This month we’re going to cover some basic bookkeeping information to help you organise (and hopefully streamline) your bookkeeping tasks. First up income.
Depending on how you get paid will determine how you do the bookkeeping for your income.
If you send your clients invoices
You should process your invoices in the same program that you do your bookkeeping, using another program (word, office, google docs, spreadsheets) creates additional work as you need to enter the same information into your bookkeeping software (you have bookkeeping software right?).
Processing invoices right in your accounting system will save duplication of data entry and improve accuracy as:
- The dates and amounts will be correct
- You can save your frequently used products and services for quick selection
- You can link a payment processing system for a link for clients to pay the invoice immediately.
– If your clients pay their invoices by bank transfer or cash, you will record the payment against their invoice, either from the automatic bank link or by entering the information.
– If your clients then pay their invoices using a payment processing system, you will need to link the payment transaction to the invoice transaction. For example an $100 invoice processed through Square. Square fee 1.9% of $100 = $1.90. Payment received $98.10.
Invoice $100
Payment $98.10
Square Fee $1.90
You will need to mark this as paid by the client (they paid it to Square) and then enter the fees paid to Square separately.
If you send your clients to a payment processor directly (Stripe, Square, PayPal, Etsy etc).
You do not NEED to recreate an invoice in your bookkeeping software, this is unnecessary duplication.
Instead the easiest way is to integrate your payment processor or link your bank account or both (but be aware of duplications). Integrating a payment processors like Square or PayPal will allow all the transactions to automatically be recorded in your bookkeeping software including the fees. It is important to record the FULL amount of income you have received, not just the amount after the fees have been removed. The thresholds for GST and all tax deduction eligibility is based on total income, not on a measure of profit.
If your clients pay cash without an invoice
The quickest option will be to create an income journal transaction. This will record the incoming cash against your income accounts.
However, if you want more detail, like to be able to run reports on how much income you have earned from a particular client, then you might want to set up an invoice for that client and mark it as paid on the date you received the cash.
PS : Have you reviewed the fees or your payment processor recently? For domestic cards – Square 1.9%. PayPal 1.95%. Stripe 1.75% + 0.30 per transaction (2.05% on $100. 1.9% on $200 etc – maybe good for larger size payments).
* As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.
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