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Business Finance 101 – COS or COGS – Cost of Sales or Cost of Goods Sold – What it means

Business Finance 101 – COS or COGS – Cost of Sales or Cost of Goods Sold – What it means

COS or COGS – Cost of Sales or Cost of Goods Sold – What it means

Cost of Sales (COS) or Cost of goods sold (COGS) is the cost of the product that was sold to customers. It includes the cost of materials and direct labour used to produce the goods ready to sell. The cost of goods sold is reported on the profit and loss at the time/period the sales revenues of the goods sold are reported.

A retailer’s cost of goods sold includes the cost from its supplier plus any additional costs necessary to get the product into inventory and ready for sale. For example, a store purchases a book from a publisher. If the cost from the publisher is $60 plus $5 in delivery costs, the store reports $65 in its Inventory account until the book is sold. When the book is sold, the $65 is removed from inventory and is reported as cost of goods sold on the profit and loss.

COGS is usually the largest expense on the profit and loss of a company selling products or goods. Cost of Goods Sold are deducted from the sales/revenue.

Cost of goods sold is calculated in full, as follows:

Cost of beginning inventory + cost of goods purchased (net of any return stock) + freight-in – cost of ending inventory.

This account balance or this calculated amount will be deducted from the sales amount on the income statement, leaving a Gross Profit.

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Xero – Handling Overpayments in Xero

Xero – Handling Overpayments in Xero

Handling Overpayments in Xero

From the Xero blog, here is how to handle overpayments in Xero and resolve them –

Overpayments can be challenging at times, or even forgotten. There are some easy ways to handle overpayments within Xero.

Let’s take a look at a few ways we can record an overpayment and apply this to an invoice/bill or refund it directly. In Xero, the term “invoice” relates to a sale, and a “bill” relates to a purchase. I’ve only referred to invoices below, but these processes relate to both.

To Record (handle) an Overpayment, you can either:

  • Simply enter the amount paid directly onto the invoice, and if the amount exceeds your invoice total, Xero will automatically calculate an Overpayment transaction.
  • Create an Overpayment Receive Money / Spend Money transaction in your bank account
  • During reconciliation, create an Overpayment Receive Money / Spend Money transaction

Allocate or Refund an Overpayment (Resolve the overpayment)

Once the Overpayment transaction has been entered into Xero, a cash refund can be recorded or you can allocate the overpaid amount to an invoice for the same Contact in Xero.

  • The Allocate option will appear in the Overpayment Options drop down menu while viewing your Overpayment transaction.
  • If a contact has a new invoice you created Xero will ask if you wish to allocate the overpaid amount against this invoice.
  • You can record Cash Refunds on the Overpayment directly and then reconcile them with your Bank Statement line.

(XERO) have some great Help Centre pages that step through Overpayments in Xero. You can check them out here, and call us for help!

Need help? Not sure? Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

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Bookkeeping – 7 tips for business health by keeping healthy books/accounts!

Bookkeeping – 7 tips for business health by keeping healthy books/accounts!

Bookkeeping – 7 tips for business health by keeping healthy books/accounts!

Here are some timely reminders from J T Ripton at smallbizdaily.com

Accounting is often one of the toughest jobs for small business owners, especially those who don’t have a lot of experience or a strong background in bookkeeping. Following a few simple tips throughout the year can make it much easier to track expenses and file taxes when the time comes.

1. Plan Ahead

The first step is to look ahead at the potential needs for your company and plan for these expenses. For example, if you know that you will need to replace expensive equipment in the near future, make sure to set aside funds every month to cover the costs. Other major expenses that may arise include office supplies, inventory, maintenance, and repairs. You can also set aside money each month to cover the annual taxes, so you won’t stress about the amount you need to pay when April 15 arrives.

2. Use Reliable Software

Business bookkeeping software has come a long way over the past decade, and some programs make it much simpler to input expenses and cash flow. MYOB, Reckon and Xero allow you to keep everything you need in one place for easy recovery as needed. From tracking the status of unpaid invoices, to creating customized invoices, to tracking billable hours and budget spent, online accounting software is a great way to save time and money. Some programs like Dropbox and  Google Drive also offer cloud access to your files, which means that you can pull up information from anywhere instead of having to go to the office to find a document or receipt.

3. Separate Business and Personal

If you use your business credit card to pay for a personal expense, make sure to track that and separate it as soon as possible. It is much easier to separate expenses if you use separate accounts to pay for them, but you may accidentally use your business card for a non-company purchase. Business costs are tax deductible, so make it easier on yourself by separating them every time you make a purchase.

4. Schedule Yourself

When it comes to bookkeeping, it might seem easier to just put it off until the end of the year. However, this is going to result in a big headache when you are trying to track down receipts and invoices that may be months old. Schedule time each week or each month to work on your books and stay as current as possible. It may be tempting to skip this every so often, but when you can stick to the schedule, it will be much easier to stay on top of the finances without feeling so stressed.

5. Review Invoices

Be sure to keep close track of your invoices, since some (clients) are notorious for paying bills late. You can probably use your accounting software to run a monthly report and determine what invoices are still outstanding. This gives you the flexibility to send reminders and follow up on outstanding bills before too much time passes. It is also smart to keep a close eye on your cash flow statement, so you can avoid the dreaded insufficient funds message on a payment.

6. Call in a Pro

For some things, it is definitely worth the investment to bring in an expert. You may rely on a financial advisor who specializes in your industry, or you might just need an accountant who can pay your taxes and payroll. You can even use a student intern who is working on an accounting degree if the budget is tight.

7. Track Expenses

Most experts discourage business owners from using cash to pay for any business expense, since it can be very difficult to track. When you use a credit card or debit card, you can view the transactions right away and make sure that all items are true business expenses to avoid issues with write-offs and taxes.

Accurate bookkeeping is an important part of business ownership, so it is crucial to stay on top of the expenses and invoices to prevent problems. If you have questions about bookkeeping, you can always rely on an expert, but once you have your system down, it should be much easier to keep track of the money coming in and out of your company each day.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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