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Cashflow Tips – Cash Flow and Budgeting – What are they and how are they different?

Cashflow Tips - Cash Flow and Budgeting – What are they and how are they different?

Cash Flow and Budgeting – What are they and how are they different?

They may sound too hard or scary, but cash flow and a budgeting can show related information – so what are they and how are they different? There is a difference and each have different uses, but mainly they help the business owner in the financial management of the business or organisation.

Cash flow forecastis an estimate of the amount of money (actual cash) you expect to flow in and out of your business and includes all your future income and expenses. A forecast usually covers the next 12 months, or it can also cover a short-term period such as a week or month.

  • It predicts when the actual income and expenditure occurs in the actual bank account(s).
  • Does not consider accruals and adjustments such as depreciation, only ACTUAL cash in and out.
  • Large capital purchases such as assets (usually not recorded in a profit and loss and budget) are included in a cash flow forecast, as to HOW they will be paid – eg show loan money in and payments out – fully paid or the instalments on loans/finance.
  • The full year cash flow forecast is usually shown on a month by month basis. But in it can be broken down into fortnightly or even weekly depending on the requirements.
  • More info and a handy FREE template http://www.business.vic.gov.au/money-profit-and-accounting/getting-paid-on-time/cash-flow-statement-projection-with-template.

Budgetdetails overall what you plan to do with your finances based on expected sales and expected costs, and is similar to Profit and Loss (and a Balance Sheet). It is used to measure how you go against the budget – are you on track for what you want to achieve?

This is usually over 12 months, and focuses on profit. In addition:

  • Accruals and other non-cash adjustments such as depreciation are included;
  • Large capital purchases will be included;
  • A budget also provides a benchmark to then monitor performance – after each month accounts are finished we compare what actually occurred against what was budgeted or planned to occur;
  • Usually the full year budget is prepared in months like the Profit & Loss;
  • A budget is NOT used to monitor the amount of cash in the bank accounts. That is where the cash flow forecast comes in;
  • Some further information is here – http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/.

Both Cash Flow and Budget detail the planned financial goals the organisation is trying to achieve and are linked to the strategic and business plans of the organisation. The main difference is based on:

1.     The type of the transaction and;

2.     The timing when receipts and payments will occur.

As a simple example: A budget will record the income when you have sent out the invoice whereas your cash flow will record it when you actually receive the amount in your bank account. Always remember not to assume that debtors will pay the following month. Often it may be later which is why it is important to know your Average Debtor Days which may show that payment occurs typically 64 days after sending out the invoice. This would be reflected in the cash flow, but not the budget.

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

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Business Tips – Rise in revenue and business health – Businesses used their accountant as a business advisor

Business Tips - Rise in revenue and business health - Businesses used their accountant as a business advisor

Rise in revenue and business health – Businesses used their accountant as a business advisor

Rose Powell reports in SMEs can make better use of their accountant to boost their bottom line “For the third of business owners who worked with an accountant as an advisor, one in five (21%) saw a rise in their revenue over the last year.” Rose also wrote – “Small business operators who used their accountant as a business advisor last year were 31% more likely to see an earning uplift, according to new research from the 2013 MYOB Business Monitor.

The vast majority of the 1005 business owners surveyed, 89% used an accountant last year.

Only 32% of owners reported having an advisory or consultative relationship with their accountant, compared with the 57% whose relationships were for compliance only, such as tax return completion or GST reporting. Just 11% did not have an accountant…”

Adam Ferguson, general manager of the accountants division at MYOB, told StartupSmart that using an accountant as an advisor was especially valuable for start-up companies.”

“The start-up phase of a business is very different to when it’s up and running. In that phase, your accountant can help with things like creating a business plan, applying for business loans, building out your business case,” says Ferguson.

For start-ups who are already in operational phase, the increasing use of cloud accounting systems enables accountants to provide feedback and ask the right questions about compliance and cash flow.

Ferguson says cloud accounting means compliance is no longer a year-end process, and increasingly a monthly one. This makes them well placed to advise on cashflow questions.

“An accountant can play a key role in helping a start-up, reporting on cash flow on a more regular basis, and understanding the dynamics that drive cashflow,” says Ferguson.

The report found companies that worked with an accountant as an advisor were less concerned about attracting and retaining customers, and were more likely to increase their overall investment in their business strategies.

Once you’ve got your cash flow healthy, it becomes a question of how to use that and where to invest that to grow my business,” says Ferguson.

Over half, 53%, said they found their accountant advisor provided useful advice on how best to manage the money that flows through their businesses.

So talk and work with your accountant – if you need a recommendation, call us for FREE help!

