bookkeeping and accounting

Bookkeeping vs Accounting

Bookkeeping and accounting are inevitable for any business in operation. These processes help the firm to evaluate its worth and take informed decisions. The two terms have a subtle difference, but it is necessary to understand them. Read more about Bookkeeping vs Accounting.

Bookkeeping

Bookkeeping is the process of recording the financial transactions of a business in a systematic manner. It concentrates on the daily financial transactions of a business, which are entered into the original book of accounts. In simple terms, bookkeeping is the record of daily payments and expenses in a categorised manner.

Bookkeeping helps to maintain the accuracy of the accounting process. Proper bookkeeping leads the path to accurate accounting. Thus, bookkeeping ensures that the financial transactions are accurately recorded and is always updated.

Functions of a bookkeeper

A bookkeeper is a key person who is responsible for managing and recording the financial transactions of a business. 

Iconz Business Solutions provides the best bookkeeping services with cutting-edge technology. Our cloud bookkeeping services enable the owners to have access to their data and accountants at any time.

The crucial functions of a bookkeeper are:

  • Reconciliation of accounts

Reconciliation is done to cross-check that two sets of records are in agreement. It helps to identify any discrepancies that can arise during financial transactions. Reconciliation can be done daily, monthly, or annually.

  • Invoicing

Bookkeepers are required to attend to the billings and invoices. This basically includes the accounts receivable and accounts payable. Bookkeepers send invoices and do a follow up to get it paid. They also make sure that invoices from suppliers are accurate and paid on time.

  • Organizing transactions

Bookkeepers manage all the transactions that are done through the account.  These transactions are then categorised in order to maintain an organized structure. Bookkeepers are responsible for maintaining the accuracy of these categorised transactions. Read more about Bookkeeping vs Accounting.

Importance of bookkeeping

Business owners benefit from bookkeeping. It enables organisations to successfully manage cash flows, plan future strategies, and stay informed about their business operations. It also helps to comply with the criteria set by the federal and local taxing authorities. In other words, once the business starts its operations, maintaining proper records becomes a crucial task.

Bookkeeping is not something that can be overlooked, and the reasons that cite the importance of bookkeeping are as follows:

  • Make routine business decisions

When bookkeeping is done in an accurate manner, it helps to retrieve the accounting information easily. This can facilitate routine decisions to be taken more conveniently. 

  • Attain business targets

Every business aims to evolve with time. But poorly managed financial records can slow down the growth of a business. If there is no accurate data and figures to analyse, it will be difficult to achieve the previously set goals. No business can go forward by making simple guesses. Maintaining the records in a regular and proper manner will help to stay focused on the track of the business. This will, in turn, help to achieve the business targets in a smooth way. Read more about Bookkeeping vs Accounting.

  • Keep organised records

A business is required to make crucial decisions based on financial records. Proper bookkeeping helps to find crucial data on time and can aid in decision making. For the smooth running of the business, it is very important to maintain the records in an organized manner. This helps to avoid any confusion that may arise in between and also reduces even the smallest errors that may occur.

  • Reporting to investors

Investors play a very important role in making crucial decisions. They are concerned with the utilization of the money invested in the business. They must be intimidated by the potential growth of the business as well as the profitability of the business. These aspects can be sorted out with an accurately managed financial record. The performance of the business and the incurred profits can be readily evaluated from the records. Thus, bookkeeping can ease out the inconveniences involved in reporting the outcome to the investors.

  • Records source of transactions

Bookkeeping records the sources of all financial transactions involved in the business. It also keeps track of the payments, receipts, purchases, and sales and keeps records of transactions. This provides a basis for preparing the financial statements for the business.

Iconz Business Solutions provides the best bookkeeping services in NSW. The professional and dedicated team at Iconz provides you with all the guidance required and lessens your burden. Read more about Bookkeeping vs Accounting.

You may also like to read:

1. How to Choose the Right Bookkeeping System for Your Business (Single-Entry and Double-Entry)?

2. 7 Best Practices While Preparing a Bank Reconciliation Statement

3. A Complete Guide to Family Tax Benefit

4. How Much Tax Do I Pay? All Your Questions Answered!

5. What is Accrual in Accounting?

Accounting

Accounting is the process of interpreting, analysing, and reporting the financial transactions of a business. Bookkeeping acts as a basis for the accounting process. 

Accounting involves the preparation of financial statements, which are the precise summary of financial transactions. It indicates the company’s financial position and cash flows.

Personal accountants and accounting services at Iconz Business Solutions anticipate the broader picture. We help you to identify solutions that other organisations might overlook.

What is included in accounting?

Accounting combines the financial information into an understandable form for all the company stakeholders. The stakeholders will be able to assess the performance of the business from these accurately managed financial statements. So the basic tasks that come under accounting are:

  • Prepare Financial Statements

The financial statements are prepared while the budget is prepared. It can also be created in order to gather funds from investors. Accountants are entrusted with the responsibility of creating financial statements on a regular basis. These financial statements include the balance sheet, cash flow statement, and also income statement.

  • Financial Planning

Accounting helps to look into the broader scenario of financial planning required for the business. Accountants can provide specific advice related to reducing unwanted expenses. Accountants can also give information regarding the ways in which revenue can be increased and be more profitable. In a broader aspect, accountants can also give the advice to expand the business.

  • Revenue & Cost Analysis

Accountants take inferences by observing the financial records. A firm’s profit or loss is basically dependent on its costs and revenue. Accountants perform the analysis so as to understand the firm’s performance. Accountants also use the help of historical data to determine the trends in business activities.

  • Tax Compliance

Businesses are required to file their tax returns at the end of the tax year. Tax reports are prepared to assess the tax payable to the authorities. These reports are prepared with the help of financial records. Accountants help to calculate the exact amount to be paid with ease. Failure to keep the tax affairs updated will lead to levying hefty fines. Accounting plays a critical role in order to avoid such setbacks.

  • Evaluate Business Development

Businesses are always started with the aim to grow. The process of accounting helps to understand the growth occurring in the business. This is done by analysing the financial records. The performance of the business can be evaluated on the basis of comparing the profit and growth aspects of the business. This can help to plan future strategies depending on the areas of progress the business makes.

