Financial Year-End is almost here!
With the end of the financial year almost upon us, there are some important things to prepare for and consider.
1. Bad debts:
Are there any invoices that you have chased for payment, taken all reasonable steps to collect, but have concluded that it is now a bad debt?
These must be written off as bad debts in your accounting system before balance date, in real-time, if you are wanting to remove them from your Accounts in this financial year. This has the effect of removing them from Accounts Receivable and into Bad Debts.
If you have any debts that are bad, then writing them off as bad debts will reduce your profit and therefore reduce any tax you have to pay.
There are also GST implications for those registered for GST on an invoice basis, in that you get to claim any GST that you originally returned to IRD when the invoice was raised. Your accounting system should do this for you automatically.
2. Stock:
If you have trading-stock then you will need to perform a stocktake at 31 March.
You may have software to track your stock levels, but it is still necessary and beneficial to do a physical stocktake. Even if you have less than $10,000 of trading stock, it is still a good idea to perform a stocktake. Recording the quantities of each item, along with the cost (excl GST) is the usual method employed.
Review your stock as well, especially obsolete stock. There may be an opportunity to write some of this off – check with us on what could be done in this area.
3. Work in Progress:
At 31 March do you have any jobs you are working on that aren’t at a stage to be invoiced?
You may have software that you can produce a work-in-progress report from, or alternatively you will need to calculate the value of the work-in-progress. Do this by adding up the cost of the materials used (excl. GST), plus the cost of any labour.
4. Vehicle kilometres:
Please take a note of your odometer readings at 31 March.
There are various methods for claiming your vehicle expenses, and one of these methods claims a per kilometre rate for business related kilometres travelled. The per kilometre rate that can be claimed depends on the total kilometres travelled in a financial year. To be able to perform the calculation we need to know the total kilometres travelled in a year, along with number of business related kilometres.
5. Annual leave and holiday pay:
Taxpayers can choose to use the existing 63-day rule to claim a deduction for amounts of expenditure on employment income that are paid within 63 days of balance date. This includes annual leave and holiday pay paid out within 63 days of balance date. Your payroll reports will usually identify any annual leave or holiday pay paid out to staff. You are entitled to claim as a deduction any annual leave and holiday pay owing, if it is paid out within 63 days of balance date. It can be worth printing a staff leave report as a reference, immediately after wages have been run for the last period of the financial year.
6. Cloud accounting:
If you are using a manual system, or looking to change, consider moving to a system like Xero at the start of the new financial year. It can be the perfect time to move onto a new system. We are Xero certified advisors that can offer your business a full Xero implementation and consultancy service. Our experience with Xero means we can easily set up your Xero account and provide you with the training and ongoing support you need.
If you have any questions, please don’t hesitate to get in touch with us.
DISCLAIMER: Our blog posts are of general nature and are intended to provide basic guidance. They are not intended to constitute accounting, tax, or other professional advice.