The end of tax year and all the bookkeeping processes that go with it can be very stressful and busy.
This is the time when all the year end checks have to be done, the accountant’s questionnaire filled in, the paperwork sorted and the bookkeeping software checked to ensure everything is ship-shape.
This is to enable the accountant to easily prepare the annual accounts and calculate how much tax has to be paid to the government.
You might be confident enough to sort out your own accounts and calculate and file your own tax returns… good on you!
Whether you are passing it to an accountant or doing it yourself, there are several things you the bookkeeper/business owner/admin person can do throughout the year to be well prepared for the end of tax year - making it easier.
The closing balance of each month’s bank balance should reconcile to the closing balance of the cash book/bank ledger on the same date. i.e. if the bank account balance on 31 May is $2,000.00 the cash book balance should reconcile to $2,000.00.
Same goes for the petty cash. It should be recorded within the bookkeeping system and reconciled monthly. The amount recorded in the books on the last day of the financial year, should be the exact amount of cash in the box.
Coding the Income and Expenses
Be sure that each income and expense type has been coded (which is just another way of saying posted) to the correct ledger account through the year.
Pull up a general ledger listing in your bookkeeping software and scroll down through it looking for anything that does not look right. If you can adjust it to the correct account, do so. If not, let your accountant know.
If you are using a simple cash book opposed to bookkeeping software, cast your eyes through the book and make sure you are happy with your income and expense categories. Once the end of tax year is finalised there is no changing them.
Create an Excellent Filing System
File all documents in a well organised system so it’s easy to find any document that you require for the end of tax year. One method is to file sales invoices in numerical order.
File purchase invoices in date order (monthly tabs).
File bank statements and reconciliations in date order.
Hint : put the most recent document on top because it is much easier to open a file and place the latest document at the top instead of pushing wads of paper over the loops to get to the back.
Business vs Personal
Keep business and personal expenses separate; use two different bank accounts. Learn what expenses are deemed personal and what expenses can actually be claimed in the business accounts for tax purposes.
Personal expenses paid for with the business accounts should be put to the ‘Drawings” account.
If you are sorting out your year end paperwork now, and there are business expenses you paid for with you private account, you can give the details to your tax accountant who will bring them into the business accounts.
Debtors and Creditors
Your accountant will need to know exactly how much your business owes to others and how much is owed to your business by your customers at the end of the financial year.
If your balance date is 31 March and you receive a bill in the post in April that is dated 31 March (or earlier) and you only pay for it in April or later, it needs to go on the list.
This is also the time to write off any debtor amounts that you don’t expect to receive payment for, for whatever reason such as a really small balance, or the customer has moved away never to be heard from again.
These are coded to the ‘Bad Debts’ expense account.
A stock take should be
performed within the last month of the end of tax year and any necessary
adjustments made to align the inventory account to match the items on hand.
inventory balance should be shown at the cost price, that is, the price paid for
it, not the price it is being sold for.
Keep all bills relating to the purchase of assets in a special file or section titled ‘Assets’.
This is because your accountant will want copies of these when preparing your annual accounts at the end of tax year.
Why? To double check what type of assets they are, ensure the costing is correct in the books, and to figure out what percentage depreciation is applicable to the asset. (Keep in mind that the general rule of thumb is this –any purchase of equipment costing more than $500 is an asset. Anything under $500 is an expense). If any assets that were on the books last financial year were sold, given away or thrown out during the current year your accountant will need to know so it can be removed from the assets/depreciation schedule.
Were any assets purchased for the business that for some reason have not been recorded in the books? Let your accountant know about it being sure to provide copies of the purchase and/or loan paperwork.
Payroll Tax / Sales Tax
Process your monthly or regular taxes very carefully.
Once completed, be sure not to accidentally change anything in the bookkeeping system for these tax periods as this could affect your filed tax calculations and cause the end of tax year balances to be wrong.
Your accountant will double check these balances.
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