Sick of spending hours finalising your accounting software and sending it off to your accountant, only to get an email back with journals full of adjustments to Goods and Services Tax (GST), Fringe Benefits Tax (FBT) and everything else under the sun? Well, help is here, this article will give you a few pointers to ensure your accounts are set up correctly. The most common areas of confusion in accounting software and data entry are which GST code to use and the payroll function.
GST coding can be a confusing area with a number of codes used to classify the treatment of income and expenses. It is important to know which of these items are taxable and which are GST-Free or non-taxable.
GST code - applies to sales, purchases, cheques and deposits on which you either collected or paid GST. If you are not sure if an invoice you have paid has GST on it, you can either refer to the invoice or go to www.abr.gov.au and search the Australian Business Number (ABN) on the invoice to see if the company issuing the invoice is registered for GST.
The Capital code - is used to record GST on Capital Acquisitions. It also records 10% GST but separates the amounts on the GST reports for ease of preparation when the time comes to lodge your Business Activity Statement (BAS).
GST Free code – is used for sales and purchases with no GST on them at all.
Not Taxable code – is used to record transactions outside the GST net, such as cash transfers, depreciation and recording stock movements.
If these codes are applied correctly to your accounts, it should help to reduce the number of adjustments made by your accountant.
The second common area of confusion in the setup of accounting software relates to the payroll system. Ensuring that leave entitlements, salary sacrifices, tax withheld, reimbursements and superannuation are all calculated correctly is important to ensure that your employees records are correct and you know what your business’ employee related liabilities are. Some key items to keep track of are:
PAYG Withholding Tax Tables - Using the correct tax tables is important to ensure that you are withholding the correct amount of tax from employees’ salary/wage.
Leave entitlements - Ensuring leave entitlements are being calculated and accrued correctly results in reliable leave entitlement balances. It is important to know that the correct amount of leave is being accrued for full-time vs part-time employees.
Salary sacrifice arrangements – They must be setup correctly to ensure the correct amount of gross wages (after the salary sacrifice amounts) are reported on the annual PAYG payment summary and the correct amount of tax is deducted each from pay.
Employee reimbursements – These must be set up correctly to avoid the reimbursements being included in the gross salary/wages of the employee.
Superannuation – This must also be calculated and recorded correctly using a superannuation expense account and a liability account (super payable) to leave the unpaid balance on record until it is paid to the various superannuation funds.
Chart of Accounts
Your chart of accounts set up dictates the reports you can obtain from your accounting system. As a simple example, if your business is a trading entity you should have Sales less Cost of Goods Sold to report the correct Gross Profit for a period.
Your chart of accounts can also provide useful information for other liabilities, if set up in a meaningful manner. Read on for an example in the FBT section below.
Fringe Benefit Tax (FBT)
For FBT purposes, breaking up accounts such as entertainment expenses and motor vehicle accounts into more detailed sub-accounts will make it easier for your accountant to determine what will be subject to FBT and what will not. The splitting up of entertainment expenses into accounts such as staff only functions, client entertainment and travelling expenses is a good example of this. You can go further with your data entry to include other useful information. For example, for entertainment, you may wish to record the number of staff and clients in attendance for the entertainment expense.
By checking your accounting system’s set up and ensuring calculations that are system-generated are correct, not only will it be easier for your accountant to get all the relevant information, hence saving you time and money, but it will also make your accounting system reports more reliable for your own internal reporting purposes.
This is general information and should not be considered as advice. For further information on any of the above issues please contact your Grant Thornton advisor or leave a question or comment on this blog below.