Sometimes less information can be a lot more informative. This is usually the case when it comes to producing meaningful reports from your accounting software.

Don’t get me wrong, detailed reporting can provide tremendous insights for management. However, for many small businesses, too much detail results in too little information that’s genuinely useful.

Just because your accounting software comes with a seemingly endless Chart of Accounts, does not mean you should use every one of them.

There’s a fundamental convention in accounting known as ‘materiality’. Typically information is material if its ommission or misstatement could influence the decision of users. Materiality ensures that information is sufficiently precise without including unnecessary detail. Of course, what’s material for one business may be incidental to another.

Here are a few examples of counter-productive (and time consuming!) practices that have crossed my desk in recent weeks.

Example #1.

Separating duties within insurance policies and then posting them to their own accounts.

While it is important to claim the right amount of GST (there’s no GST on the duty portion), having these listed separately on the Profit & Loss is not helpful at all. Remember, the whole idea behind these reports is to provide relevant and meaningful information.

Whether financial data is material or not depends not just on its users but on its purpose. Presumably, the first purpose here is to accurately monitor details of income and expenses for the owner to access easily.

The business has no control over the duty portion and it simply forms a part of the insurance cost. Being over-zealous in this way has made it impossible for the business owner to simply see what their actual insurance expense is. In order to get to this figure, they would need to add the Insurance and the Stamp Duty accounts together again. They have spent more time in making the report less useful.

Dissecting the data in this way has made what should be simple-to-access information, far less accessible.

Example #2

Separating the cost of a postage stamp from the envelope it was sent in and allocating costs between postage and stationery.

This might be relevant information for your business. In our own business, postage often represents several thousands of dollars and I do track it independently from any other expenses.

However, for many small businesses, it may be more useful to simply include the occasional postage stamp with stationery/office supplies.

I was trawling through a 4 page client-provided P&L the other day when I couldn’t help notice that postage of $1.80 for the year (representing less than 0.002% of total expenses) had a whole account of it’s own. If you’re a typical small business with a 4 page Profit & Loss, you’d benefit by consolidating some of those insignificant accounts.  Ditch the information overload and embrace the KISS principle instead…. you’ll get a lot more out of it.

There are times when pinpoint accuracy should take a backseat to common sense.

Example #3

Separating the florist’s delivery fee from the actual cost of the flowers and tracking the costs between a Freight account and a Customer Gift account.

If sending floral tributes is an important part of your client service strategy and you have some control over delivery costs, this might be materially relevant to you.  For the average business who occasionally sends a gift to a customer (and has little option but to use the delivery service provided by the florist), tracking freight on gifts in a whole other account is a pointless exercise.

Although it may be technically accurate,  it fails to simply provide the relevant information  - in this case, the cost to the business for client gifts. To get this information, the user would have to add back the Freight expense to the Gift expense.  Including the delivery expense in the Gift account with the cost of the flowers paints a far more accurate and clear picture. Management could then see at a glance the real cost of sending customer gifts.

Keep it simple. Use your judgement and consider whether it is really “significant” or “material” to your business to split accounts a certain way. After all, you don’t want to make extra work for yourself (or for the person you’re paying by the hour to do it for you). Most importantly, you want to produce information that’s accurate, fast to find and meaningful for you.

Another Monday and another nifty “Ratio to Know.”  Last week we took a look at the Current Ratio. One of the disadvantages of the Current Ratio was the fact it did not take into account the actual composition of the assets. The Quick Ratio (commonly called the Acid Test) goes some way towards overcoming this particular issue.

As you can see, the Quick Ratio gives us a snapshot of our immediate liquidity – that’s always good to know!

I’ll be back next Monday with another calculation you can perform on you financial statements in order to gain more insight into the figures.

If you have any comments or suggestions regarding the Ratios to Know series, I’d love to hear them. Until next time….

The Association of Accounting Technicians issued a media release last week, prompted by the recent spate of large scale bookkeeping fraud prosecutions.  These cases involved hundreds of thousasnds of dollars and highlight the need for business owners to ensure the bookkeeper they engage is ethical and that the appropriate financial checks and balances are applied periodically.

We’ve met with a few new clients this year who found their business in jeopardy after relinquishing control, not managing risk and falling victim to fraud and theft.  The majority of fraud can be prevented with the right controls in place.