Major differences between bookkeeping and accounting

  • Bookkeeping provides the basic input for accounting; thereby, it acts as a foundation for accounting. Bookkeeping is only a segment of the larger process of accounting. 
  • The level of complexity involved in bookkeeping is comparatively less, while the process of accounting involves a high level of complexity.
  • The major purpose of bookkeeping is to maintain financial transactions in a systematic and chronological manner. On the other hand, accounting is done to understand the financial situation of the business and to communicate the insights to relevant parties.
  • Business management cannot make crucial decisions based on the bookkeeping data provided. But crucial and significant business decisions can be taken by the management from the accounting data.
  • The preparation of financial statements is not usually a part of the bookkeeping process. Financial statements are prepared during the accounting process.
  • The process of bookkeeping is done in accordance with the accounting concepts, whereas the accounting procedures used for interpreting the financial reports can vary from one firm to another.
  • Bookkeeping is a clerical job by nature. So, it is not necessary for bookkeepers to possess any particular skill set. But accountants, on the other hand, should possess knowledge of various accounting practices and also analytical skills.
  • The major tools used in bookkeeping are journals and ledgers. But the tools used in accounting are profit and loss, balance sheet, and cash flow statement.
  • Bookkeeping has internal users like the managers, employees and owners. But accounting has not only internal users but also users external to the business entity.

Activities Involved

The two careers are similar, and accountants and bookkeepers often work side by side. These jobs demand their own skills and attributes. 

Bookkeeping involves providing keen attention to a lot of specific details. The records must be kept in a systematic manner so as to provide accurate data for accounting. Meanwhile, accountants use the input provided by the bookkeeper to prepare the financial statements. The accountant needs to look into the broader aspects of the decision-making process.

Though bookkeeping and accounting are often used interchangeably, the activities conducted by them have their own differences. Basic bookkeeping activities involve:

  • Preparation and sending of invoices to customers and also to suppliers
  • Recording the payment received from the customers
  • Record, processing and payment of invoices from suppliers
  • Recording and monitoring inventory changes
  • Processing payroll and petty-cash transactions
  • Categorising credit cards and other related expenses
  • Monitoring late payments and sending reminders to the impacted parties

Basic accounting activities involve:

  • Creation and management of the Chart of Accounts
  • Creating and maintaining financial statements
  • Record the accrued revenues and deferred revenues and expenses
  • Creating a budget and making comparisons against actual expenses incurred
  • Determining the estimated tax and preparing tax documents accordingly
  • Identifying potential profit-maximizing opportunities

Know Your Requirements

The business can vary in terms of many aspects. Both bookkeepers and accountants have equal and important responsibilities to play irrespective of the nature of the business. Understanding the subtle differences between the functions will help to decide what best suits your business. Knowing your business requirements and taking informed decisions will always keep the business on the correct path of development. 

Small business owners can do their own bookkeeping tasks on a daily, monthly, or quarterly basis. This can be then given to an accountant for further action. But large business owners employ a professional bookkeeper and will also have an accounting department.

So, prior to hiring, it is important to know your business and its requirements. The development of the business must also be taken into account. Iconz Business Solutions has a proven track record of leading several companies to success with our dedicated team for accounting and bookkeeping services.

There are a few instances that can help to decide to go for professional help with the business:

  • Complex taxes: If the taxes are too difficult to manage by yourself and you are burdened with multiple income channels, several deductions, or other considerations, it is high time to seek the help of a professional accountant. An accountant can narrow down the burden of workload and help you stay on top of other important functions.
  • Accumulating accounting tasks: If the practice has been of spending too much time on accounting tasks and no time to manage the business, then things might go out of hand. It will be more assuring if the accounting tasks can be entrusted to an accountant, and you can concentrate more on developing your business entity.
  • Growth in business: The initial accounting tasks while starting the business will be manageable. But once the business is in the growth phase, managing the accounts can be a tedious task. This can be the right time to hire a bookkeeper, and gradually, with the development of business, an accountant can also be hired.

 

When looking for a certified professional, it is important to know your requirements. First, it must be decided whether to hire an independent consultant, consult a firm, or hire a full-time employee. Prior to hiring an independent bookkeeper or accountant, it is important to verify the credentials of the individual. Perform initial screening tests and check the certifications provided by the applicants. We at Iconz Business Solutions provide the services that can help to grow your business and stay stress-free from all other business-related worries.

accrual in accounting

What is Accrual in Accounting?

An accrual is a current-period expenditure for which a supplier invoice has not yet been received or revenue that has not yet been invoiced. An accrual is often formed with the intention of recognising a cost on the income statement. What effect does such an accrual have on the balance sheet, which contains assets, liabilities, and equity items?

Accrual-based accounting is when transactions are recorded in the books of accounts as they happen, even if payment for that good or service has not yet been received or paid for. This technique is better suited for determining the financial health of an organisation.

You debit the expenditure account and credit the accumulated liability account when you record an accrual for an expense (which appears on the balance sheet). Accumulated expenditure is classed as a current liability since it is normally just for a short period of time (for example, recording an expense for a supplier invoice that will most likely arrive next month). As a result, when you accrue an expense, it appears on the balance sheet in the current liabilities section.

What is accounting’s accrual basis?

The accrual foundation of accounting is based on the principle of recording revenues and costs as they are incurred. Usage of this technique has an impact on the balance sheet, since receivables and payables may be reported even if there is no accompanying cash receipt or payment.

Both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards support the accrual foundation of accounting (IFRS). Both of these accounting frameworks offer guidance on how to account for revenue and expenditure transactions when there are no cash receipts or payments to trigger the recording of a transaction under the cash foundation of accounting.

Accrual Accounting: An Overview

To comprehend accrual accounting, we must first comprehend what we mean by the term “accrual.” Accrual is a term used in accounting to describe an entry made in the books of accounts that record income or costs paid without the exchange of cash.

Accrual accounting is generally used in firms where there are a lot of credit transactions or where products and services are sold on credit, meaning there was no cash exchange.

Let’s look at an example to better grasp accrual accounting. Assume you’re a company called XYZ Pvt. Ltd., and you keep your books using accrual accounting. Any revenue or income made through sales, as well as any costs spent, are reported in this section.

When you offer goods or services on credit, the sale is documented in the books using the invoice created. It’s possible that you didn’t get the payment in cash at that point in time.

