Document Report Or Business Management Concept: Businessman Mana
Credit: Document report or business management concept: Businessman manager hands holding pen for reading, signing paperwork near payroll salary binder, summary report HR-human resources business bookkeeping
When it comes to bookkeeping mistakes, we have seen them all. The below are our pick for the top five mistakes made by small businesses.
Not setting up your Chart of Accounts properly You need to understand the Chart of Accounts correctly to understand where all the information lands for tax purposes. This is very, very important in order to understand if you are making a profit or a loss and how much tax you will pay. Try not to use the Chart of Accounts provided by the software company, build your own specific Chart of Accounts to track the vital numbers that you need to know in your business. There’s no point in tracking how many paper clips you use if this makes no difference to your bottom line or the general performance of your business.
Setting up a “petty cash” in assets Unless you are using an old fashioned ‘petty cash’ tin and are topping this up by withdrawing the exact amount of cash you are using from the bank, do NOT use it. Petty Cash in assets is essentially an ASSET, something tangible you can put your fingers on and should only be what you have in the petty cash tin. All too often, we have seen ‘petty cash’ as hundreds of thousands of dollars as it was accruing and accruing!
Not setting up payroll correctly This can be an absolute nightmare to unravel. Make sure you have selected all the variables CORRECTLY. With Single Touch Payroll here (meaning the ATO are notified every time you have a pay run), it is more important than ever to be correctly recording this. If your employee is casual, make sure you are NOT tracking personal and annual leave. If your employee is permanent, make sure you ARE tracking personal and annual leave, and more importantly, you are recording the employees taking personal and annual leave.
Treating assets or liabilities as an expense Knowing these differences can mean a significant difference in the tax you pay. We have seen asset purchases such as small operating equipment being recorded as an expense. You can imagine the surprise when the tax return is prepared, and that equipment was reallocated to an asset which adds to the profit and increases your income tax bill. We’ve also seen businesses think that everything spent from the account is an expense, but it’s not necessarily the case. It may be a loan repayment, which would go to a liability account and offers no relief (except for the interest) at income tax time.
Not reconciling properly Reconciling the bank accounts; loan accounts; superannuation; payroll; Business Activity Statements and GST control accounts are all the cornerstones of how much tax you may or not pay, what the ATO will question if it’s not reconciled and just plainly understanding where your business is sitting.