Some fraud prevention ideas are:   

• Establish a procedure policy for the receipt of payments ensuring an employee in addition to the bookkeeper reconciles amounts owing with customer ledger.
• Limit the scope of financial transactions the bookkeeper can undertake solely (electronic bank transfers; BPay; sole cheque signatory)
• Routinely, randomly examine financial transactions.
• Beware the bookkeeper who insists on not delegating financial account keeping functions and rarely takes leave.
• Keep a careful eye out for any unusual general ledger accounts to which your accounts payable system is posting.

It is prudent risk management to take the risk of fraud seriously. The cost of prevention is usually a fraction of the loss that is possible if the fraud was not prevented.

While it is the bookkeepers who have come under close scrunity of late, the same principal should apply to all employees and outside providers. At the end of the day, it is your business and you need to stay aware of the comings and goings of your assets.

Understanding financial statements is a task that many business owners often put aside to concentrate on something more interesting. This results in many business owners not really knowing what is going on with their business, especially the cashflow control within the business.

Cash is the lifeblood of any business and it is the fuel that keeps the engine running. It is vital that business owners understand all there is to know about the flow of cash into their business and the flow of cash out of their business.

The movement of cash is recorded within the financial statements. Financial statements are very useful as a tool to help in the management of the business. Financial statements are required by the business owners to understand how the business is performing. As well, there is normally a requirement to produce them for banks and investors. Preparing financial statements for taxation purposes should not be the priority – being of assistance in business growth is more important!  

Financial statements concentrate on measuring profit or loss. They may then facilitate the preparation of cashflow reporting and Key Performance Indicators (KPIs) that enable meaningful management information for your business. The key components of financial statements are:-

• Departmentalised Trading Profit and Loss accounts with gross profit percentage calculations for each department
• Balance Sheet
• Supporting verification workpapers for each item in the Balance Sheet
• Source and Application of Funds Statement
• Debtors’ Aged Analysis
• Stock on Hand Analysis
• Work-in-Progress Analysis
• Creditors’ Aged Analysis
• Capital Expenditure Summary
• Bank Account Analysis

Preparation of financial statements on a regular periodic basis can contribute greatly to the management of a business. Some businesses find it very useful to produce a weekly performance report and detailed monthly financial accounts.

If you have any queries on any aspect of the interpretation of your financial statements, please do not hesitate to contact us on 1300 35 22 35.

Article from Business Plus+

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Successful small business operators allocate the time each month to fully review their financial data so that they clearly understand the financial health of their business and are able to take remedial action – if any is necessary.

As I was home sick today, it gave me a chance to throw a screencast together… (you’ll have to excuse my editing).  Often small business owners want to stick their head in the sand and ignore financial reporting altogether or consider it the accountant’s problem to deal with at the end of the year. Unfortunately, by not regularly monitoring your KPIs and finacial situation, you are losing out on valuable insights and opportunities – not to mention, missing any big red flags being waved in your direction!

I have focused this particular clip just on the Profit & Loss Statement, however some of the material comes from our “Management of the Business of Business” seminar series. This is a comprehensive series of 5 x 3-hour advanced management seminars we will be conducting with small groups later in the year.

The schedule includes:

• INTERPRETATION OF FINANCIAL ACCOUNTS

• USING KEY PERFORMANCE INDICATORS TO CREATE VALUE FOR SMEs

• PERFORMANCE MEASURES FOR KEY PERFORMANCE INDICATORS FOR SMEs

• CHECK LIST FOR KPIs THAT MIGHT BE SUITABLE FOR A SME

• INTERVIEWING APPLICANTS

• WHAT TYPE OF EMPLOYEE DO YOU WANT?

• KEY MATTERS TO BE INCLUDED IN A CONTRACT OF EMPLOYMENT

• CONTRACT OF EMPLOYMENT

• EMPLOYMENT GUIDELINES TO OFFICE STAFF

• EXCELLENT STAFF MANAGEMENT, MOTIVATION AND COMMUNICATION

• CUSTOMER KNOWLEDGE AND SERVICE

• CUSTOMER DATABASE

• ADVERTISING – AN OVERVIEW

• INSURANCE – AN OVERVIEW

• WHAT IS A NETWORK?

