Accounting Best Practices

Contents

• What Are Accounting Best Practices?
• 11 Best Accounting Practices for New Zealand Businesses
  1. Keep Business and Personal Finances Separate
  2. Use Accounting Software That Suits Your Business
  3. Follow a Consistent Bookkeeping Schedule
  4. Capture and Store Complete Financial Records
  5. Reconcile Every Financial Account Regularly
  6. Maintain a Clear and Consistent Chart of Accounts
  7. Stay on Top of Money Owed to and by the Business
  8. Plan for Tax Throughout the Year
  9. Review Financial Reports Every Month
  10. Use Budgets and Rolling Cashflow Forecasts
  11. Put Internal Controls and Written Processes in Place
• Common Accounting Mistakes to Avoid
• Turn Your Accounts Into a Useful Business Tool
• Accounting Best Practices FAQs

What Are Accounting Best Practices?

Accounting best practices are repeatable processes that help a business record transactions correctly, protect its financial information and produce meaningful reports. They cover everything from how receipts are stored to how often bank accounts are reconciled and who is allowed to approve payments.

The right approach will depend on the size and complexity of your business. A sole trader may need a relatively simple system, while a growing company may require formal approval processes, detailed reporting and separate tracking for different departments or revenue streams.

Whatever the size of the business, the best accounting practices share the same foundations:

• Accurate and up-to-date records
• Clear separation of business and personal finances
• Regular reconciliation and review
• Reliable document storage
• Forward planning for cashflow and tax
• Controls that reduce mistakes and unauthorised transactions
• Financial reports that support decisions, rather than simply recording past activity

11 Best Accounting Practices for New Zealand Businesses

1. Keep Business and Personal Finances Separate

Use a dedicated business bank account and business credit card wherever possible. Avoid paying personal expenses from the business account or business costs from a personal account.

Clear separation makes it easier to identify genuine business expenses, reconcile transactions and understand how the business is performing. It also reduces the time needed to prepare GST returns, annual accounts and income tax returns.

If money moves between you and the business, record it correctly as drawings, a shareholder current account transaction, a capital contribution or another appropriate category. Your accountant can advise on the correct treatment for your business structure.

2. Use Accounting Software That Suits Your Business

Cloud accounting software, such as Xero, can bring bank transactions, invoices, bills, payroll information, GST records and supporting documents together in one system. It can also automate repetitive tasks and provide current financial information from wherever you are working.

The software still needs to be configured correctly. Your chart of accounts, GST settings, bank feeds, invoice templates, user permissions and reporting structure should reflect how your business operates. Poor setup can lead to duplicated categories, incorrect GST treatment and reports that are difficult to interpret.

DNA can help with Xero setup and training so that the system supports your day-to-day processes and reporting requirements from the beginning.

3. Follow a Consistent Bookkeeping Schedule

Leaving the accounts untouched for weeks or months creates a backlog and makes errors harder to find. Set a regular schedule for issuing invoices, entering bills, uploading documents, reconciling transactions and reviewing outstanding amounts.

The right frequency depends on transaction volume, but a useful starting point is:

• Daily or as transactions occur: Send sales invoices and capture receipts or supplier documents.
• Weekly: Review bank feeds, overdue invoices, upcoming supplier payments and unusual transactions.
• Monthly: Reconcile all accounts, check payroll and GST coding, review financial reports and compare results with your budget or forecast.
• Quarterly: Revisit cashflow, tax provisions, performance targets and any changes affecting the business.

Regular bookkeeping means management reports are based on current information, not figures that are several months out of date.

4. Capture and Store Complete Financial Records

Every transaction should have enough supporting information to explain what it was, when it occurred, who it involved and why it was a business expense or source of income. This may include invoices, receipts, contracts, loan documents, bank statements, payroll records and calculations used in tax returns.

Inland Revenue generally requires business records, including electronic records, to be kept for at least seven tax years. Records must also remain readable and retrievable. A consistent digital filing system makes it easier to locate information if your accountant, bank or Inland Revenue requests it.

Attach source documents to transactions in your accounting software where possible. This creates a clearer audit trail and reduces the risk of documents being lost across inboxes, folders and paper files.

5. Reconcile Every Financial Account Regularly

Reconciliation checks that the transactions recorded in your accounting system match the information held by the bank or another provider. It helps identify missing entries, duplicates, incorrect amounts, bank errors and potentially unauthorised transactions.

Do not limit reconciliation to the main bank account. Depending on your business, you may also need to reconcile:

• Business credit cards
• Savings and tax accounts
• Loans and finance agreements
•  Payment gateways and online sales platforms
• Petty cash
• Payroll clearing accounts

High-volume businesses may need to reconcile weekly or even daily. All businesses should aim to have their key accounts fully reconciled before monthly reports are reviewed.

