The end of the financial year is a busy time for small business owners. For some, it means the start of tax season and the need to finalise all those pesky paperwork tasks that have been left on hold since 1st July. Others might be thinking about their upcoming holiday and how they can afford to take some time off during this stressful period. But whatever your plans are, there are certain things you should do before EOFY comes around again on 30th June.
It’s time for business owners to review and reconcile the books before lodging a tax return. As a small business owner, you are going to be tasked with completing your end of the financial year and preparing all the necessary documentation for your accountant. It is an important process that needs to be done correctly in order to avoid penalties.
That’s why seeking support from a qualified bookkeeper to manage your business finances will save you time and money and more importantly reduce stress in your life.
Right from the start, set up an effective filing system for all documents. Being able to access a document when needed is a major time-saving skill. Cloud accounting software can be used as an online filing system to store digital copies.
You or your bookkeeper should complete the following tasks on a regular basis. This will speed up your workload at EOFY when you commence the finalising of all year-end procedures.
- Create invoices/record all sales
- Record all business related expenses
- Reconcile all bank accounts and credit cards.
- Keep personal expenses on a separate bank account
- Keep your payroll, superannuation, BAS up to date
Depending on the nature of your business, these are some of the year-end
procedures you must take into account.
Closing the books at year-end
This means that you need to make sure all of your expenses and income are accounted for. If anything seems incorrect or missing, now is a good time to figure out what may be going wrong.
It’s essential to have accurate information to use in your tax preparation.
Below are the steps you must consider in your accounting software.
Review your settings
When your small business started using an accounting system, ideally these settings should have been set up correctly. It’s a good idea to review the following.
Organisation details: Legal/Trading name, ABN, Address.
Financial settings: the date of Financial Year End. Within these settings, review the Activity Statement Settings such as GST Accounting Method, GST Calculation Method, Tax File Number, PAYG Withheld Period, PAYG Income Tax Method and any other additional taxes applicable to your business.
Chart of accounts: this is a list of all your business transactions categorised into groups of accounts so they can be easily analysed in the forms of financial reports. Ensure the accounts are relevant to your business, change or archive the ones that are not used.
Assess accounts payable and accounts receivable
Reconcile these accounts by checking the bills and invoices are not missing from the system and accurate. These processes should also be carried out on a regular basis to stay on top of your cash flow.
Run the Aged Payable Summary report to show the balances you owe suppliers.
Run the Aged Receivables Summary report to identify who owed what to your business. Follow up on the outstanding balances. If they are unrecoverable then they should be written off as bad debts. If you’re on a non-cash (accruals) basis, writing off a bad debt may need adjustment to your tax reporting.
With most clouding accounting software nowadays you can store digital copies of source documents with the respective transactions, making it easier to retrieve. Get organised from the start with your receipts and invoices so it’s easier to find them if needed.
Reconcile bank and credit card accounts
All your business bank accounts must be reconciled up to the end of the financial year. The balances on bank accounts must match with the balances in the accounting software. Any discrepancies would mean there might be missing or duplicate transactions in your bookkeeping system.
Run the Bank Reconciliation Summary report to help you identify the discrepancies.
Enter EOFY adjustments
End of year adjustments are recorded in the form of journal entries, to reflect the accuracy of financial statements. The purpose is to adjust the revenues and expenses for the reporting period. Having an accurate set of books will also minimise the number of adjustments as well.
Finalise your EOFY Payroll
The end of year payroll process involves finalising Single Touch Payroll Data or producing payment summaries, making sure all your payroll related transactions such as wages, PAYG and superannuation are correct and have been reconciled against the bank statement.
Make sure your payroll and superannuation contributions are up to date. If you don’t submit your Superannuation Guarantee (SG) by the due date you may need to submit a Superannuation Guarantee Charge statement which will include a penalty.
Businesses are required to start using Single Touch Payroll (STP) as the ATO started rolling out the program in 2018. Penalties may apply if you missed the deadlines.
Businesses need to finalise payroll by completing a STP finalisation in their accounting software.
Lodging Tax Return
Complete all the housekeeping tasks first and depending on the complexity of your taxes you can lodge it yourself or seek the service of a registered tax agent. Keep in mind the service charges can be business deductions. The more organised and the better prepared your books are, the lower the fees you should be charged.
Reviewing your business performance should always be your top priority.
Take advantage of the end of the financial year (EOFY) to talk with your accountant or bookkeeper as they prepare your taxes.