• INTRODUCTION TO NETWORKING

• BUDGET AND CASHFLOW FORECASTS

• CREATING EFFECTIVE MEDIA RELATIONS

• MARKETING FOR SMALL BUSINESS

• CORPORATE GOVERNANCE ISSUES AFFECTING SMEs

• FAMILY BUSINESSES – WHAT ARE THEY?

• FAMILY BUSINESSES – MAKING THEM WORK

• RELATIONSHIP WITH BANKS AND FINANCIERS

• STRATEGIES FOR MAKING PROFITS

• EXPORTING OVERVIEW

• PERSONAL LEADERSHIP CAPACITY AND DEVELOPMENT

• BUSINESS PLAN OVERVIEW

• PLANNING TO SUCCEED

• BUSINESS PLANS – KEY POINTS TO BE INCLUDED

• EXPERT PRESENTATIONS
? Insurance
? Adverting
? Media
? Banks
? Development Association
? Governments

• FORUM – MANAGEMENT OF THE BUSINESS OF BUSINESS

These workshops are completely FREE and with no obligation. If you are a client of Alan Lewis Accountants or a business on the Central Coast and would like to be kept informed of when these workshops will be taking place, please email me at christie@lewistaxation.com.au and put “SEMINAR” in the subject line. I’ll be sure to keep you in the loop.

Alternatively, I’m happy to toss some more screencasts together for anyone unable to make it to a live event (if you can put up with my crappy editing and incessant “umms”)…  just use the comment section below to let me know what you want to hear more about!

I was installing the new MYOB suite of packages last night and realised I haven’t yet informed our readers about the recent changes to MYOB.

Basically, the more common MYOB packages are now part of the MYOB AccountRight range.

The new range includes AccountRight Standard (previously MYOB Accounting), AccountRight Plus (previously MYOB Accounting Plus), AccountRight Premier (formerly MYOB Premier… I’m sensing a theme) and AccountRight Enterprise (you guessed it; this replaces the old MYOB Premier Enterprise).

Along with the name change and updated packaging comes some new software features too, such as automatic updates, a Business Insights dashboard and Google Maps intergration.

I’ll try to upload some screencasts over the next few months in order to show you around MYOB’s 2010 releases.

The AccountRight range will be available for purchase from today (31 March) directly from MYOB, from selected retailers and MYOB Approved Partners (clients of our firm who are interested in the package are encouraged to contact us first to ensure you get the best possible price).

Out of curiosity, what do you all think of the new packaging? Love it? Hate it? Couldn’t care less? Personally, it doesn’t really grab me but I’ve always found MYOB boxes pretty bland.

Today the new Tax Agent Services law came into effect. For the first time, bookkeepers and others who provide BAS services will be regulated. The newly formed Tax Practitioners Board will take of the place of the original Tax Agents Board and incorporate BAS providers as well as registered tax agents.

What does this mean for BAS service providers? Quite a few big changes:

In the past, the production of a BAS as incidental to the actual bookkeeping (which was charged for) allowed a bit of a loophole. From now on, even preparing Payment Summaries or installing MYOB and setting the default GST codes can see you considered providing a BAS service. If you’re currently charging for BAS services, be sure to register your intent with the Board now – you’ll still have 6 months to meet the new criteria.

I’m glad to see that BAS Providers are finally being recognised and regulated. For one thing, it help protect their clients. Also of great importance is the fact that qualified and experienced bookkeepers are finally being recognised as the professionals they are.  The down side, of course, is that their costs are likely to increase to cover things like insurance, registrations, professional association fees, continuing education, etc (trust me when I tell you that it’s not cheap!).

How important is it to you that your bookkeeper/BAS provider is governed by a Code of Practice? Academically qualified? Experienced?

Earlier this week, the team attended a tax training seminar focused on the new payroll requirements. There were a few small business owners in attendance and it became apparent that they were still struggling with understanding their previous obligations – much less having to now deal with new additions!

Super seems to be one area in particular where small business operators are struggling with the education, time and cost involved with compliance.

As a general rule, you’re required to pay 9% (that’s on top of any other salary or wages) to eligible employees who:

• are aged between 18 and 70
• are paid $450 (before tax) or more in a calendar month, and
• work full-time, part-time or on a casual basis.

