Did you know that taking the time to do your record-keeping properly can enhance your businesses success?
Keeping financial statements is not just about tax and a legal requirement of running a business. You can use them to identify potential problems, opportunities to grow and help to reduce your risks.
It is easy to get your records right. By keeping on top of your paperwork throughout the year, you will find it easy to file your tax returns, get a loan and enable your tax agent or accountant to do your books quickly. These would also mean that you do not have to pay them so much!
Vital Tax Records
A tax record includes any information or document about sales, income, expenses, assets and liabilities. These records are used when it is time to fill in tax returns and finalise your tax.
You need to keep a record of every business transaction including all cash and non-cash sales and expenses. Keep ahead of the game and file your paper records as soon as you receive them. All records must be kept for at least seven tax years.
You might also want to think about entering everything into an accounting software package as most of the work is done automatically, and it can mean making far fewer mistakes.
At the end of the tax year, you need to file your business entity’s (sole trader, partnership or company) income tax return and an IR10 Financial statements summary form. You must prepare your financial statements from the business records you have carefully organised throughout the year.
P& L Statement
Most businesses prepare a Profit and Loss statement and a Balance Sheet, especially for a company. The Profit and Loss statement would show gross income, expenses, and net profit. You should include your net profit in the income tax return.
The Balance Sheet shows the business’s assets and liabilities at the end of the tax year.
Financial statements must meet minimum financial reporting requirements to ensure that you pay the right amount of tax. You can find more information about these requirements on Inland Revenue’s website.
If you are still concerned about preparing your financial statements, which can be a bit tricky, you could get your accountant to do it, allowing you more time to do what you do best – run your business!
If you are in business, you may like to attend one of our free tax seminars or workshops held in various parts of the country. Please visit our website for details (www.ird.govt.nz).
Abdul Rafik is Inland Revenue’s Community Compliance Officer based in Auckland. He will answer your queries, which may be emailed to firstname.lastname@example.org