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Give your business an accounting health check

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Accounting can often be the bane of many a business owner. And, while it’s necessary, if using outdated or unreliable procedures and systems, it could also prove costly.

According to the Australian Tax Office (ATO), it could prove an unneeded accounting burden on your time and wallet, particularly in causing incorrect reporting of GST.

In 2009, for instance, the ATO identified 503 small and medium businesses with a combined $21 million in unreported GST liabilities. And these were just the ones that they found. No doubt there are many others out there who won’t know of their accounting foibles until it is too late.

The ATO identifies business going through significant change, such as rapid growth or a restructure, as those most likely to make mistakes in this area. Some easy mistakes to make include:

  • Accounting systems failings
  • Incorrect or incomplete activity statements
  • Incorrectly interpreting GST legislation
  • Classifying taxable supplies as GST-free or non-taxable.
Systems checklist

As part of an initiative to make these costly accounting mistakes easily identifiable and avoidable, the ATO has developed a released a ‘business systems health checklist’.

“We don’t want to see businesses in a situation where they incur extra liabilities for making genuine mistakes. We want to help them to make sue their systems are up-to-date, and prevent them making costly mistakes down the track,” says Shane Reardon, ATO deputy commissioner.

Among other accounting matters, the checklist prompts business owners to check that they correctly classify sales and purchases, and mixed supplies, do not omit important information from activity statements, track the flow of invoices to ensure GST credits are claimed, adjust prices so they are GST-inclusive, manage cash flow, and track GST paid and charged for all transactions.

“Businesses need to be particularly careful when making one-off transactions. Often they can be significant for the business but if your system is not set up to deal with them correctly, an error could mean penalties or interest,” says Reardon. “Knowing you have control over your systems can also help you manage your internal reporting and help you track where your money is going. It also reduces the likelihood of errors which means it’s less likely your tax affairs will be reviewed.”

A copy of the GST-accounting checklist is available at the ATO’s website.  

Keeping tabs on taxes

To further keep business owners further abreast of tax and accounting issues that affect their business, the ATO has made available a customisable financial year calendar which records notes and reminders of tax due dates. The calendar is designed for businesses with a turnover of below $2 million and is available at the ATO website. These can prove invaluable to those dealing in the business’ accounting.

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Published on: Saturday, March 05, 2011

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