Countdown to tax time: 4 weeks from 30 June — review income accounts
For your Profit and Loss Statements to be accurate, it goes without saying that your income figures need to be accurate — because it’s this income you’ll pay tax on.
If you have items on your Profit and Loss Statement that aren’t income, then they’ll need to be allocated somewhere else.
If you’re unsure, it’s 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’s very unlikely to be picked up.
Think 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 2017/2018 year.
Having a handle on your numbers, and making sure those numbers are accurate, is key.
This is why it’s so important to review the income each month, as if you record the deposit correctly you’ll be able to compare your business’ actual income against budgeted income.
So, before we begin, you should print out a Profit and Loss Statement for the period 1 July 2017 to 30 April 2018, and diarise again to do for 31 May 2018 and 30 June 2018.
The aim here is to make sure that items that really are income, and you’re prepared to pay tax on, are included as income.
With that out of the way, here are the next steps to making sure your income items are ship-shape by the end of financial year.
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’re not sure of items, you should reallocate to a SUSPENSE account to identify easier at the end of the year
- Make sure 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 ITS or FRE 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 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’ circumstances will vary.