When you offer goods or services on credit, the sale is documented in the books using the invoice created. It’s possible that you didn’t get the payment in cash at that time. 

When the raw material is ordered, an expenditure occurs or is recorded, but not when the payment is paid to the supplier in cash or by check. The sole disadvantage of this accounting method is that you, as a business, may end up paying tax on revenues that you did not obtain (credit).

On the income statement, costs and revenues are balanced using the accrual method of accounting. It aids in providing a more accurate view of the company’s financial situation.

Benefits of Accounting Accrual

The accrual basis of accounting is considered by investors to be the most accurate accounting method for determining a business’s results of operations, financial condition, and cash flows since it provides more consistent reporting of revenues and costs over time. It supports the matching principle, which requires revenues and all related costs to be reported in the same reporting period. This allows for a complete picture of the profits and losses linked with specific business activities to be seen in a single period.

You may also like to read:

1. How to Choose the Right Bookkeeping System for Your Business

2. 7 Best Practices While Preparing a Bank Reconciliation Statement

3. A Complete Guide to Family Tax Benefit

4. How Much Tax Do I Pay? All Your Questions Answered!

5. Bookkeeping vs Accounting: A Simple Guide

 

Drawbacks of Accrual Accounting 

The accrual method of accounting has a key flaw in that it might show the appearance of profits even though the related cash inflows have not yet occurred. As a result, an apparently profitable organisation may become cash-strapped and, as a result, go bankrupt, notwithstanding its claimed profitability. As a result, you should pay close attention to a business’s statement of cash flows, which shows the inflows and outflows of cash.

When Should the Accrual Basis of Accounting Be Avoided?

As accrual accounting necessitates a certain level of accounting competence, a small firm may choose to avoid utilising the accrual foundation of accounting. In addition, under the cash basis of accounting, a small business owner may choose to manipulate the timing of cash inflows and withdrawals to produce a lower amount of taxable revenue, which can result in income tax payments being deferred.

Accounting on the Accrual Basis vs. Accounting on the Cash Basis

For all bigger firms, accrual-basis accounting is the typical method of recording transactions. The cash basis of accounting, in which revenues are recorded when cash is received and costs are recorded when cash is paid, is not the same as this notion. A firm that uses the accrual basis of accounting, for example, will register a sale as soon as it sends an invoice to a client, but a cash-basis company will wait until it is paid before recording the transaction. Similarly, an accrual-basis firm will record an expense as soon as it is incurred, but a cash-basis company will wait until the supplier has paid before registering the charge.

A fundamental distinction between the systems is that financial statements prepared by a company operating on a cash basis may contain deceptive results. This is because the company may wait until the end of the reporting period to pay its suppliers, resulting in a larger cash balance (and hence better financial health) than is actually the case. This implies that someone may mistakenly believe that the organization’s finances are strong when they are not. In the opposite case, a corporation may fail to register sales because it has not yet received the cash connected with them, resulting in reduced reported sales and profits, giving the appearance that the company is struggling while, in reality, it is successful.

Another distinction between the two approaches is that the cash basis of accounting is simpler to use. It doesn’t require accruals, so it’s easy to use even if you don’t know anything about accounting. The accrual foundation of accounting, on the other hand, necessitates a working grasp of accounting concepts.

Best Practices in Accrual Accounting

When using the accrual basis of accounting to record transactions, be sure to clearly document the cause of each adjustment item. This is required so that, in the future, someone evaluating the explanation for the entry will have a better understanding of why it was created. This is especially true when the evaluating party is a company’s external auditor.

Setting up correct entries to be automatically reversed in the next period is another great practice. This clears the entries from the accounting system, removing the possibility of stumbling upon errant entries in the accounting records during the year-end closing process and having to reverse them.

Different Types of Accrual Accounts

There are various accounts that are utilised on the accrual method of accounting but are not used on a cash basis. Accounts receivable, payable, accumulated revenue, and accrued liabilities are examples of these accounts. Accounts receivable refers to sums invoiced to customers for which payment has yet to be received, whereas accounts payable refers to amounts billed by suppliers for which payment has yet to be received. The accumulated revenue account comprises sums that have been generated but have not yet been invoiced to consumers. The accumulated liabilities account comprises funds that have not yet been billed by suppliers but for which products or services have already been supplied.

What is Modified Accrual Accounting, and how does it work?

Some aspects of cash basis and accrual basis accounting are combined in modified accrual accounting. Within a government’s financial statements, it’s supposed to indicate the flow of current financial resources. The Government Accounting Standards Board has established this method. Modified accrual accounting has two main characteristics. First and foremost, revenues are recognised only when they are both available and observable. When income is available to meet current expenditures due within the next 60 days, it is quantifiable, and when the cash flows connected with it can be accurately predicted, it is referred to as revenue availability. Second, expenditures are recorded only once liabilities are incurred. Inventory and prepaid products are instantly recorded as expenditures when acquired, and assets are charged as an expense when purchased, comparable to accrual accounting (there is no depreciation expense).

Accrual Account Entries

Accrual accounting entries are journal entries that show how much money a firm has made and how much it has spent. Accountants make essential modifications to their company’s financial accounts before they are issued, known as accruals. Revenues and assets, such as receiving payments and inventory, as well as costs, losses, and liabilities, such as outgoing payments, vacation time, sick leave, and taxes, are examples of these.

Accountants use accrual accounting principles to input, amend, and track both costs and revenues while recording accruals. The accrued assets should be shown on the financial statements balance sheet and income statement, and the recording process should be double entry. In an accrual basis accounting system, accountants make all entries twice, or as reversing entries.

Revenue, accounts payable, liabilities, non-cash-based assets, goodwill, future tax obligations, and future interest expenditures are the most common accounts influenced by accrual accounting. One thing to keep in mind is that when accrual accounting procedures are used, accounts receivable and payable only appear on the balance sheet. Furthermore, especially in large firms, it is critical to establish a procedure for employees to submit invoices or other documents that serve as the foundation for tracking accruals and recognising costs on a timely basis. This ensures that the firm has the most up-to-date information and that the financial statements for the reporting period are presented fairly.

What Is the Importance of Accrual Accounting?

Accrual accounting provides businesses with a complete financial picture at any given time. Accrual-based financial statements show relevant work and activities without the hassle of matching invoices, bills, and cash in the same month or period.

