Bookkeeping - It's like oral hygiene

Bookkeeping tips

s2Bookkeeping Tips

Bookkeeping is like looking after your teeth – do it yourself daily and get a check-up regularly from the professionals.

It’s not illegal to manage your own bookkeeping for your business (although it probably should be for some) and with the advances in technology, bookkeeping software is making it easier for business owners to take charge of their own bookkeeping.

We’ve seen some data entry methods that are consistent across different businesses and so we’ve highlighted the most common ones below to look out for.

Vehicle Finance

When the payment to the finance company hits the bank statement each month, we’ve seen a number of businesses process this directly to the income statement as an expense item for Motor Vehicle Expenses.  Unless you’re renting the vehicle, this should be a finance repayment where the interest component will impact the income statement and the capital component will be applied against your vehicle loan.  Make sure you understand the loan amortisation schedule which will help greatly in processing the monthly entries.

GST

Things like insurance, vehicle registration, bank charges, entertainment etc. are not 10% GST although we’ve seen these allocated as such.  On some of these expenses, the invoice will clearly set out what the GST component is.  On others, such as entertainment, you might be charged GST, but may not be able to claim it all.

GST applied against various income statement items in the records can be tricky and the automatic posting of transactions by software should be monitored.

GST in the balance sheet

If you are lodging your Activity Statement on a quarterly basis, you are processing transactions for three months at a time that are all accumulating a GST payable / receivable balance.  Does your bookkeeping system reflect a balance that is in line with the balance that you have lodged with the ATO?  Once the bookkeeping for the period is complete and the GST reports are ready for lodgement, make sure that there is adequate record of the make up of this balance or that the period is locked to avoid any further processing into the period.

Once the lodgement is complete, it is useful to separate the amounts payable / receivable to the ATO into an account that reflects directly what is in the ATO statements.  A useful reminder to make the payment is to ensure that this is allocated to the ATO payables via a supplier invoice process.  This will include the ATO payable in your accounts payable listing ready for payment.

Share Capital

Businesses that use a Company as their legal entity should have share capital recorded.  In nearly all of the accounts that we’ve looked at for Companies, the share capital entry is absent.  It’s usually not a high value transaction, but its absence is an indication that it could be the start of bigger problems if the custodians of the bookkeeping process haven’t started the Company off correctly.

Invoicing & Credit Notes

If an invoice has been finalised and sent to a customer for payment, that invoice should not be updated for additional services or discounts etc – a separate invoice or credit note should be raised unless it has been agreed with the customer that they should disregard the original and process the correct version.  How are two companies supposed to reconcile the balances owing between them if they are not singing from the same hymn sheet.  Additionally, don’t simply delete an invoice that’s not required, process a credit note for your customer.  Not only does this allow the customer to have a clear trail of the transaction, but will also help your company to manage and monitor fraudulent transactions.

Personal expenses

Many owner-managed businesses will have some personal expenses paid via the business bank accounts and these can become messy if not allocated correctly and timely.  The easiest way to segregate the personal expenses so that they have no impact on GST or profit is to create a loan account from the owner to the business and allocate any personal spending or funding contributions into that account.  (Always be mindful of tax implications – speak to your accountant, especially if it seems like you’re getting a good deal from the business).

If you’re not qualified to do your own fillings, is your business any less important?

For a check up on your books, contact us today.

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