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

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


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Business Tax Tips – How to do the Accounting for Barter transactions and Trade Exchanges

Business Tax Tips – How to do the Accounting for Barter transactions and Trade Exchanges

How to do the Accounting for Barter transactions and Trade Exchanges

In our previous post we explained all about how the Australian Tax Office views Barter and Trade Exchanges – in summary you have to record and report as if they were REAL money transactions.

Here is a summary of how to record in your accounts in MYOB, Xero, Reckon, Quickbooks – from the Xero support community

Set yourself up a new bank account called Bartercard – there won’t be bank feeds but you can then pay invoices from this account and also receive payments into it by completing the payment section at the bottom of an invoice. You could use a spend money to take accounts of the fees.”  Business Buddy. And further comment –

Yes simply treat Bartercard exactly the same as any other method of financing, such as a bank account or credit card account. The Bank Feed does work but at month end only and is the easiest way.
As a Chartered Accountant using Bartercard ourselves, and with lots of clients using Bartercard, it is really simple – treat Bartercard income and expenses exactly the same as cash income and expenses, pay/claim GST exactly the same, record income / profits / expenses exactly the same as if it were cash. 
So, although your transaction is similar to acquiring say a stock item for $10k and selling it for $45k, that’s a profit of $35k that would hit the P&L. However when the $T (Bartercard Trade Dollars) are spent on (say) accounting fees, stationery, cleaning etc in the business, these expenses are tax-deductible, and if all the $T is spent in the business, this ends up as tax neutral. Other than the cash saving by making these payments in $T instead of cash, that is a real cash profit the organisation has made and like any other profit, will hit the P&L positively.” Ian Malcolm.

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Cashflow Tips – Handle your business growth plan carefully to avoid disaster!

Cashflow Tips - Handle your business growth plan carefully to avoid disaster!

Cashflow Tips – Handle your business growth plan carefully to avoid disaster!

For many, your business growth plan will solve most business problems.

But growth can also be a disaster for a business if not handled well – and here are some common miss-beliefs.

  1. Build it and it will sell itself – Many new ideas come to entrepreneurs all the time – but not everything succeeds for outside and internal reasons – no real demand, lack or poorly-prepared marketing plan (often a weak spot for small business owners), lack of financial budget plan.
  2. I can/will do it all – Common error to fall into the “if it’s to be done no-one does as it well as I do it” trap. Yes in the early days you have to do most yourself – but document the method that you find works best, then teach someone else to do it so you can move on to other things. A good explanation is found in “The E Myth” by Michael Gerber. Paint a clear picture of what the future business will look like/become, write out the Organisation chart of the key roles of the organisation and job descriptions, find/create the systems required to make the business efficient, and get employment/HR help as it is a whole new mine-field of managing people and financial responsibility!
  3. Bigger is better When owners work on business growth, they often focus on sales, but a look at industry benchmarks often reveals that businesses in higher sales brackets aren’t always the most profitable.  Often, businesses with modest turnover can achieve better profits, where-as too often, as a business grows, overheads can get out of hand and the extra sales get eaten up then profit falls.  So sales and marketing plans are very important – and testing and measuring as you go is paramount – set budgets and create reports at least monthly to track how you are going.
  4. Growth solves Cashflow problems Nothing just happens without careful measuring and managing carefully!!! Ensure the budget is created as already mentioned, know your margins (Gross Profit, Net Profit as minimum). See if there are supplier discounts with larger purchasing volumes, and importantly, if you sell on account instead of retail, keep monitoring debtor days and don’t get slack on customers taking their time to pay!

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

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


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Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

If you are a member of a barter organisation eg Bartercard in Australia, you are still required to ensure you are accounting for barter transactions for the sales and purchases as if made by regular cash methods, and GST and tax still applies.

Here is how the ATO website explains it as at today –

How barter works

In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or money value.

There are sophisticated forms of bartering in the market place, both locally and internationally. These arrangements are typically controlled by member-only organisations, with credit units the medium of exchange.

The terms ‘exchange’, ‘barter exchange’, ‘trade exchange’ and ‘countertrade exchange’ are used to describe the organisation that manages the bartering operation. Various terms are used to refer to the medium of exchange, such as units, credits, trade dollars or barter dollars. The most commonly used term is trade dollar.

Trade exchange operations vary in size and sophistication, from community-based to business-based operations.

A trade exchange provides its members with a trading account for the purpose of recording member transactions. The trade exchange credits or debits the account each time a member makes a sale or purchase respectively. The account is also debited for fees the trade exchange charges its members. The trade exchange may buy and sell in its own right, acting as a member with its own trading account.

Tax treatment of barter transactions

Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions.

When an entity that is a member of a trade exchange makes a taxable sale to another member, there is a liability for tax, including GST.