The main advantage of accrual accounting is that it automatically lines up costs and revenues, allowing a company to account for both expenses and revenues at a particular time. Companies that only record transactions when money changes hands do not have an accurate picture of their ongoing costs or the amount of money owed to them at any given moment. They may make company decisions based on current, reliable financial data with accrual accounting.

FAQs

When we hear the word “accrual accounting,” most of us want to run for the hills. That’s why we’ve simplified things for you. The most commonly asked questions (FAQs) about accrual accounting, as well as the short, straightforward answers you’re looking for, are included here. Right now, you may be putting your accounting strategies into action.

  1. What documents do I need to finish accrual reversals?

To complete reverse accruals, certain firms require paperwork. Others have accounting software that can do reversals automatically.

  1. Is it necessary for me to hire an accountant to do accrual accounting?

No. Accrual accounting may be used by any company.

  1. If I go to accrual accounting, do I still need to use fancy accounting software?

No, you have a variety of possibilities, especially if you wish to employ software, which ranges from simple to complicated. You can also choose to use no software at all.

  1. Is accrual basis accounting right for a startup?

This is contingent on whether the startup intends to operate independently for the long term or seek public market admission. Use accrual accounting to acquire a complete view of the firm.

  1. In basic terms, what is an accrual?

Accruals are revenues or costs incurred that have an influence on a company’s net income on the income statement, even if no money has changed hands. Because accruals contain non-cash assets and liabilities, they have an impact on the balance sheet.

  1. What is the definition of a monthly accrual?

Monthly accruals are costs or income that have yet to be paid or received by a corporation.

  1. Is there a distinction between cash and accrual accounting?

The most significant distinction between accrual and cash basis accounting is the timing of revenue and cost recognition. The cash approach recognises income and costs more quickly, whereas the accrual method focuses on future revenue and expenses.

Iconz Business Solutions takes care of all of your professional accounting, tax planning, tax strategy, and financial accounting needs. Whether you’re hiring professional accountants or consultants for the first time, or you’ve been in the company for a long time but need a reliable accountant, IconBiz is ready to help. Their financial accounting services include transactions that are carefully documented, summarised, analysed, and reported. Contact Iconz Business Solutions for more information.

tax agent near me

How Much Tax Do I Pay? All Your Questions Answered!

Tax is an eminent part of government revenue and it is necessary to pay your taxes on time. You may have several questions regarding the different tax slabs as well as the latest updates in the Australian Taxation Law. Taxation laws are subject to change and it is up to us to keep note of these changes. Missing out on paying your taxes could sum up to a huge fine and you may end up paying a lot of money as a penalty.

Tax Slabs for Various Individuals 2021-2022

Here are the tax slabs for diverse income levels for the Residents of Australia

  • From $0 to $18,200 – Nil
  • From $18,201 to $45,000 – 19 cents for every $1 above $18,200
  • From $45,001 to $120,000 – $5,092 + 32.5 cents for every $1 above $45,000
  • From $120,001 to $180,000 – $29,467 + 37 cents for every $1 above $120,000
  • From $180,001 and Above – $51,667 + 45 cents for every $1 above $180,000

Here are the tax slabs for diverse income levels for the Foreign Residents of Australia

  • From $0 to $120,000 – 32.5 cents for every $1
  • From $120,001 – $180,000 – $39,000 + 37 cents for every $1 above $120,000
  • From $180,001 and Above – $61,200 + 45 cents for every $1 above $180,000

Here are the tax slabs for diverse income levels for the Working Holiday Maker of Australia

  • From $0 to $45,000 – 15%
  • From $45,001 to $120,000 – $6,750 + 32.5 cents for every $1 above $45,000
  • From $120,001 to $180,000 – $31,125 + 37 cents for every $1 above $120,000
  • $180,001 and above – $53,325 + 45 cents for every $1 above $180,000

Here are the tax slabs for diverse income levels for children of Australia

If you are aged below 18 years, you are considered as a child and would have to pay tax under the following circumstances. (Excepted Person)

  • Disabled Physically or Mentally
  • Permitted a double orphan pension
  • Finished your full-time studies and working on a full-time basis

For children, some of your income can be taxed at a higher rate than those of adults

Tax regulations are getting complex with time and it is mandatory for a business or an individual to maintain a clean slate. Tax officers keep monitoring your defaults on the payments so it is the duty of the business or person to keep track as well. 

You may also like to read:

Do you get tax deductions when you get divorced?

Under the Australian Taxation Law, one cannot claim a deduction for the maintenance of an ex-wife. 

Invalid and Invalid Carer Tax Offset

If your husband/wife is unfit o work because they are an invalid or they care for an invalid, you are entitled to the Invalid or Invalid Carer Tax Offset. The person however must be receiving a Government disability payment to qualify as an Invalid. On both of your returns, you will be required to disclose information about the other partner so that any entitlements you may have to certain family tax benefits can be calculated correctly.

Most common tax returns errors

  • Failure to declare income earned abroad

Sometimes we come across people who move out in search of jobs or businesses. They often forget the fact that they need to pay the Australian taxes as well. Any citizen of Australia, no matter where he relocates, is liable to pay taxes according to Australian law. Consult a good tax agent to keep yourself away from tax troubles. You are expected to pay your Australian taxes even if you are living and working overseas or abroad. You are also expected to declare all your overseas income as such or they would find it out either way, which could mean that you could be penalized for the same. It is advised to consult a good tax agent to calculate your income earned abroad because default or mistake in the payment of the taxes can lead to a hefty penalty.

Here are the kinds of income earned abroad

  • Capital gains on overseas assets
  • Income from Business
  • Income from Investment 
  • Income from employment
  • Pensions and Annuities

 

  • Over-claiming of expenses

For holiday rental properties – Many Australian citizens own a rental or holiday rental property which can be claimed for a claim only under certain circumstances. For example, claims can be requested only for actual renters that rent your property. Sometimes you let your friends or family stay rent-free on certain occasions. You cannot claim tax expenses for such scenarios. Such occupancy periods should be removed when you calculate your overall expenses.

In the case of joint ownership of the property, the tax shall be calculated on the basis of the percentage of ownership of the property. For example, if you own 60% of the property and your partner owns 40% of the property, you are expected to pay tax on the 60% portion while your partner pays the tax for the 40% portion. 