6. Maintain a Clear and Consistent Chart of Accounts

Your chart of accounts determines how income, expenses, assets and liabilities are grouped in your reports. It should provide enough detail to be useful without becoming cluttered with categories that are rarely used.

Apply the same categories consistently from month to month. If similar transactions are coded differently each time, comparisons become unreliable and valuable trends can be hidden.

Where it would improve decision-making, use tracking categories or cost centres to compare branches, teams, projects, products or services. This can help show which parts of the business are contributing to profit and which may require attention.

7. Stay on Top of Money Owed to and by the Business

Profit shown in your accounts does not necessarily mean the cash is in your bank account. Slow-paying customers can place pressure on the business even when sales appear healthy.

Send invoices promptly, make payment terms clear and review aged receivables regularly. Follow up overdue invoices consistently and address disputed accounts early. Where appropriate, use invoice reminders or payment options that make it easier for customers to pay.

Accounts payable also need active management. Record supplier bills when they are received, monitor due dates and plan payments around expected cash inflows. This helps avoid late fees while giving you a more accurate view of upcoming commitments.

8. Plan for Tax Throughout the Year

GST, PAYE, provisional tax and income tax should be included in cashflow planning rather than treated as unexpected costs when payment dates arrive.

Many businesses find it useful to transfer an appropriate portion of incoming cash into a separate tax account. The amount should be based on your actual obligations and reviewed with your accountant, particularly when profit, staffing or business activity changes.

Keep tax records current and check upcoming filing and payment dates. If you expect difficulty meeting an obligation, seek advice early. There are usually more options available before a payment becomes overdue.

9. Review Financial Reports Every Month

Accurate data is only valuable if you use it. A monthly review should go beyond checking the bank balance and look at the wider financial position of the business.
Useful reports may include:

• Profit and loss statement: Shows income, costs and profit over a period.
• Balance sheet: Shows what the business owns, what it owes and its financial position at a point in time.
• Cashflow report and forecast: Shows how cash has moved and what the position may look like in the coming weeks or months.
• Aged receivables and payables: Shows overdue customer accounts and upcoming supplier obligations.
• Budget versus actual report: Highlights where results differ from the plan.
• Key performance indicators: Tracks the measures most relevant to the business, such as gross margin, labour costs, average sale value or debtor days.

Look for trends, unexpected variances and changes that require action. DNA’s management and business reporting services can help you choose the right reports and understand what the figures mean for your business.

10. Use Budgets and Rolling Cashflow Forecasts

A budget sets expectations for revenue, costs and profit. A cashflow forecast focuses on when money is expected to enter and leave the business. You need both because a profitable month on paper can still create a cash shortage if customers pay later than supplier, wage or tax payments fall due.

Compare actual results with your budget regularly and update forecasts when circumstances change. Consider seasonal trading, planned equipment purchases, loan repayments, tax dates, recruitment and changes in customer payment patterns.

A rolling forecast that is updated each month is generally more useful than a plan prepared once and then forgotten. If future cash is difficult to predict, DNA can assist with cashflow management and forecasting.

11. Put Internal Controls and Written Processes in Place

Internal controls reduce the risk of errors, fraud and payments being made without proper approval. Even a small business can apply simple controls, such as:

• Requiring approval for invoices and payments above an agreed amount
•  Preventing one person from creating a new supplier and approving payment to that supplier without review
• Checking requests to change supplier bank details through a separate contact method
• Giving staff only the system access required for their role
• Using individual logins and multi-factor authentication
• Reviewing unusual transactions, refunds and manual journal entries
• Having the owner or manager review bank and credit card statements

Document the key steps for invoicing, purchasing, expenses, payroll, reconciliations, reporting and document storage. Written procedures make responsibilities clear and provide continuity when someone is away or leaves the business.

Common Accounting Mistakes to Avoid

Following best practices in accounting also means recognising habits that make financial information less reliable. Common problems include:

• Waiting until the end of the financial year to update the accounts
• Looking only at the bank balance instead of reviewing profit, liabilities and future cash commitments
• Treating loan repayments, asset purchases or owner drawings as ordinary business expenses
• Claiming GST without adequate supporting records
• Leaving old unreconciled transactions in the accounting system
• Using broad categories such as “miscellaneous” too often
• Failing to review overdue customer invoices
• Allowing several people to share one accounting software login
• Making decisions from reports before checking that the underlying accounts are complete and reconciled

These issues can affect tax calculations and make it difficult to understand the true performance of the business. Regular review by an experienced accountant can identify problems before they become embedded in the system.

Turn Your Accounts Into a Useful Business Tool

The goal of good accounting is not to produce more paperwork. It is to give you dependable information while there is still time to act on it.

Drumm Nevatt & Associates can review your current accounting processes, help set up Xero and document storage, improve bookkeeping workflows and create management reports suited to your goals. We can also help your team understand the reports so the information is used in day-to-day planning and decision-making.

Contact DNA to discuss practical improvements to your accounting systems and reporting.