Payment may be in money or in kind, or in some instances a combination of these. The payment for sales between members of a trade exchange is the debiting of the recipient’s account and the payment received is the crediting of the supplier’s account.

Value of supplies made through a trade exchange need to be taken into account when determining whether an entity meets the GST registration threshold and is required to register for GST. For example, if an entity has $60,000 of cash transactions and barter transactions valued at $20,000, it meets the GST registrations threshold.

As a general rule, when valuing the payment arising from barter or countertrade transactions, we will accept a fair market value as adequately reflecting the money value or arm’s length value, as applicable. In most cases, we will accept as a fair market value the cash price that the taxpayer would normally have charged a stranger for the services or for the sale of the goods or property.

The rules of most business-oriented countertrade organisations specify a rate for converting credit units into an Australian dollar equivalent. Customarily the rules specify that each credit unit has a value equivalent to one Australian dollar. Where the monetary value worked out using the rate specified in the rules represents a fair market value of the goods or services provided, that rate is to be applied when valuing the payment. In all other cases, a conversion rate that values the goods or services provided at their fair market value is to be applied when valuing the payment.

Transactions where the values are set at artificially high levels for the purpose of establishing an inflated income tax deduction may indicate fraudulent activity. Parties to transactions that involve inflated credit unit values may have consequences other than an adjustment to the amount of income returned or the amount of income tax deductions claimed.

Personal purchases are not deductible for income tax purposes and a GST credit cannot be claimed, whether the purchase is made using trade dollars or Australian currency.

Example: GST payable on a taxable supply between members of a trade exchange

Harvey and Tracey are registered for GST and are both members of the Better Bartering Exchange. Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey’s trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey.

Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440. The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent ($440). The value of the taxable supply that Harvey makes is $440 × (10÷11), which is $400. The GST on the supply is, therefore, $40 (that is, 10% of $400).

Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return.

Payments to ATO

Payments to us of GST, income tax and the super guarantee levy must be made in Australian currency.

Generally, only other members of the trade exchange and the trade exchange itself may accept payment in trade dollars.

Tax invoices and ABNs

A tax invoice is required for a barter transaction as it is for any other business transaction. However, where a member of a trade exchange makes a taxable sale and the payment is expressed in credits, the tax invoice must comply with all of the usual requirements for a tax invoice, and include either:

  • The GST inclusive price expressed in Australian currency
  • The GST payable in Australian currency.

Australian business number (ABN) obligations apply to bartering transactions to the same extent as for any other business transaction.

Example: Tax invoice

Harvey and Carol are registered for GST. Harvey uses his Better Bartering credits (BBs) to purchase a new computer from Carol for his bookkeeping business. The rules of the exchange specify that one BB equals $1, and the market value of the computer is actually calculated in BB credits on this basis.

Carol issues Harvey with a tax invoice, showing the price of the computer in BBs and the GST payable in Australian currency converted at the rate of one BB equalling one Australian dollar.

If Carol did not quote an ABN, Harvey would be required to withhold 46.5% of the payment and remit that amount to us.

Record keeping

Members of trade exchanges must keep records that record and explain all business transactions and other acts they engage in that are relevant to a particular sale, importation, purchase, dealing or entitlement. The records must be kept for five years after the completion of the relevant transactions or acts.

In addition to ordinary accounting documents, this may include:

  • Invoices and receipts
  • Purchase orders, delivery dockets, contracts and barter scheme statements
  • Other relevant documents, such as the application for membership of the bartering scheme, the rules of the scheme, and any other documents governing the relationships between members, and between members and the trade exchange.

 See also:

  • GSTR 2003/14 Goods and services tax: the GST implications of transactions between members of a barter scheme conducted by a trade exchange (As at 29 May 2013)

From ATO website as current today.

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

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XERO – Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

XERO – Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

If you are a business in the building and construction industries, you may be wondering how to generate in MYOB a Taxable Payments Annual Report (TPAR) – and when is the due date?

Here we look at what the 1 Australian Tax Office (ATO) requires and how to 2 Steps to set up and generate a Taxable Payments Annual Report from XERO software.

1  ATO Requirements

You may need to lodge a Taxable payments annual report by 28 August each year if you are a:

  • Business in the building and construction industry;
  • Government entity;
  • May extend to Couriers and Cleaners

The Taxable payments annual report reports to the ATO about payments you have made to contractors for providing services. Some government entities also need to report the grants they have paid and payments they make to certain other entities.

Contractors can include subcontractors, consultants and independent contractors.

They can be operating as sole traders (individuals), companies, partnerships or trusts.

See our post HERE, for more detail.