You might also end up in scenarios like, during the COVID-19 crisis, many of the property renters received lodgers only during certain times of the year. In such cases, your tax deductions can be adjusted accordingly with the help of a reliable tax agent and you will be taxed only during the period when it was available for rent 

For residential property – You are required to list out all your earned income from residential property every financial year. This can also include the period of the year during which the property was available for rent. Although one cannot claim tax deductions for the properties that were given out for rent for the first time. Also if you have incurred costs for renovation and capital works, you can claim them every year for forty years at the rate of 2.5% of the total cost incurred.

No Purchasing Proof 

Sometimes you may come across situations where you don’t make a receipt for work-related expenses. Keeping a receipt for all your work items should be made a habit as the ATO does not entertain the loss of proof for these claimable expenses. According to sources, you may get a maximum of $300 worth of these expenses without a receipt. Even then it is advised to keep receipt of these expenses as there is no free tax deduction.

What happens if you claim more deductions for a bigger tax refund?

If you are caught claiming more refunds or deductions on your taxes, you will be asked to refund some of the money based on the amount claimed. They can even claim all of the refunds in case there are some issues detected. One must have solid proof of the source of income as well as expenses for which the tax has been deducted.

How can you maintain a good tax return?

  • Keep Track of your Purchases, Investments, Expenses and Earnings. 

This isn’t a tedious job at all. All you need to do is note down wherever you could possibly end up paying taxes and keep a receipt for verification.

  • Consult a good Tax Agent

A tax agent fits well within your budget. One can get a bigger tax return if managed efficiently. You can get in touch with Iconz Tax Agents for the best tax return solutions. 

  • Private Cover

A private cover get you refunds on your taxes provided you are earning an average or lower income. But this decision is solely based on the person as the cover can cost a bit out of your pocket. This is not advisable for higher income levels as they may not be much benefitted in terms of tax deductions.

  • Charity Donations

All charitable donations are tax-deductible under the Australian Taxation Law. You can claim a deduction for every donation made above $2. This is a great opportunity as charity is necessary to run certain private organizations that support various kinds of people with disabilities and challenges. Just remember to keep a receipt of these donations as they are necessary to claim a deduction. The amount spent on charity will be deducted from your total taxable income.

 

How can Iconz Business Solutions help you handle your taxes?

Iconzbiz has been in the accounting and taxation industry for over a decade. We have been handling the taxes of various businesses as well as individuals who had been facing several issues and ending up paying more tax while forgetting to claim the returns that they were entitled to. Icons Business Solutions helps you maximize your returns and cash flow through minimal expenditure. Our expert tax agents are well versed in the tax regulations of Australia and are eager to help you reduce the burdens and tediousness of your tax calculations. 

Do you have questions regarding the services that we extend such as tax preparation in NSW? Or would you prefer a personalised tax preparation service that fulfils your requirements? Get in touch with our tax accountants and tax agents to make an appointment. 

family tax benefits

A Complete Guide to Family Tax Benefit

According to the law, the primary responsibility of raising children and supporting them financially rests with the parents of those children – whether biological, birth parents or adoptive parents. Therefore, if any parent has difficulties in discharging this responsibility, they can approach the government for help. The Australian Government helps individuals and families to balance work and family responsibilities through various financial initiatives which can be grouped under the Family Tax Benefit. This social support is delivered through direct payments to both families and individuals, together with funds for services that offer social and economic support for those with low incomes or who are not employed, or are at a disadvantage due to some other causes. The amount the government pays for each child is dependent on each family’s specific circumstances. Read more about Family Tax Benefit.

Support for families is provided in several ways – through investing in child care, health, education, aged care services, and so on. This support is extended by State and Territory Governments as well as the Australian government.

The welfare system and the taxation system work in tandem to incentivize as well as disincentivize families with regard to the decisions they make about care arrangements and employment, as well as evolving from a specific phase of the work and care lifecycle to the next.

Below, we talk about the chief initiatives of the Australian Government that support families who have to balance paid work and care and the manner in which these initiatives work to help or discourage choices of Australian families. The sections you will read about are based on consultations carried out by the Australian Human Rights Commission, HREOC, and submissions from the public. These were immensely beneficial in framing key components in the welfare and taxation systems, that are necessary to ensure the needs of families and individuals who assume paid work and care.

The Human Rights Commission of Australia has defined this set of principles that must be included in an exhaustive framework to reconcile responsibilities of family and caring, with paid work:

  • Principle #1 – the welfare system must work in tandem with and not against other support forms that exist for workers who have family and care responsibilities
  • Principle #2 – the response of the welfare system to dual responsibilities of caring and working, should be firmly based on valued care so that choice can be maximized
  • Principle #3 – Every type of family and carer who have to balance caring with paid work, should be supported by the system; the system must be flexible so that they can continue supporting families and individuals with care responsibilities even when their needs change throughout their lives.
  • Principle #4 – the core of the policy development should be the interaction between the taxation system and welfare payments; care should be taken especially when it comes to both incentives and disincentives that may impact the ability of families to undertake both care and paid work.

You may also like to read:

1. How to Choose the Right Bookkeeping System for Your Business (Single-Entry and Double-Entry)?

2. 7 Best Practices While Preparing a Bank Reconciliation Statement

3. How Much Tax Do I Pay? All Your Questions Answered!

4. What is Accrual in Accounting?

5. Bookkeeping vs Accounting: A Simple Guide

Current Government Assistance For Families

 

Australian welfare provisions are underscored by targeted and means-tested entitlements, and their distribution is prioritized for those who need it the most or are disadvantaged the most. These specific initiatives are combined with generic or universal initiatives like maternity payment, applicable to every family.

As income-testing is often performed, it is important for families to keep their family income estimate up to date; it should also include foreign income earned whether you pay tax on that income or not in Australia.

Let us now see in some detail, the tax benefits offered by the Australian Government:

Family Tax Benefit Part A (FTB (A))  

 

This payment is made to families with children who have not yet reached the age of 21 and are dependent on their parents, or on children aged 21 to 24 and are full-time students, and hence dependent. This benefit is tested on the basis of the family’s income. Families with income up to $56,137 or less are eligible for the maximum FTB (A) rate, and those with higher incomes are subject to income testing to determine the rate. Once the family’s income touches the specified limit, only the base amount of benefit is paid. When the income crosses $99,864, the FTB (A) rate is reduced by 30 cents per dollar. The rates are periodically revised to adjust for inflation, cost of living and wages.

