When does it make sense to outsource your bookkeeping?

Many small business owners start doing their own bookkeeping. At some point — usually when the business grows, the compliance complexity increases, or the time cost becomes too high — outsourcing becomes the better option.

Common signals that it's time to outsource:

Your books are always behind. If reconciliation is consistently weeks or months in arrears, you are operating without accurate financial information and your BAS is at risk of being incorrect.

You are spending more than a day per month on bookkeeping. For most small businesses, that time has a higher value elsewhere. A virtual bookkeeping service from $249/month is almost always cheaper than the opportunity cost of doing it yourself.

Your accountant keeps finding errors. If your accountant regularly has to correct your file before they can prepare your tax return, the cost of those corrections likely exceeds the cost of professional bookkeeping.

You are growing. More revenue means more transactions, more complex payroll, and more GST to track. The bookkeeping burden scales with the business.

Bookkeeping for small business — FAQs