When you’re starting out in business, there can be lots of things to get set up in a short space of time, including bills that need to be paid promptly. This can mean not all of your business expenses get captured through your business bank account. There are also items that need purchasing online using a credit or debit card, and if your business doesn’t have one then it goes on your personal card.
The questions are:
- How do you record these costs in your business?
- Can you record them as business expenses?
- Most importantly, if you’re GST registered, how do you get your GST claim?
There are a number of different ways, which mostly revolve around which type of accounting system you’re using. We recommend recording those costs promptly so you don’t have to try and remember at the end of the year whether you’ve purchased anything personally.
You can use the bills or creditors function of your accounting software to capture the expense. If you’re using Xero Starter, Standard or Premium there is a neat email to bill function which lets you email in a copy of your receipt, and the software will create a bill out of it.
You can also use the bill function to manually enter in your cost without emailing the receipt.
Once you’ve entered your bill, either transfer the dollar amount from your business account to yourself and match it in your bank reconciliation, or pay the bill using the Owner Funds Introduced account.
If you’re using Xero Starter, you can only enter a maximum of 5 bills a month.
There are data capture software packages that take photos of your receipts, which will then extract the information and create bills for you. They work by downloading an app on your phone, and linking the app to your accounting software. There is often an additional cost associated with these, so we usually recommend if you’re on Xero, using the email to bill function discussed in the previous section. If you think you’d like to try something more robust then take a look at their websites.
Once you’ve captured the bill in your accounting system, it’s the same process as above. Either transfer funds to repay yourself and match off against the bill, or “pay” the bill using the Owner Funds Introduced account.
If you’re not too bothered about getting transactions into your system in any hurry, or there just aren’t that many of them, keep a record in a google doc or spreadsheet so that when it’s time for year-end, you know what still needs to be included.
Think about things such as, flights or phone bills paid for personally, any food or drink while travelling for work, subscriptions for services or products that relate to your business etc. Make sure you keep your receipts somewhere handy too, so you have the right records. You can send your summary into us as part of your year-end information, and we’ll make sure those costs get included in your tax return.
If you’ve purchased something personally and want to make sure you claim the GST pronto, another option is to enter this to your accounting system through use of a journal entry.
A journal is a manual data entry into your accounting system, to reflect a non-cash transaction for your business (i.e. it didn’t go through the business bank account). Journals are a technical accounting function which uses debits and credits, and we always recommend that these are posted by an accountant.
If you’re using Xero, just keep a summary of these and then contact Beany Support at GST time. Our team will make sure they get entered to your accounting software as a journal so that GST can be captured in your GST return.
We definitely recommend making sure all your business costs get recorded as part of your business, whether at the time they happen or at year-end when your accountant prepares your tax return. Including all costs gives the most clear picture of how your business is doing, and importantly means you’re in the best tax position you can be.
Talk to Beany Support if you’d like to know more about the solutions mentioned above.