FTB (A) is paid for each eligible child with the rate decided on the basis of:

  • Adjusted taxable income and income test
  • Number of children in the care of parents and their ages

In case caring responsibilities for children are shared, the percentage of care is used to determine the rate of payment. In case either parent has a child from a previous relationship in their care, they will need to be eligible as per the Maintenance Action Test, to get a sum over the base rate of FTB (A) – and it applies to both parents.

The payment rate is also affected by child support payments received by any parent; it may also be mandatory for children to meet the requirements of immunization and ‘Healthy Start for School’ initiatives. The FTB (A) payments may be reduced if the children don’t meet these requirements. If you want to find out exactly how much payment you are eligible for, you can check the official government services website.

The base rate payable per child in a fortnight is $61.46.; this is not the minimum rate for FTB (A); families may receive less or more depending on their income. The maximum rate depends on the age of each child that you receive the benefit for:

  • 0-12 years, $191.24
  • 13 to 15 years, $248.78
  • 16-19 years, $248.78 for children who meet study requirements
  • 0-19 years for children in approved care organizations, %61.46

The FTB (A) supplement is an annual payment that some families are eligible for. This is determined after the payments to the family are balanced at the financial year-end.

For the financial year 2021-22, up to $788.40 per eligible child is payable, and this amount depends on:

  • The family income
  • Whether the care is shared
  • The number of days the family was eligible for FTB (A)

 

Family Tax Benefit Part B (FTB (B))

 

This benefit is aimed at single income and single-parent families. In families with two parents, the income test for FTB (B) is conducted only on the second or lower-income using the adjusted taxable income. In families where caring responsibilities are shared, the percentage of care is used to work out the payable rate of FTB (B).  Families with annual adjusted taxable income under $100,900 are eligible for the maximum FTB (B) rate; those with incomes higher than that are not eligible. FTB (B) is payable till the end of the calendar year in which the youngest child turns 18 years of age. In families with partnered parents or carers, the FTB (B) will be paid till the youngest child reaches 13 years of age. A 2-part income test is used to determine the rate of payment: the cut-off for the primary earner stays the same at $100,900, while for the secondary earner it is $5840; after that, the payments are reduced by 20 cents per dollar earned. Read more about Family tax benefit.

The rate of payment is subject to change for parents returning to work.

For the part of the financial year prior to you or your partner returning to work, you could be eligible to get the maximum rate – this is done after confirming your actual annual income by either:

  • Balancing your payments
  • Finalizing the FTB lumpsum claim

If the parent returning to work is earning lower than the other, or is returning to work for the first time since the child’s birth or entering their care, the family may be paid the maximum rate. It is essential to inform the authorities that you have returned to work, within 12 months from the financial year-ending since you went back to work. This can be done through the Centrelink online. Read more about Family tax benefit.

The payments may be paid every fortnight, or as a lump sum at the end of the financial year; it may also be shown as a reduction in tax deducted from wages paid to customers or partners. The maximum amount of FTB(B) that can be paid for a child aged less than five is $162.54 in a fortnight. For children aged 5 to 15, and up to 16-18, if they are full-time students, the maximum amount payable is $113.54 every fortnight.

Parents receiving FTB (B) may also be eligible to get the FTB (B) supplement, an annual payment. Once the payments are balanced at the financial year-ending, the payment will be made to eligible parents.

For the financial year 2021-22, an amount up to $383.25 per family may be paid. The amount is based on:

  • Whether the care is shared
  • What the family income is
  • How many days the family was eligible for FTB(B)

Child Care Benefit (CCB) 

This is a benefit paid to families that utilize formal or informal (registered) child care, approved by the authorities. This works either as a fee reduction for child care service or as a lumpsum payment to the parents at year-end. For income testing, only approved care is eligible; it is also payable to families where the care is provided by family members like grandparents.

Child Care Tax Rebate

A 30% tax rebate is offered for child care expenses out of the pocket, less the CCB, reconciled at the financial year-end, subject to a maximum amount per child as specified by the Government from time to time. Parents can claim this rebate in the next financial year, for the child care expenses incurred in the current financial year.

Parenting Payment

This is an income-tested payment made to those caring for children aged less than 16, chiefly in single income and single-parent families who have low income. The amount paid to single parents is usually slightly more than the amount paid to each parent in a two-parent family. The amounts are revised every year or as the Government sees fit. Read more about Family tax benefit.

Carer Payment

This is an income-tested payment, given under pension conditions to people who are unable to support themselves with substantial employment because they have to provide care. Two adjustments are made in a year, to align with the increase in wages or living costs.

Often, families receive multiple benefit payments at the same time, with FTB (A) being the most common payment made to parents to help them meet the cost of raising children. Here the amount paid is based on factors like the annual income of the family, the number of children, and their ages. Several single income and single-parent families are paid FTB (B) which provides additional assistance.

There are also other government payments like disability support, veteran’s affairs payments, etc., which are made to carers and parents. Many fathers are also given Newstart Allowance as parenting payment is restricted to a single partner in low-income families, and where parents are separated and both provide care, even if the care is shared equally.

Grandparents who are mainly responsible for bringing up grandchildren, and who receive support payments like Age Pensions, are eligible to receive a special CCB rate to cover the entire expense of approved care for up to 50 hours per week. If they care full time for the children, they can also get parenting payment and FTB (A or B) which can help grandparents, especially if they are on income support.

Additional Information on Family Tax Benefit

  • Parents can appoint representatives to deal with the Family Services department; they can be authorized to receive payments, make enquiries and more.
  • Sometimes, families are paid more than what they are eligible for, due to some errors; in such a case, they incur a Centrelink debt and need to pay that money back.
  • If any of the recipients disagree with the decision of the Government, they have the right to file for a review of those decisions.
  • In cases where parents are separated, the authorities provide support and information to help them with their situation.
Bank Reconciliation Statement

7 Best Practices While Preparing a Bank Reconciliation Statement

A bank reconciliation is a way of double-checking your financial records. Compare your bank statements to those of your business accounts to do so. Both sets of records need to be in sync. You’ll need to figure out why this isn’t the case. The purpose of bank reconciliation is to ensure that everything is in good working order. Bank statements are trustworthy financial records on which you may rely. Read more about Bank Reconciliation Statement best practices.