The Tax Office have plenty of useful information and tools available online to help you understand your super obligations as an employer. You might want to check out this page.

In most cases, employee can nominate their own fund for you to pay into. Remember that super guarantee payments should be made at least once each quarter.

e-Record is the ATO’s free record-keeping software for small business (though I know of several larger businesses using it successfully). Unfortunately for users of e-Record the ATO are withdrawing it from 1 July 2010.  User support for matters relating to the 2009–10 income year will continue until 30 September 2010.

Do you use e-Record?

If you currently use e-Record you should be aware:

1)  The Tax Office is recommending you move to a suitable alternative record-keeping system. Ideally you would have this in place by 30 June 2010.

2)  You can continue to use e-Record after 30 June 2010 but only to complete your 2010 or prior income year records.

3)  You will need to complete any outstanding record keeping entries for the year ending 30 June 2010 and prior years before 30 September. It’s also a good idea to print out any information that you want to retain.

This paper is from our Bookkeeping Systems series and reinforces comments that good bookkeeping habits help run a successful business. I know that you don’t need us to tell you that… we all know it, right? Sometimes it just helps to be reminded.

The paper is presented under the headings:

• Key To Business Success
• Up To Date Business Records Help
• Types Of Records To Be Kept
• Maintain On A Daily Basis
• Consult A Professional Accountant
• Need To Be Knowledgeable In Daily Bookkeeping Requirements
• Better Position For Success

Download Paper 02.90 Good Bookkeeping Habits Help Run a Successful Business.

GST has been with us in Australia for some time now and yet there still seems to be a lot of confusion surrounding it.

Recently I met with a contractor who was not registered for GST and yet was collecting it (a big no-no). There was no intention to do the wrong thing on his behalf, simply a lack of knowledge regarding his obligations. Shortly after a client contacted me with issues obtaining payment from one of their customers; as their customer was not regisered for GST, they did not feel they should have to pay it. Technically, I’m not registered for GST either… perhaps I should try the same arguement the next time I’m at the checkout.

With these instances fresh in mind, it seems a good time to introduce a paper from our Introduction to GST series, GST as it Affects SMEs. 

 Download Paper 20.02 GST As It Affects SMEs

This paper considers a wide range of GST issues from a small/medium enterprise perspective from:

• What is GST?
• Registration
• Explanation on how the system operates
• Reporting requirements; to
• Government assistance

It’s an ideal way for a business operator to get an overall view of GST, without going into all of the various detailed industry-specific issues.

The paper covers the following points:

•  
  • GST Defined
  • Commencement Date
  • GST Rate
  • GST Scheme
  • Registration Packages – The New Tax System
  • Questions Asked In The New Tax System Registration Package
  • Australian Business Number
  • Registration For GST – The New Tax System
  • Groups And Branches
  • Option Of Not Registering For GST
  • Taxable Activity
  • Exclusions (“GST Free Supplies” Goods And Services)
  • Food – GST Free Unless …..
  • Food That Is Not GST Free
  • Medical And Health Services That Are Free Of GST
  • Education Services That Are Free Of GST
  • First Home Buyers Compensation
  • GST Free Activities
  • Input Taxed Supplies/Activities (Exempt Supplies And Goods)
  • Input Taxed
  • Input Tax Credit
  • Creditable Purpose
  • Output Tax
  • GST Payable
  • Business Activity Statement For GST With $20m Plus Sales
  • Business Activity Statement For GST With Sales Under $20m
  • Turnover Level “Cash” Or “Accruals” Basis
  • Second Hand Goods
  • Importers
  • Displayed Prices
  • Refunds Of GST
  • Tax Invoices
  • Invoice Without An Australian Business Number
  • Recipient Created Tax Invoice
  • Adjusting Prices For Indirect Tax/Cost Reductions
  • Australian Competition And Consumer Commission (ACCC)
  • Unregistered Business (Without Australian Business Number Or GST Registration)
  • Statement By A Supplier
  • Business With Australian Business Number – But Not Registered For GST
  • Key GST Dates
  • Contracts Prior To 2nd December 1998 – Transitional Arrangements
  • Contracts Signed After 2nd December 1998 – Transitional Arrangements
  • Fees And Charges Straddling 1st July 2000
  • Adjustments
  • Adjustment Note
  • Government Assistance
  • GST Vouchers
  • Insurance
  • Change in Treatment of Insurance
  • ATO Field Officers
  • Accounting Records For GST
  • GST Control Accounts
  • Sales And Cashflow Impact

If you would some information or assistance with your GST obligations, please give us a call on (02) 4390 4156 for a completely free and no-obligation consultation. Often this is all you really need to get you started on the right footing (or back on the right track). The important thing is to be informed and,  if your compliance issues have grown out of hand,  seek advice and start taking control today. 

A free electronic calendar is now available on the Tax Office website to help small businesses meet their tax and superannuation guarantee obligations throughout the year.

Tax Commissioner Michael D’Ascenzo said Your small business tax calendar provides reminders of lodgement due dates for small businesses and bookkeepers.

If you run:

• more than one business, you can set up a unique tax calendar for each business
• a bookkeeping service, you can set up a unique tax calendar for each of your clients.

“You can personalise the calendar quickly and easily by answering some simple questions about your business,” Mr D’Ascenzo said.

“Based on your individual circumstances, the calendar records all the due dates you need for the financial year, such as when to lodge your business activity statement and when to pay your employees’ superannuation.”

The updated calendar can now also be used by charities, not-for-profit organisations and deductible gift recipients to help them meet their tax and superannuation obligations.

Small businesses and organisations can also:

• record notes and reminders, such as appointments or payment due dates
• update the calendar at any time if their business structure or reporting obligations change, and
• print a one-page yearly planner for tax and superannuation obligations and due dates.

The calendar is designed for small businesses, including sole traders, with a turnover of less than $2 million, as well as charities and not-for-profit organisations.

The latest version of the tax calendar is now available and we encourage businesses to download a copy as it contains up-to-date information for lodgement and payment due dates.

To download a free copy of the tax calendar, visit the Tax Office website at www.ato.gov.au/TaxCalendar. The calendar is also available on CD by calling 13 72 26.

Recent changes in payroll reporting by Australian Government legislation has meant that salary sacrifice decisions now have to be recorded in more detail by employers and employers need to supply information on the salary sacrifice arrangements to the Australian Taxation Office. The reason for these changes is that employees have been able to notionally reduce their income due to salary sacrifice arrangements. This has made the taxpayer eligible for some other government programs, which they may not have been eligible for, other than for the benefit from the salary sacrifice arrangement. The most significant salary sacrifice item is superannuation contributions.

The concept of salary sacrifice is still legitimate and acceptable, however the flow on effect that, in the past, has enabled taxpayers to gain other government benefits, has been changed to ensure government monies are allocated where the government interprets the greatest need. The government’s view is that, if a taxpayer can afford to sacrifice a significant amount of his or her income into superannuation, then perhaps that taxpayer may not be eligible for other government benefits. For this reason all payroll reporting will need to include new features effective from 1st July 2009. If you are generating your payroll on your computer then your software provider will have to develop upgrades to ensure that you accurately record additional information from 1st July 2009.

If you have any questions regarding the changes in payroll reporting, do not hesitate to contact us.

The MYOB End of Financial Year Guide is available for download. This complete edition includes end of year payroll processes for people using the Accounting Plus and above.

Don’t forget that requirements are changing from 1 July to include reporting on payment summaries and to the ATO of any reportable employer super contributions you make for staff (usually part of a salary package arrangement). This will need to be set up correctly in your software from the start of the new financial year.

Download 2009 MYOB End of Financial Year Guide.

Earlier year guides are still availble from our main site from the bookkeeping menu at www.lewistaxation.com.au.

MYOB is running FREE online Webinars for MYOB Cover customers. Short for Web-based seminar, a presentation, or workshop that is transmitted over the Internet. A key feature of a Webinar is that it provides the ability to give, receive and discuss information via the Internet.

If you would like to attend an MYOB Webinar, you can book through MYOB at https://myob.webex.com/eventcenter.

The current MYOB Webinar’s topics are:

MYOB Cover Webinars (MYOB Accounting / Premier product range)

1. End of Payroll Year Procedures - Takes you through the steps necessary when completing your End of Payroll Year Process

2. End of Financial Year Procedures - Takes you through the steps necessary when completing your End of Financial Year Process

 Be sure to check the details of the Webinar before enrolling to see if it is relevant to your MYOB product.

