The teenager was interviewed for a second time yesterday after his legal team complained police had broken Indonesian rules for dealing with child suspects by not allowing the boy's parents to be present during his initial interrogation early this week.
The year-nine student from Morisset Park, near Newcastle, was arrested on Tuesday afternoon allegedly with 3.6 grams of marijuana.
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His lawyer Mohammad Rifan says the boy has told police he was talked into the deal by the drug seller.
The boy had been due to fly home today after a week-long family holiday but instead has spent his fifth night in police custody.
Earlier this week a psychologist said the youngster, who is detained alone in a police cell, was highly stressed and depressed.
But his lawyer, Muhammad Rifan, told AFP on Saturday: "Psychologists have visited him again and he is in a much better condition, much better than before. He is calmer and has accepted the situation."
Rifan said that after pressure from lawyers, Balinese police were now adhering to juvenile justice laws, which they had previously ignored.
"For example, the police had informed him that the maximum sentence would be 12 years, when in fact for minors, the sentence is halved, so he now knows the maximum is six years," Rifan said.
Police now understand that the examination of a minor in this situation must be finished as quickly as possible, in no more than 20 days, Rifan said.
Release 'top priority': Aust government
The Australian government has made the boy's release "top priority", with ambassador Greg Moriarty arriving in Bali from Jakarta Saturday on Australian Foreign Minister Kevin Rudd's instructions.
"We and the Australian community are trying to immediately bring the boy home, as soon as possible. But we still respect the law that applies here," Moriarty said.
Rudd told Australian reporters they were working through the system.
"I spoke to his dad yesterday and we are working our way through the legal system with the single objective of getting this young fellow home as soon as we possibly can,” Mr Rudd said.
The boy's father has been allowed to sleep in an office adjacent to the police cell.
The Australian media has said the arrest was part of a police sting, with witnesses saying that plain-clothes officers swooped on the boy and a friend after an alleged tip-off from the drug dealer.
Police said the boy admitted paying 250,000 rupiah ($29) to a man, who reportedly told him he had not eaten for a day and needed money.
Children face the same courts as adults in Indonesia, although juvenile justice laws offer some concessions to minors.
Children are often jailed with adults, although Kerobokan prison, where the boy would spend his term, has a separate children's cell.
Several Australians are housed in Kerobokan, including a man arrested last month in possession of methamphetamine, and several convicted drug traffickers -- two on death row and six serving life sentences.