Bank Reconciliation Helps Out:

  • You can identify and correct errors by comparing your books to theirs.
  • You’ll be able to see and fix the bookkeeping mistakes.
  • Detect and report fraud and erroneous payments.
  • Examining expenditures may assist you in detecting any mistakes or suspicious behaviour.
  • Take a look at how the business is happening rather than just guessing the process.
  • You can keep track of financial performance using a set of statistics that are regularly evaluated.
  • Use tax breaks to your advantage.
  • When doing your bank reconciliation, you can categorise tax-deductible spending.
  • Make sure you have everything you need to submit your taxes.
  • You’ll need a properly reconciled record of business revenue and spending to prepare tax returns.
  • Keep a record of your earnings.
  • Use this time to allocate expenses to projects and calculate how much money you earned from them.

The first piece of bank reconciliation advice is to make sure your account has enough money in it. Having a separate bank account for your business is a terrific idea. As a result, you’ll be aware that every transaction on your bank statement is relevant to your business and should be reflected in your accounting records. You’ll need to figure out why they don’t match. It’s most likely that you misstated some data in your accounting records, entered it at the incorrect time, or completely skipped a transaction. When you utilise the same account for both work and personal purposes, bank reconciliation becomes considerably more complicated.

Bank reconciliation is a technique that involves reconciling your bank accounts. To conduct bank reconciliation, all you need is a copy of your business accounts and a list of bank transactions from the same period. You go around the room, attempting to match them up. It can be mind-numbing if you’re doing it manually with paper bank statements. However, there are several innovative steps to reduce the load. The vast majority of banks will quickly provide the data to online accounting software.

In Australia, who needs and how to compile a bank reconciliation statement? As a business owner, you must pay close attention to the efficiency of your cash flow. Preparing a bank reconciliation statement is a simple way to keep track of the money coming in and out of your business. You should be aware that every successful firm relies on financial discipline. Maintain the integrity of your company by periodically updating its financial transactions. Using the bank reconciliation statement to summarise its banking activities helps you identify anomalies in record-keeping or uncover fraud.

7 Best Practices While Preparing a Bank Reconciliation Statement

A bank reconciliation statement is a statement that shows how much money has been transferred from one account to another. Compare the balance on your company’s bank statement to the balance in its cash book, which you have updated. If there are any discrepancies, it specifies them. It allows you to investigate the causes of it. If there is no difference, your accounting is on the proper track.

  • Start with a bank statement

Begin by entering a list of your company’s bank transactions into Bank Statement Star. It’s available by connecting to your company’s online current or credit card bank account. You may need to consult both of these accounts’ statements. You can also request that the bank send you the statement.

  • Think About Using Accounting Software

Your bank may transmit the information immediately to your accounting software. It’s also possible that you’ll have to do it manually. Refer to your bank statement for entries and look for reconciliation items in your accounting programme (cash book or ledger). Select these entries and then click the “Reconcile” button or option. A bank reconciliation report is generated by online accounting software systems such as Snoww Books software. Examine it and make sure it’s correct. Check to see whether you’ve compared all of the relevant entries. All outstanding or uncleared checks and deposits in transit should be checked.

  • A Bank Reconciliation Statement’s Balance

During the procedure, go over all of the company’s financial transactions. Pay close attention to the transaction’s values, timeframes, sources, and beneficiaries. Keep a record of any checks that are presented or issued. The balance in the bank reconciliation report frequently includes things such as bills paid in cash by clients, bank charges, and uncleared checks.

  • Differences and their causes

You may use the bank reconciliation report to figure out why the real amount in your bank account differs from that in your cash book or ledger. It is a challenging task. During the reconciliation procedure, you may require the services of a professional accountant who can handle all forms of charges and debts. To explain the variances, you should give a list of explanations in the bank reconciliation report.

  • Make the procedure more automated.

As you probably already know, any paper-based administration takes longer and is more prone to errors than an automated version of the same work. The same may be said for the bank reconciliation procedure. There are tools available to automate this process, or at least a portion of it, to make it more efficient and manageable.

  • Banks Make Mistakes As Well

While this is not typical, it is conceivable that the bank made a mistake. They may debit an incorrect amount from our account or deposit an incorrect payment; if we have multiple accounts with the same bank, they may make a mistake when deducting or depositing; and so on. As a result, if you discover a mistake for which no explanation can be found or you are unsure, contact your bank.

  • As the last option, reconcile the items.

Considering the disparity as a reconciling item and then forgetting about it appears to be a simple and appealing approach. However, the gap will remain, so this is not a true solution. If they pile up too much, the bank reconciliation will lose its significance, the accounts will no longer represent reality, and the resultant jumble will become increasingly difficult to sort out. We must request account balances that we have not received, as well as invoices and receipts that have not arrived, to ensure that we have all of the information and documentation we require, as well as that the books are up-to-date, as described in the first section.

This explains how to produce a bank reconciliation statement for an Australian firm. Keep in mind that the activity may look to a layperson like it would be tedious and time-consuming. An accounting software and a dependable accountant will be more beneficial to you.

Iconz Business Solutions is a Sydney based accounting and consulting organization. We offer a wide range of services, including management consulting, accounting, and taxation, all of which are delivered using cutting-edge technology or software. Our goal is to supply and manage our clients’ businesses by giving them sound guidance that is efficient, productive, and lucrative. By doing so, we hope to help and improve our clients’ businesses’ success.

Also read How to Choose the Right Bookkeeping System for Your Business (Single-Entry and Double-Entry)?

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Bookkeeping System

How to Choose the Right Bookkeeping System for Your Business (Single-Entry and Double-Entry)?

Despite the difficulties of managing a company’s finances, establishing a basic accounting system is essential for maintaining correct records, which aids tax compliance, monitors cash flow, and makes it simpler to achieve long-term development. Bookkeeping System is time-consuming, whether done manually or digitally, but it keeps everything organised and correct, lowering the risk of financial mismanagement. As a result, accounting is critical for any company’s operations to function effectively and securely.

What is a Bookkeeping System?

