Countdown to tax time: What you need to do 4 weeks from 30th June – review income accounts
It goes without saying that the income figures on your Profit and Loss Statements need to be accurate. It is this income that you will pay tax on, so if you have items on the Profit and Loss Statement that are not income, then they need to be allocated somewhere else. If you are unsure, you are best to code the entry to a “Suspense” account.
Sure at the end of the year, your accountant hopefully will reallocate items that are not income, but what happens if this get missed? It may not be the accountant’s fault either. If the item looked like any other sale and had no extra narration or description it is very unlikely to be picked up.
Also thinking back to week one where I encouraged you to change your mindset about why you are using accounting software and how valuable accurate reports will be for you in the 2015/2016 year. This is why it is so important to review the income each month – you will more to record the deposit correctly and you will be able to compare your business’s actual income against the business’s budgeted income.
- Print a Profit and Loss Statement for the period 1 July 2014 to 30 April 2015 and diarise again to do for 31 May 2015 and 30 June 2015.
- What you are looking for is that the only items that are really income and that you are prepared to pay tax on are included as income.
Review the business’s main source of income
- Review the account(s) that you code your business’ main source of income.
- The only items that should be coded here is business income.
- If there are other deposits that are not business income (eg tax refunds, GST refunds, capital introduced by yourself) they should be re-allocated to the correct account. If you are not sure of items, you should reallocate to a SUSPENSE account to identify easier at the end of the year
- Ensure the correct GST codes are on the transactions.
- The only items that should be coded here is interest income.
- If there are other deposits that are not interest income in this account they should be re-allocated to the correct account.
- Ensure the N-T code has been used on these transactions.
Refunds of expenses
- The only items that should be coded here is refunds of expenses, alternatively refunds can be posted against the EXPENSE code that it relates to.
- If there are other deposits that are not refunds they should be re-allocated to the correct account.
- Ensure the correct GST code has been used on these transactions ie. If the original expense had GST in it, then so too would the refund and vice versa. You may wish to double check on the remittance advice received from the supplier.
Common errors of deposits coded to business income
- We often see that deposits such as capital introduced by owners, loan funds, tax/GST refunds and Proceeds from Asset Sales have been coded to income. This will affect your Profit and Loss and make it seem that you have made more profit than you really have.
If you missed last week’s blog, head to countdown to tax time: What you need to do 5 weeks from 30th June – reconcile super and PAYG payable
Subscribing or upgrading your MYOB software will ensure your business is always compliant with tax changes, including the government’s new SuperStream system for paying super contributions. If you don’t have MYOB online accounting software, there’s an online accounting solution for every stage of your business.
The information provided here is of a general nature for Australians and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary.