The role of bookkeepers in any business is pivotal to the success of that business and, amongst other outcomes, assists in keeping external costs down for the preparation of financial statements. There are, however, some pitfalls in the approach and intent of some bookkeeping practitioners that may actually increase the external cost of the preparation of the financial statements.
The motto to keep in mind is:
The Title
Cut-off
A term readily understandable by Accountants but mysteriously not by some bookkeepers. Having the discipline to observe cut-off involves locking the accounting system as soon as the monthly or quarterly BAS is prepared or when the file is whisked off to the external accountant for financial statements preparation. Failure to observe cut-off invariably means differences between the accounting system; ATO records and DBM financials, which takes time and cost to investigate and remedy.
Assets recorded as Expense
The instant asset write-off concession is a boon for small businesses that are, currently able, to claim 100%, for tax, of the cost of equipment up to $150,000. Again mysteriously, some bookkeepers are swayed by the tax treatment and expense the equipment in the Profit & Loss Statement. Imagine comparing the Balance Sheet of 2 businesses – one, where the equipment is expensed and the other where the equipment is included as an asset employing a depreciation policy where the cost is written off over the equipment’s useful life.
Does it matter? Try and present to a bank for finance and you may find out that it does, indeed, matter!
Bookkeepers should always bear in mind the differences between ‘expense’ and ‘asset’, namely:
Expense
100% of the service potential is used in the accounting period e.g., rent for October 2021 will be expensed in Oct as it has no application past that month.Asset
Service potential occurs in a future accounting period e.g., rent paid in October 2021 for 2 months. The amount for October will be expensed in October; the amount for November will be a Prepayment asset in the financial statements for October.
General Journal mischief
General Journals are a favourite of the beguiling bookkeeper as they can be difficult to follow if they are numerous and not well described. They can be used to confuse, obfuscate and baffle the accountant, for the beguiling bookkeeper’s enjoyment!
DBM bookkeepers are initially trained to:
process data using the normal input screens i.e., Bank, Debtors, Creditors, Payroll, etc;
If General Journals are required, they are to be signed off by a supervisor prior to processing
When the supervisor is sure the DBM bookkeeper is sufficiently trained in the art of General Journals, they are let loose in the world.
As stated above, bookkeepers are pivotal to business; however, should be selected with care to avoid an unnecessary increase in cost.
Tag: Accounting Advice
A director ID is a 15-digit identification number that, once issued, will remain with that director for life regardless of whether they stop being a director, change companies, change their name, move overseas or win tattslotto.
The introduction of the Director Identification Number (DIN) is part of the Federal Government’s Modernisation of Business Registers (MBR) Program designed to create greater transparency and prevent the potential for fraud and phoenix company activities.
To alleviate privacy concerns (some may recall Bob Hawke’s infamous attempt to introduce an Australian Card, a few decades ago), the director ID is not searchable by the public and cannot be disclosed without the consent of the Director.
Who needs a director ID?
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All directors of a company
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Directors of Registered Australian bodies
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Directors of a registered foreign company, or Aboriginal and Torres Strait Islander corporation
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Directors of a corporate trustee of self-managed super funds (SMSF).
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You do not need a director ID if you are running a business as a sole trader or partnership, or you are a director in your job title but have not been appointed as a director under the Corporations Act or Corporations (Aboriginal and Torres Strait Islander) Act (CATSI).
It is important to note the director IDs are governed by the same privacy rules that apply to Tax File Numbers (TFNs) and should not be disclosed unless absolutely required.
When do you need to register?
When you must apply depends on when you were appointed as a director:
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Existing directors have until 30 November 2022 to apply;
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New directors appointed between 1 November 2021 and 4 April 2022 must apply within 28 days of their appointment.
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From 5 April 2022, intending directors must apply before being appointed.
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If the company intends to appoint new directors, it will be important to ensure that they are aware of the requirements and timeframes to establish their director ID if they do not already have one.
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Directors in name only
It is important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent, otherwise they will be personally liable for the debt.
The director penalty regime has also tightened up in recent years to ensure directors are personally liable for PAYG Withholding, net GST, and superannuation guarantee charge liabilities if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home.
Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison. Ignorance is not a legal defence. Do not sign anything unless you fully understand the consequences.
DBM can guide you through all aspects of being a director to ensure your business and personal goals are not compromised.
The foundations of a business are essentially akin to the root system of any tree, but hey, let’s say one of the tremendously splendid Melbourne Royal Botanic Garden trees.
The magnificent trees in the Gardens all started from a seed and the development of a root system that:
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Absorbs water and minerals
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Anchors and supports
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Stores food
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So, how can we learn from the tree’s success and apply it to the development of your seed (idea) and business model?
The foundations of a business are essentially established by business planning.
“A goal without a plan is just a wish”
Antoine de Saint-Exupéry
The most important part of a Business Plan is actually doing it – the journey is the key rather than the end product.
DBM can assist in your journey of a business plan which includes inter alia:
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Ownership
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Management Structure – who does what & why
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Goals
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Products/Services
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Marketing Strategy
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Financial forecasts
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Some important considerations are detailed below:
Business Structure
Get it right at the start to allow your business to build a strong root system. Risk management, asset protection, taxation, and capital gains tax need to be carefully weighed in the choice of business structure.
Financial Forecasts
A key management tool as it lays out a considered road map which is a reflection of the clarity of the business owner’s idea and increases the confidence of key stakeholders including family, financial institutions, suppliers
DBM is expert financial modellers and we have developed a model template that integrates:
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Forecast Profit & Loss
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Forecast Balance Sheet
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Cashflow Forecast
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