WHY YOU NEED TO BE CAREFUL TO CODE YOUR EXPENSES CORRECTLY

Getting the bookkeeping basics right is the key to accurate records and accurate reports!

Period end reporting is almost upon us. We work with several clients to make sure their BAS Lodgements are ready to do. Every quarter end there are a few common errors that we find. I wanted to share one of the most common and a couple of others too.

I would guess that my team and I must add an extra 20 hours each quarter because of three very simple mistakes. If you want to learn how to save some money on the bill your bookkeeper sends you for your BAS Lodgement work, then may I suggest that you read on?

There is one more common than any other. It is a very simple mistake to make and is down to a lack of bookkeeping training. It is the bane of every bookkeeper’s life! Of course, I am talking about incorrect coding and transaction entry errors. While these are an easy mistake to make it is worth noting that they can also be very costly.

If your bookkeeper spots them you have the cost of putting them right, and that can take hours! If they don’t spot them your books will be wrong. You may be claiming stuff you shouldn’t be, and you can land yourself in hot water.

A moment’s distraction or a slip of the finger and the entry goes against the wrong code. It is worth mentioning that while you may not think this is a big deal, the ATO would disagree with you. If your file just happens to get pulled, then you could be in trouble. It could lead to a full audit which is a pain in the neck to administrate and time-consuming for you and your admin staff.

The importance of coding correctly

Every company’s business’ chart of accounts includes account types and codes. These codes are commonly used to record, classify, and group every transaction. You are then able to produce reports based on this information. These reports are then used to assist you, the business owner in making business decisions.

Different types of accounts are treated differently at the end of each financial year. This is where some of the consequences of incorrect coding can come in. When a transaction is allocated to the wrong account you could:

  • miss out on maximising tax deductions
  • lose out on taking advantage of depreciation benefits.
  • be running reports that are inaccurate
  • be making decisions based on incorrect data.

One other major implication is that you could pay too much to the tax office or (worse still) too little. Then you run the very real risk of penalisation.

Your business will have many different codes. Some of them will have similar names. Some examples of this would be

  • Office Expenses
  • Office Equipment
  • Travel – National
  • Travel – International

As a business owner and not a bookkeeper, you may have trouble remembering what gets allocated to which code. We know that is a common and reoccurring issue. You may have an admin worker who thinks that they are helping by doing some reconciliations. As an untrained person, why would they understand what the implications of getting it wrong are? In some cases, it is unfair to expect them to get it right and you are doing them and your business a disservice by allowing it.

If you are a business owner that does their own books, are you doing them at night? Or perhaps on a weekend as the lodgement date looms? Many will attempt to squeeze it in between other jobs that need doing. If you have a staff member or two that take care of the books, do they step in and out of the process at different times?

It’s unsurprising that in circumstances such as these that the wrong code can and does get selected.

It can be taxing

Bookkeeping is a complicated but necessary task. Staying on top of your books effectively takes time, effort, attention, and much more expertise than you might imagine.

Do you know that to qualify as a bookkeeper takes many hours of training? Each year we are required to undertake a series of development training hours. These are in order that we maintain our knowledge, skill levels and abilities?

So, what can go wrong?

There you are with a business that is doing exceptionally well. You decide to grow that you need to invest in the purchase of new manufacturing equipment. This equipment is worth $300,000. You know that it is an investment in assets that will give returns for many years to come. You can claim the depreciation as a tax deduction. The great news is that saves you thousands on current and future tax returns. BUT if the purchase is entered against the wrong accounting code, you could miss out on all those tax savings.

Sometimes these may not be honest mistakes. As a business owner, you should know everything happening in your accounts and know that you are responsible for that.

Unusual account coding can be a sign of attempted fraud. Be aware that the ATO is actively looking for this type of discrepancy.

Whether it is an honest mistake or fraud, the result is the same. Money lost that the business cannot afford to lose!

It’s hard to get things right every time. After all who has the time to check and re-check everything? If you are not a trained bookkeeper, how can you really expect to get it right… every time?

You can have peace of mind and have more trust in the numbers

Incorrect account allocations lead to inaccurate records. That results in incorrect reports and statements. You then make business decisions that are based on inaccurate information. You get that these could have a significant financial impact on your business, right?

Accurate records will make tax time more straightforward. Fewer corrections and lower bills from your accountant and that saves you money!! You will be more confident in your expense and depreciation claims. All your compliance requirements will also be met.

So, how can you achieve that? One of two ways…

Training

Couple some basic training with a willingness to accept that what has been happening isn’t good enough! Once you have done that, you are ready to learn how to do it right or get the appropriate training for your admin person who helps out on reconciliations.

At Keeping Numbers, we have an online solution that we think will help. We have created a short, online session that gives you or your staff member the knowledge required to make a better job of it once completed. If you would like to know more about this session and how to access it please email Liz at [email protected]

The other option is some One-to-One Training where a session is created that will address your specific needs. Liz will help you or your staff member to understand how and why correct coding and allocation is essential.

The training can happen in person or on zoom. That means that no matter where you are in Australia, you can take advantage of Liz’s’ years of experience. She is acknowledged as a shining light in the bookkeeping and accounting world.

If you prefer, Liz and the team at Keeping Numbers can take over the management of your books. Between them, they have over 50 years of experience. Their passion for numbers means that they are unequaled!

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