Business owners must be very conscious of spending their money on items that will benefit their business, make it profitable, help it grow and provide the owner with a return on investment while taking account of the associated costs and business risks with a view to minimising these to an acceptable level.
Many times I hear of and see business owners who believe that they are more than capable of doing their own bookkeeping or engaging the services of general admin staff to perform these all important tasks. This approach will inevitably end in a situation where many or all of the following situations will result.
- Transactions are allocated to an incorrect general ledger account which can result in;
- More tax being paid that should be paid
- Tax being avoided which can result in fines and penalties being imposed should it be discovered in an audit
- EXAMPLES: Expense being claimed for a the purchase of a capital asset item, revenue being recorded against the sale of a capital asset item, gains or losses on the sale of capital asset items. Payment of GST liabilities allocated to expenses when paid, and Payment of PAYG withholding allocated to expenses
- Transactions allocated the incorrect GST coding which can result in :
- GST being claimed as paid that was not paid
- GST being claimed that is not permitted to be claimed
- GST being paid on non GST applicable items
- Incorrect BAS and IAS submissions
- EXAMPLES: GST claimed on goods or services that are GST free or Input Taxed
- Unreconciled accounts such as;
- Bank accounts
- Credit cards
- PAYG Withholding
- GST Collected and Paid
- ATO client integrated accounts
- Loan accounts
This is not meant to be an extensive list but just a few examples of things that can and very often do go very wrong, and when they do, they are quite troublesome problems to correct and get worse as time passes. Using inexperienced and unskilled people to keep your business accounts is false economy.
I am currently assisting a client to get back on track with their accounts that were done over an extended period of time by inexperienced and unskilled people engaged to maintain the bookkeeping tasks for the business. The ATO had sought more information on BAS returns dating back to 2010 which nobody did anything about which resulted in the threat of a tax audit which is where ABBS were engaged to sort it all out and bring the accounts up to standard, answer the outstanding queries and bring everything up-to-date. The solution has involved reworking accounts for a number of years to account for business loans, inter-entity loans, revision of BAS submissions, wages, superannuation and PAYG withholding plus much more. Add to this the fines and penalties that have amounted to a few thousand dollars, it is easy to see how this threatens the very existence of his business entities