3 weeks from 31 March – review your income accounts
12th March, 2018
It goes without saying that the income figures on your Profit and Loss Statements need to be accurate – but often items coded as income aren’t actually income.
Sometimes, the items will simply have been coded incorrectly.
Since income is what you will pay tax on, it’s really important to make sure that anything that is coded as ‘income’ actually is income.
Your accountant will usually pick up items that aren’t income and reallocate them, but sometimes accountants may miss a few things because they don’t have the additional information to make the call.
If items are coded as income, but they basically look like any other sale, then there’s no reason for your accountant to investigate because all appears well. This is why it’s so important to review your income accounts – line by line – each month.
On the off chance you haven’t done this throughout the year, there’s still time to get your income squared away so you’re not paying any more tax than you have to.
Common mistakes
Items commonly – and mistakenly – coded to income include:
- Loan funds
- Tax refunds
- Proceeds from asset sales
- Capital introduced by owners
If these things are coded as income, it can fundamentally alter the amount of income the government charges tax against.
So how can you make sure that the income you’ve coded is income and nothing else?
Review the business’s main source of income
Review the account(s) that you code as your business’s main source of income.
The only items that should be coded here is business income.
If there are other deposits that are not business income (eg tax refunds, capital introduced by you) they should be re-allocated to the correct account.
If you’re not sure of items, you should reallocate to a SUSPENSE account so you can easily quarantine and identify these at the end of the year.
Review interest income
The only items that should be coded here is interest income.
If there are other deposits that are not interest income in this account they should be re-allocated to the correct account.
Ask your accountant or bookkeeper to help you identify the correct code to use on these transactions.
Refunds of expenses
The only items that should be coded here is refunds of expenses, alternatively refunds can be posted against the EXPENSE code that it relates to.
If there are other deposits that are not refunds they should be re-allocated to the correct account.
Make sure the correct GST code has been used on these transactions ie. If the original expense had GST in it, then so too would the refund and vice versa. You may wish to double check on the remittance advice received from the supplier.