Costly bookkeeping mistakes a business owner must avoid
Many business owners have gotten themselves into serious trouble with the ATO because of committing serious bookkeeping mistakes. This usually happens when essential details are overlooked. Small business owners may choose to handle bookkeeping tasks themselves because of the notion that hiring a bookkeeper is an additional expense. However, there can be numerous problems associated with DIY bookkeeping especially when using accounting software. Here are three most common mistakes business owners often make.
Mistake #1: Changing Historical Transactions
Changes are not supposed to be made after the end period has been completed and BAS has been lodged. If you need to make some changes due to an incorrect entry, you need to inform your bookkeeper or accountant about your intention because the change you make can cause serious harm to the historical transaction.
Mistake #2:Using Incorrect Tax Codes
Using the wrong tax codes spell trouble for your business. For instance, insurance, car purchases, vehicle registration expenses and other expenses that have stamp duty may not show the total amount subject to GST. This is because you cannot see GST on stamp duty. If you intend to purchase goods and services from sources other than Australia, these sources may not be deemed eligible to charge Australian GST. Another scenario is when you purchase items from food supplier or health practitioners tagged as GST Free.
You cannot also claim GST on purchases from businesses that are not registered for GST. If this happens, make sure you have a Tax invoice from your supplier. The invoice should clearly state the amount of GST that is considered payable. For purchases from overseas sources, keep in mind that these purchases are not eligible for claiming tax. Avoid creating a tax code if you are unsure of the type of purchase you made. Instead, create a tax code called “QUE GST Query at 0%”. This records the transaction but allows your bookkeeper or accountant to review it first.
Mistake #3: Making Complicated Chart of Accounts
When Chart of Accounts become over complicated, you will find it difficult to interpret your report. If you are going to take a look at your Profit & Loss account, there are unnecessary details giving you a hard time to read your report. A sign that you need to make changes to your report is when it runs two or three pages. Make sure you review how you list your accounts. If expenses such as petrol, car maintenance, car insurance, car toll fees and others are making your report complex, you can consolidate them to one account and label them Motor Vehicle Expenses. When making changes to your Chart of Accounts, see to it that it is run by your bookkeeper or accountant first.