Bookkeeping systems are single-entry or double-entry software systems configured with rules for capturing financial data and different financial transactions in the company’s course. Some systems are far more complicated than others, but a bookkeeping software system is described as any system that assists in recording financial transactions. Continue reading to discover more about the many sorts of systems you may encounter and how they might benefit your company.

What is a Single-entry System?

Single-entry systems are a relatively informal system that is most typically employed in small enterprises when the firm does not make many transactions. Cash disbursements, sales, purchases, and cash receipts on accounts receivables will all be recorded in the system. Moreover, equipment investments or stock holdings will be reported exclusively in the program’s notes area.

The basic single-entry system will only report to one account when a transaction is logged, hence the name. While this is relatively simple for people new to bookkeeping, it might cause issues when balancing budgets and constructing financial statements.

Small firms with few or no transactions frequently employ the single-entry bookkeeping system. They are commonly referred to as an essential, practical, and informal method of recording. It typically just keeps track of cash disbursements, cash receipts, sales, and purchases. All other accounting records, such as inventory, equipment, capital, and so on, are kept as memorandums or notes.

The daily summary of cash receipts and a monthly summary of cash receipts and disbursements, representing income and expenditure, respectively, are kept in a single-entry accounting system.

In contrast to the double-entry bookkeeping system, where a transaction affects two accounts, a transaction in the single-entry bookkeeping system impacts only one account. A cash transaction, for example, is solely recorded as a rise in cash receipts or deposits with no sales account.

However, because it lacks a precise recording mechanism, the single-entry accounting system is more prone to mistakes and incompleteness than the double-entry bookkeeping system. Although it is an appropriate record-keeping technique for tax reasons for small and basic firms, it may not offer a reasonable appraisal of a business’s crucial financial information.

What is a Double-entry System?

Most organisations, bookkeepers, and accountants utilise a double-entry system, a significantly more complex accounting system. There are fields for debits and credits in a double-entry system. Every time a transaction is entered on one statement, it is also recorded on the associated account.

There are sections for everything in these systems, from fundamental activities like cash receipts and sales to more complex ones like acquiring shares or structures. It also comes with features to assist in the creation of complete financial accounts. This will help any firm obtain a fair value, file taxes, or obtain capital for increased cash flow. 

This bookkeeping system is ideal for any company looking to grow its operations and needs a comprehensive account examination. Larger, more complicated enterprises often use a double-entry method. This interface will also aid small enterprises with more sophisticated banking operations.

The double-entry approach operates by reporting single transactions as either income or cost items first. The system then adds a second sub-entry that links the transaction to the proper account. It allows you to keep track of five transactions simultaneously: costs, revenues, shares, investments, and liabilities.

It may also identify gains and declines within each account using debits and credits. It works on the principle of the two-fold effect, which stipulates that for every value gained (debit), a value must be given up (credit). To keep track of current financial records, generate future projections, and adequately track assets and liabilities, the capacity to understand what is affected by a specific business transaction is crucial.

Smaller firms can use the double-entry system if they like, but any company with gross sales of more than $5 million or gross receipts of more than $1 million for inventory sales must use it. The complexity of such a vast corporation is too much for a single-entry system to handle.

Many business owners prefer the double-entry technique because it makes financial statements easier to interpret. Every transaction is recorded, and the impact on the relevant account is noticeable. It provides a detailed view of a company’s financial situation. You can quickly compare one period to the following and spot mistakes, development patterns, loss patterns, and other essential facts. Companies may take a comprehensive look at their future financial prospects and plan appropriately.

The double-entry approach is preferable in most aspects; yet, it is an intricate system to use without prior experience. Startup owners may not handle the system independently to keep the expenses low, necessitating an accountant’s appointment. Overall, more effort and money are required to retain this system running.

 

Bookkeeping Software

To keep track of financial activity, many small-business owners utilise accounting software. These tools are simple to use and urge you to enter information to finish and submit your transactions. Several versions of the programme are available, ranging from essential to professional capabilities, and you may buy it in desktop, web, or cloud formats. Because bookkeeping systems are typically intricate for the average bookkeeper to learn and use, the market has flooded with automated bookkeeping solutions. These structures make it straightforward for you to input transactions using single-entry or double-entry approaches.

Methods of Bookkeeping

Manual Methodology of Bookkeeping

  • It is a conventional and paper-based method of bookkeeping.
  • It is cheaper and easier to maintain, but it involves a lot of talent and effort, and it may be a time-consuming operation.
  • Transactions are manually documented using a paper book of accounts such as a journal-register, ledger books, and other similar items.
  • This method is often employed by small enterprises with less sophisticated commercial transactions.

Computerised Methodology of Bookkeeping

  • A unique and inventive method of keeping track of commercial transactions.
  • Keeping track of company transactions has never been easier, faster, or handier.
  • Removes the time-consuming processes associated with manual accounting.
  • Financial reports that are both reliable and accurate are feasible.
  • Tally, an accounting and bookkeeping programme, is used.

What are the benefits of computerised bookkeeping?

Previously, manual recording and maintenance of records was the sole option. Paper-based bookkeeping is no longer an option. It’s simpler than ever to keep track of all company transactions thanks to digital technology. When, for example, most accounting software can generate invoices and receipts automatically. Credit is reported. The debit that corresponds to it might also be noted.

As a result, computerised bookkeeping offers several benefits and makes the task more straightforward if you understand how to utilise it. Faster and more efficient record-keeping, access to real-time financial data, automatic invoicing, and cost savings are all advantages of a computerised system. When considering the disadvantages of computerised bookkeeping, we can see how reliance on computers may sometimes lead to more severe issues.

With more software data stored in the cloud, hackers have more options to obtain and utilise your company’s financial data. As a result, a company should exercise considerable caution while selecting computerised bookkeeping solutions.

Iconz Business Solutions: The Best Bookkeeping Service Provider in Australia

Iconz Business Solutions offers a full range of financial services like accounting and taxation to assist you to free up time to run your company. You may focus on other aspects of your business while having your accounting taken care of by specialists, ensuring that year-end accounts and tax returns go off without a hitch. 

Do you have any inquiries about accounting services in NSW? Or do you seek a customised bookkeeping solution that meets your specific needs? Fetch an appointment with Iconz Business Solutions, the internationally authorised accounting business in Australia today!

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