The above screencast demonstrates how to write off bad debts in MYOB. I made this on-the-fly for a client of ours (while they were on hold so it was quick!) and thought others might benefit from it also.

I’ll add full text instructions if anyone requests them. More screencast tutorials will be made available from our web site soon. Be sure to send in your requests!

We are pleased to announce that Alan Lewis Accounting & Taxation now operates as an MYOB Professional Partner and Authorised Reseller.

As a Professional Partner we are better equipped to evaluate your specific software needs, supply and install MYOB, set up files and accounts and train clients in the use of the software.

Keep an eye on our site for product updates, tutorials and additional resources.

Within each of the major account types (header or detail) there are a number of account types that may be nominated. The account number in MYOB is a four-digit number that is added to the prefix that identifies the type of
account it is.

The number you give an account will determine it’s order and grouping in the financial statements. So what are the types of account and their prefix in MYOB?

1. Asset:
In the simplest of terms, assets are what is owned. Assets are resources controlled by the business from which future economic benefits are expected. Examples of assets include cash, accounts receivable, furnishings, vehicles and equipment. Assets will probably be grouped as current or non-current (but we’ll get to that in another lesson).

2. Liability:
In everyday terms, this basically means what is owed. Liabilities are the future economic sacrifices that the business is obliged to make. Examples of liabilities include accounts payable, credit card debts and bank loans. As with assets, liabilities will also be grouped as being current or non-current in nature.

3. Equity:
Equity (frequently called owner’s equity or proprietorship) is the owner’s claim on total assets of the business. A simple way to look at equity is ‘what the business owes to the owner.’ Common equity accounts include capital, retained earnings and drawings.

4. Income:
Income (also called revenue) arises from the ordinary activity of the business. This usually comes from sales or services provided in the ordinary course of business.

5. Cost of Sales:
Cost of sales (commonly called COGS or Cost of Goods Sold) are the expenses to the business directly related to the goods being sold. As service businesses do not have inventory, they have no need for COGS accounts. Typical cost of sales accounts include Purchases and Freight Inwards. Cost of Sales are taken from Net Sales on the Profit & Loss in order to arrive at the gross profit figure.

6. Expense:
Expenses are assets consumed or services used in the process of generating revenue. Typical expenses might include things like rent, wages paid, office supplies, bank fees, advertising expenses and electricity. Expenses are taken from gross profit to arrive at net profit.

8. Other Income:
Other income is where you would put income received which is unusual or outside the ordinary revenue-generating activies of the business. Examples
might include interest received or the proceeds from disposal of a long-term asset.

9. Other Expense:
Other expenses is often used for out-of-the-ordinary expenses or those not related to the income producing activity of the business.

For more MYOB information, visit our MYOB Tips and Tutorials Page.

It seems the change to Windows Vista is proving a headache for a number of people using older versions of MYOB.

It would appear MYOB Australia will only be supporting users of MYOB Accounting and AccountingPlus Version 16 or Premier version 10.

For details of Vista supported products and links to any upgrade downloads, see our newly uploaded page MYOB and Windows Vista.

Do you find you are printing the same reports each time? You can save time by printing all of your nominated reports at the same and with just one click of the print button.

How do you do that? It is called batch reporting and setting it up is simple.

Step 1:
From the Reports drop-down menu at the top of the screen, select Report Batches.

Step 2:

Click on the New button. In the Batch Name field, enter a name for the batch.
In the example I have called the new batch “Usual Monthly Reports.”

Step 3:
Now you just need to put a click next to each of the reports you want to include and select OK.

As you can see above, I have chosen a Trial Balance, Balance Sheet and Profit & Loss.

HINT: You can add or remove reports from batches at any time by selecting the batch from the list and clicking on the Edit button.

Printing a batch for a selected period

Step 1:
Printing a batch is quick and easy. Firstly, go to Reports > Report Batches.

Step 2:
In the period field, select the period to date that you want to print the batch for. Highlight the name of the batch you wish to print and click on the Print button.

As you can see, using batch reports is a real time-saver and easily customised to suit your own needs.

Note: This tip applies to MYOB Accounting and MYOB Accounting Plus Version 10 or later.

For more MYOB hints, visit our Tips and Tutorials page.