2  XERO – The steps to set up and generate the report are –

How to track reportable payments in XERO

Xero lets you identify payments to contractors that you need to include in the report. The report:

  • Includes paid bills and spend money transactions (including overpayments and prepayments) from all accounts;
  • Excludes credit notes and payments made in other currencies;
  • Only includes organisations or contacts with Australian addresses.

You can filter out individual payments after you’ve run the report. If you’ve withheld tax because no ABN has been quoted you can either:

  • Enter this manually on the paper report, or
  • Continue to report it in your Activity Statements.

First you set up a Contact Group, then set up Rules, then Export the Report –

1. Create contact group

Create a contact group for contacts you’re needing to include in the Taxable Payments Annual Report, then add each contact to this group.

You can create more than one contact group if your Taxable Payments Annual Report is likely to produce more than 2500 invoice lines. Make sure your contacts belong to only one of the contact groups you’ve created.

If you don’t create a contact group, the rules you set up to run the report will find all contacts you’ve paid.

2. Set up or edit rules for contractors and reportable payments

The report identifies contacts you’ve made taxable payments to, based on the rule.

1.  In the Reports menu, select All Reports.

2.  Click Taxable Payments Annual Report.

3.  Select the year covered by the report.

4.  Select either:

  • Set up Rules to set up your first set of rules; or
  • Edit Report Rules to edit your rules.

5.  In Payments to, select either All contacts or an individual contact group you’ve set up for your Taxable Payments Annual Report contacts.

6.  In Paid from select either:

  • All accounts (if you’ve selected an individual contact group in the Payments to dropdown); or
  • An individual expense account from your chart of accounts.

7.  (Optional) Select Add Rule to add more rules, up to 12 in total. You can delete a rule by selecting x at the end of the Paid from field.

8.  (Optional) Select the Reset all previously deselected payments checkbox to reset any excluded payments or contacts.

9.  Click Save.

3. Export report

You can export the Taxable Payment Annual Report in either ATO or CSV format.

(i)  ATO format

Submit your report to the ATO through their online services Business Portal.

1.  Check your contact details and organisation settings are complete. This includes your legal (trading) name, Australian Business Number, phone number, and a physical address in Australia.

2.  Click Export ATO Format.

(ii)  CSV file

Click Export CSV to generate a report for your own review.

For example, you could use this to help you complete the ATO’s paper-based Taxable Payments Annual Report (ATO website).

You can’t submit the CSV file to the ATO.

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

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


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Business Tax Tips – Taxable Payments Annual Report – Building Industry (and others to be added?)

Business Tax Tips – Taxable Payments Annual Report – Building Industry and others to be added

Taxable Payments Annual Report – Building Industry and others to be added

Are you a business in the building and construction industry? You will probably need to report the total payments you make to each contractor for building and construction services each year.

If you’re a business that is primarily in the building and construction industry, you need to report payments you make to contractors if both of the following apply:

  • You make payments to contractors for building and construction services
  • You have an Australian business number (ABN)

Contractors can be sole traders (individuals), companies, partnerships or trusts.

You need to report these payments to us on the Taxable payments annual report by 28 August each year.

Activities and services that are considered to be building and construction are broad. Some examples include architectural work (including drafting and design), certification, decorating (including painting), engineering, landscaping and construction, project management and surveying.

Payments you need to report

Report only payments you make to contractors for building and constructions services.

Contractors can be sole traders (individuals), companies, partnerships or trusts.

If invoices you receive include both labour and materials, whether itemised or combined, you report the whole amount of the payment, unless the labour component is only incidental.

The definition of building and construction services is broad – it includes any of the activities listed below if they are performed on, or in relation to, any part of a building, structure, works, surface or sub-surface:

  • Alteration
  • Assembly
  • Construction
  • Demolition
  • Design
  • Destruction
  • Dismantling
  • Erection
  • Excavation
  • Finishing
  • Improvement
  • Installation
  • Maintenance (excluding the maintenance, service or repairs of equipment and tools)
  • Management of building and construction services
  • Modification
  • Organisation of building and construction services
  • Removal
  • Repair (excluding the service or repairs of equipment and tools)
  • Site preparation

The ATO website tells us – (From Here)

You may need to lodge a Taxable payments annual report by 28 August each year if you are a:

  • Business in the building and construction industry
  • Government entity
  • May extend to Couriers and Cleaners

The Taxable payments annual report tells us about payments you have made to contractors for providing services. Some government entities also need to report the grants they have paid and payments they make to certain other entities.

Contractors can include subcontractors, consultants and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts.

The details you need to report about each contractor are generally found on the invoice you should have received from them. This includes:

  • Their Australian business number (ABN), where known
  • Their name and address
  • Gross amount you paid to them for the financial year (including any GST)

We use this information to identify contractors who haven’t met their tax obligations.

Find out about:

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

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