Training you – Solving Problems – Or We do your books for you! For Business owners and fellow bookkeepers!

Bookkeeping – Train Troubleshoot or we do it for you! MYOB Reckon Xero


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Business Tax Tips – Fringe Benefits tax – An overview

Business Tax Tips – Fringe Benefits tax – An overview

Fringe Benefits tax – An overview

The Australian Tax Office (ATO) is the best source to define many business tax issues and here are some extracts where they explain Fringe Benefits Tax (FBT).

1.1 What is a fringe benefit?

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The ’employee’ may even be a former or future employee.

An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of ’employee’ in the FBT legislation. The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services.

As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. When we refer to ‘you’ in this guide, we are referring to you as an employer.

1.2 Who pays the tax?

FBT is paid by the employer.

You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations, or if you provide benefits in lieu of such payments. These withholding obligations may apply to payments made to an Australian resident employee working overseas.

If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand, which currently include FBT).

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

This is regardless of whether you or another party provides the fringe benefit. FBT is payable whether or not you are liable to pay other taxes such as income tax.

You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

1.3 Are you providing fringe benefits?

The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.

  • Do you hold any cars or other vehicles that are available to employees for their private use, including a car garaged at the employees’ place of residence?
  • Do you provide loans at reduced interest rates to employees?
  • Have you released an employee from a debt?
  • Have you paid for, or reimbursed, an employee’s non-business expense?
  • Do you provide a house or other accommodation to your employees?
  • Do you provide employees with living-away-from-home allowances?
  • Do you provide entertainment including food, drink or recreation to your employees?
  • Do any of your employees have a salary package arrangement in place?
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

Fringe benefits have been categorised into 13   different types so that specific valuation rules can be used. These benefits are dealt with separately in their respective chapters in this guide.

A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by some international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT.

For more on reducing your FBT liability and what is not subject to FBT, read more here.

Need help? Not sure? Call for FREE 30min Advice / Strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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Business Finance 101 – What does the accounting equation mean?

Business Finance 101 – What does the accounting equation mean?

What does the accounting equation mean?

The Accounting Equation is used in both small and large business, and gives a financial position of the business – ie its value (also known as equity), after debts/liabilities. The Accounting Equation or financial position is calculated from three items – assets (what it OWNS), liabilities (what is OWES) and equity (the difference between assets and liabilities, or owner’s equity).

The accounting equation is a simple way to understand how these three amounts relate to each other, and written –

Assets – Liabilities = Equity

The accounting equation is also reported another way (eg USA)

Assets = Liabilities + Owner’s Equity for a small business sole proprietor

The accounting equation for a company/corporation is:

Assets = Liabilities + Stockholders’ Equity

So let’s break down what each part is –

Assets are the company’s resources —what the company owns of value – cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity.

Liabilities are the company’s obligations—what the company owes – notes or loans payable, accounts payable, salaries and wages payable, interest payable, superannuation, and income and payroll taxes payable.

Owner’s equity or stockholders’ equity is the amount left over after liabilities are deducted from assets:

Assets – Liabilities = Owner’s (or Stockholders’) Equity. It also reports the amounts invested into the company by the owners plus the cumulative net profit/income of the company that has not been withdrawn or distributed to the owners.

With accurate records, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of the company’s accounts. As an example, if a company borrows money from a bank, the company’s assets will increase and its liabilities will increase by the same amount. When a company purchases inventory for cash, one asset will increase (inventory) and one asset will decrease (bank paid for the stock). Because there are two or more accounts affected by every transaction, the accounting system is referred to as double entry accounting.

A company keeps track of all of its transactions by recording them in different accounts in the company’s general ledger. Each account in the general ledger is designated as to its type: asset, liability, owner’s equity, sales/revenue, expense, profit, or loss account.

Balance Sheet and Profit & Loss

The balance sheet is also known as the statement of financial position and it reflects the accounting equation. The balance sheet reports a company’s assets, liabilities, and owner’s (or stockholders’) equity at a specific point in time. Like the accounting equation, it shows that a company’s total amount of assets equals the total amount of liabilities plus owner’s (or stockholders’) equity.

The profit and loss or income statement is the financial statement that reports a company’s sales/revenues and expenses and the resulting net profit/income. While the balance sheet reports one point in time (the FINAL Balance at a date), the profit & loss covers the total amount over a time interval or period of time (eg a month). The profit and loss will explain part of the change in the owner’s or stockholders’ equity during the time interval between two balance sheets, as the profit or loss is reported on the balance sheet.

Learn why Profit does not equal Cash HERE

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Cashflow Tips – Managing cash flow in a small business – How a cashflow can help

Cashflow Tips - Managing cash flow in a small business – How a cashflow can help

Cashflow Tips – Managing cash flow in a small business – How a cashflow can help

Here are some great tips from a great resource for managing cash flow in a small business, at the Queensland Govt site at:

http://www.business.qld.gov.au/business and under the Running a Business then – Finances cash Flow.

Managing Cashflow –

Your cash flow is the money you have coming in from revenue and going out for expenses. Good cash flow management will ensure you always have money available for paying your expenses when they are due.

