Common GST and Bookkeeping Errors

Take a look at the worst mistakes you can make in bookkeeping and how to avoid them

Everything just gets coded GST

No!  This is so far from the truth.  An experienced Australian bookkeeper will know that there is a heap of different tax codes and almost as many different scenarios.  Water is a classic example.  In certain sizes it has GST on it, in other sizes it does not.  When frozen it has GST on it.  Medical services do not have GST, but if your doctor is providing a medical report, perhaps for WorkCover, then there is GST.  Is the person registered or not registered?  Now consider customs duty and the GST charged on imports – that is yet another rule.  Consider bank fees; if they are merchant fees they have GST, but if they are account keeping fees then they don’t have GST.   What about motor vehicle registration?  Part of the fee is GST free and part has GST.  Combine that scenario with a portion of the vehicle being for personal use and it’s not as simple as you’d think.  For electricity accounts where there is an ambulance levy, then that levy component doesn’t have GST.  So you can see – GST in Australian bookkeeping is far from simple.

All deposits are sales income

As a bookkeeper, we know from experience we cannot assume that all deposits are sales income.  Over the years I have seen capital injections coded as sales income with GST, instead of being correctly coded owners’ equity or to the Director’s Loan account.  This means that the business is overpaying on income tax (by inflating the sales income) plus overpaying GST as there is certainly no GST on funds that an owner injects into their business.  No one likes to overpay tax plus when the owners look at their reports, they are basing decisions on figures which look stronger than what they actually are.   So my tip to people in business is when you’re transferring money into your business, make it larger and even amounts, such as $1,000 or $5,000 or $20,000 and alert your bookkeeper that you do this and to check on any round amounts.

The setup doesn’t matter – as long as the coding is right

This is also another huge mistake.  Think of your Xero or MYOB files like a building or house.  If the house is built on solid foundations then you have a good start.  A building can only be as good as the foundations regardless of how great the rest of the construction is.  Linking absolutely must be correct, as should default tax codes and, of course, the Accounts List you use.  An accounts list (accountants call them a Chart of Accounts) should be relevant to your business so one size does not fit all; any list will often need an adjustment for your needs.  Another area I’ve seen mistakes is in the payroll setup – not having the link right, or perhaps using an old rate of super (for those not on online services).  For this reason, even if you plan to do your own bookkeeping, be sure to get a professional to set up your file.  With solid foundations you will be on the right track.

Consistency is paramount!

I absolutely agree with this, with an addendum.  Consistency is paramount as long as it’s correct.  I saw a MYOB data file many years ago where the bookkeeper had coded the commercial rental expense as N-T (where in fact it should have been GST).  The good news was that the bookkeeper was consistent, however in this case, consistently wrong.  By our correcting this error we got this bookkeeping client back over $40,000 in missed GST.  This is one of the reasons when we take over a file that we check things, to ensure that the whole file is correct, not just the period from when we started.  I’ve heard employees in business that have been there for a long time make a statement “this is always how it’s been done!”  Yes, it’s consistently been done a certain way, but in some instances consistently wrong.  We believe consistency and accuracy should go hand in hand.

A good bookkeeper doesn’t need to ask questions

Sorry everyone, this one is wrong too.  The best bookkeepers are always asking and delving.  A good bookkeeper will ask to see/receive all invoices and receipts so that they can check.  GST is not always consistent (insurance is one of the most difficult GST items to code as stamp duty various somewhat) however, if you have the invoices and paperwork, then there is no guesswork.  A good bookkeeper will often ask about the purpose of an expense.  For example, a purchase from a bottle shop of alcohol is usually entertainment and not deductible.  However, if bottles of wine, for example, are being purchased as client gifts and the gift rules are being complied with, then the purchase could become deductible.  As a business owner, encourage your bookkeeper to ask questions and please be sure to give him/her answers so that they can make the right decisions on coding.

It’s just so easy!

An experienced and professional bookkeeper makes it look easy but there is far more to bookkeeping than just pressing a few buttons.  In fact, the most dangerous thing can be someone learning how to push buttons in MYOB or Xero or Quickbooks without learning and understanding the coding of the transactions.  There is a reason that the ATO wants only licensed and legal BAS agents to be doing BAS and bookkeeping work; to keep the accuracy and correctness of data taking place.  Many professional bookkeepers need to have a solid understanding of accounting principles.  Why does an expense sometimes get coded to the Balance Sheet?  This might occur, for example, when you’re paying a vehicle loan or purchasing a large asset.  It can occur when a personal item was paid through the business bank account.

At Accurate Balance we make bookkeeping look easy, but that’s because we use our decades of experience to do a quality job.

We will:

• Ensure your file setup is right and customised to your needs; creating a solid foundation for your bookkeeping.
• Ask questions because we want to be accurate. Guesswork doesn’t count for anything when you are experiencing a tax or GST audit.
• Request copies of your invoices and paperwork – again to ensure the accuracy of coding and data.
• Work in a timely fashion to meet your tax and GST obligations and help you lodge on time.
• Keep communication open with you – so that you know what’s happening and what we need or queries that we have.
• Provide you with timely and accurate reports so that as a business owner you can focus on your business, but with the knowledge of the figures to enable you to make the right decisions within your business.
• Keep you updated with changes within the industry and things that you need to know, whether that be a change to thresholds, GST rules, payroll regulations or something else.
• Remove the stress of bookkeeping (we love doing it, but we know not everyone does).
• Give you back the time you need and work to focus on your business and ensure it’s running smoothly and successfully.

We always encourage business owners to use a professional bookkeeping service like Accurate Balance.  We also encourage that if you are doing the bookkeeping yourself that you have someone checking the file and assisting with BAS lodgements.  We would be more than happy to give you a quote on our bookkeeping services; please just give me a call on 0438 382 489.