Accounting and Taxation By Peter Baskerville 16/06/2019

Taxation Get a good accountant – suburban Vs mid-tier Vs Big 4. Income Tax, GST, BAS PAYG withholding tax for employees – use tables – paid with BAS Superannuation 9.5% Gross – monthly Optus’ “Think Bigger” and “Supersonic” campaigns misleading and deceptive 2

Fringe Benefits Tax - car Payroll Tax – big business – State based Taxation Fringe Benefits Tax - car Payroll Tax – big business – State based Record keeping – audit - 5 years from lodgement – electronic – cheque a/c & credit card. Optus’ “Think Bigger” and “Supersonic” campaigns misleading and deceptive 3

Management accounting Finance & Accounting Financial accounting Record Past Financial statements MYOB + Qualified CA, CPA Strict standards External stakeholders - ATO Management accounting Predict Future Budgets MYOB + Excel + Us User determined Internal stakeholders - Us You are here

Why do we need accounting? Compliance Funding Financial performance Budgeting and control Comparison

History of accounting https://www.youtube.com/watch?v=caNGir_fhUQ

The purpose of accounting MIS Recording Transactions Communication stakeholders Planning Budgeting Decision Making Compliance Tax, IR, ASX, Environment

The language of business Funders, investors and interested parties all speak ‘finance & accounting’ We need to learn the language of business Glossary of finance & accounting terms Also Known As (aka) – 500 year evolution

Basic Accounting Concepts

Accounting conventions Dual Aspect - financial transactions consist of both a debit side and a credit side of equal amounts. Matching principle expenses should be recorded in the same period in which the revenue is earned. This approach is supported by the accrual accounting method. Objectivity ensure that the information recorded in the accounting system is based on fact and not just on personal opinion. Separate accounting entity assumption the business is an entity that is perceived to have its own existence, separate from its owner. Time Period assumption allows for the performance evaluation of a business to be broken-up into specific period of time such as a month, a quarter or a year.

Accountant Vs Bookkeeper Bookkeeper Vs Accountant Accountant Vs Bookkeeper Bookkeeper clerical task oriented routine and systematically records the organisation classify transactions Up to 'trial balance' Accountant big picture + overall structure results oriented interpretation and use reporting to governments Advice highly qualified membership of a peak accounting body – CPA, CA

Accounting System Accounting System Input Process Output

Accounting Process Accounting Process Financial transaction occurs Source document collected and coded Financial transaction details entered in the Journal Financial transactions posted to the ledgers Trial balance used to check accounts Income statement produced Balance sheet produced

Source doccuments Source documents Evidence of a financial transaction taking place Used for data entry & audit Source document for every transaction Types: Cash receipt original/duplicate, payment advice (cheque butt), supplier invoice, bank statement, authorised memo.

Account groups 5 Account Groups Asset Liability Equity Revenue Expense

Account groups explained Items of future economic value Asset $ owed by business to non-owners Liability $ owed by business to owners Equity $ received from business activities Revenue $ paid out to earn revenue Expenses

Profit Profit Revenue Expenses Profit – owed to owners

Chart of Accounts Chart of accounts 1000-1999 Asset 2000-2999 Liability 3000-3999 Equity 4000-4999 Revenue 5000-5999 Expenses 6000-6999 Cost of goods sold 7000-7999 Extraordinary profit 8000-8999 Extraordinary cost Ease of computerised data entry & analysis Industry based Enterprise customised Quick recognition of group

Accounting equation Accounting equation Assets Liabilities Equity

Double-entry bookkeeping 500 years old Two sides to every financial transaction Called ‘Debit’ & ‘Credit’ At least two accounts affected Keeps the accounting equation in balance

Who keeps the books? Accountants? Bookkeeper? You Too expensive Poor use of time They don’t want it – no value add Compliance (Tax, ASIC, funding) Bookkeeper? Cheaper but needs your time – Q&A Their business rules Can’t spot the mistakes You MYOB makes it possible Forces surveillance of costs/class Better cashflow & profit budgeting

Financial statements MIS produces financial statements – health report Financial statements help Managers make decisions Businesses comply with the law Two you should know about: Balance Sheet (aka) – Snap shot – financial strength. Assets = Liabilities + Owners Equity Income Statement (aka) – Past period – financial sustainability. Revenue – Expenses =

Balance Sheet Every financial transaction changes the balance sheet Balance sheet represents the accounting equation. A=L+OE Owners equity is what would be left over after selling the assets and repaying the liabilities – net worth Current earnings = Net profit Current & non-current

Income Statement Expansion of the current earnings on the balance sheet Looks at the revenue less the expenses that created the current earnings Provides key information to assist with comparison benchmarking & forecasting (GP%, Variable cost %, Fixed costs per month) Sustainability – ability to endure