Even profitable businesses can fail if cash flow is not managed properly. If you don’t have enough money available to pay your lenders or suppliers, banks may foreclose and suppliers could cut supplies.

There are many areas in your business that can impact on your cash flow. It is important to understand how customer payment terms, supplier payment terms, loan payments, future spending decisions and other items can affect your cash flow.

This guide will help you to manage your cash flow and understand how to use cash flow analysis to inform business decisions.

Plan and Monitor Cashflow

Planning and monitoring your cash flow is one of the most important things you can do when running your business. This should also include how you will address cash shortfalls or surpluses if they occur.

Forecast cash inflows against cash outflows

A cash flow statement will help you forecast your money coming in and going out. Forecasting your cash flow is usually done annually and broken down into monthly amounts. Always record the amount in the month it is expected to be spent or received. For example, electricity is usually paid quarterly so should be recorded in the month it is due.

You can use a cash flow template to forecast your annual cash flow. You will need to estimate and record the following amounts for each month:

  • total monthly cash inflow – includes sales, sales of assets, capital injections from borrowings or owners funds, interest revenue and any other sources
  • total monthly cash outflow – includes items such as purchases, loan payments, supplies, telephone, electricity, wages and any other bills
  • net cash flow – take the total outflows from the total inflows to see if there is more money in or out
  • opening balance – record your cash available at the beginning of the month
  • closing balance – calculate your funds available at the end of the month by adding the net cash flow to the opening balance. This will become your opening balance for the next month. Note: If your net cash flow is negative, this amount will be reduced.

Include GST when inserting amounts for some cash inflows (particularly sales) and many cash outflows (particularly purchases). Calculate the difference between total GST inflows and total GST outflows and insert this as GST payments.

Different businesses are subject to differing GST requirements, so you should seek specific advice from your tax adviser. Learn more about working with business advisers.

Monitor actual inflows against outflows

As each month passes it is important to record your actual cash flow. This can be compared against your forecast to see if you are tracking as planned. You may find you need to review and adjust your forecast as amounts change over the year. Always make sure your payments received match invoices issued, and receipts and payments match.

Invest surplus cash or arrange loans

If you forecast excess cash for some months, it can be worth putting it in short-term investments to maximise your income. If you anticipate any shortfalls in cash, you may want to plan to use this invested excess, or seek for an appropriate loan to temporarily cover your costs. Don’t forget to include these extra payments or receipts in your cash flow forecast.

What are your thoughts? Call for FREE 30min advice / strategy session today!

0407 361 596 Aust

Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Bookkeeping – New Year Resolution – Organising bookkeeping tips for small business – Part 1

Bookkeeping – New Year Resolution - Organising bookkeeping tips for small business

Business Tax Tips – Reconciling GST accounts in the Balance Sheet and GST Reports – How to understand

 

You may be working as the bookkeeper for a business.

Or you own your own business and you find you have several roles to juggle including production or service, marketing, operations, sales, dispatch, invoicing and bookkeeping of the accounts.

These must all be done!

 

Two main areas need to be organised – the bookkeeping records, and the money (bank and cash and credit cards).

  1. Starting your bookkeeping records correctly (or re-organizing your current books and accounts)

Most business owners don’t like doing the books! But if you want to be in business then accept that the books and finances are one of your responsibilities and JUST DO IT or PAY SOMEONE to do it.

To keep accounts organised, you need a set of systems to ensure:

  • ALL sales and expenses are recorded and transactions aren’t forgotten (eg Cash receipts);
  • To keep all documents required by law easy to find and neat and tidy;
  • Good records of conversations with customers or suppliers; and
  • At year end – a good set of all required data and reports so your accountant can complete your tax return quickly and efficiently.

    2. Money – Bank and Credit Cards

  • First, use a dedicated business bank account and credit card. Processing your records is much easier if you have these separate bank and card accounts (even if only a personal credit card in your name to start) that you only use for business transactions.
  • Secondly, request that all statements, including bank, debit card, credit card and petrol accounts, are sent on a monthly basis. That’s because the key aspect of processing your financial documents is reconciling them on a monthly basis.

If you follow these suggestions, nearly all of your income and expenses will be captured in statements from both your bank account and credit card account and account keeping is much easier.

3. Other Help – ATO

The Australian Tax Office (ATO) has a good overview of what is required, and they explain more as follows – Managing your Small Business Records

Good records help you make sound business decisions, monitor your business health, analyse your cash flow and demonstrate your financial position to lenders, businesses, accountants and prospective buyers.

Under tax law, your records must explain all transactions and be:

  • in writing, either on paper or electronically;
  • in English, or in a form that we can readily access and convert into English;
  • kept for five (5) years (although some records need to be kept longer).

If proper records are not kept, we may impose penalties.

You can choose to look after your record keeping or engage a bookkeeper or registered agent to do all or part of this work. We can also give you advice and help on record keeping systems.

Find out about:

Getting help with setting up your record keeping system early will save you valuable time and money in the long term.

You should consider:

These are 6 steps to get your books/accounts off to the right start (or improve current systems). Coming up next month we will look at some templates that can help you get organized and keep you and your accountant happy!

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

Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia