Do your own bookkeeping but avoid these MISTAKES
Cloud-based technology and the advent of Xero have been game-changers in the world of bookkeeping. Historically, bookkeeping was tied to a computer and a location and involved paper records. Today desktops are being replaced by internet browsers.
With cloud accounting, records are able to be managed in digital form and accessed from pretty much any device, from any location as long as the user has access to the internet, although it should be noted that this is not entirely true for the very popular MYOB AccountRight Online. This is a hybrid package for which you still need downloaded software on your device to access your file online.
The technology provides for automatic bank feeds which allow transactions to be imported into your file directly from the bank pretty much in real time, although a delay of a day is not uncommon.
The software is intuitive and easy to use and empowers business owners to take control of their bookkeeping. Unfortunately, this can encourage over-confidence in the software packages.
It is not always apparent what is happening in the background of the accounting package, and our bookkeeping service finds itself being called upon more and more often to identify and rectify issues that make it apparent that the bookkeeping records are not quite right.
Irrespective of which accounting package is chosen, we see the same mistakes being made and these are readily avoided with a bit more understanding of what is happening behind the scenes.
The bookkeeping file commences on a certain date, often the first day of a new financial year. If the business has already been operating before adopting Xero, there will have been transactions on the account. The bank accounts and credit cards will have balances – opening balances. Unless you tell Xero what these balances are, Xero assumes they are zero.
Automatic bank feeds are a major benefit of online accounting packages, but they start on a particular day. If the bank feed commences a week after the conversion date, any transactions that occurred before this date will not have been downloaded to your file. These need to be either recorded or imported manually –
The online packages record the wage/salary expense through their payroll function. The actual payment of the net wage, super and PAYG withholding tax is then meeting the liability that has been accrued as a result of the wage being recorded. The payment out of the bank account should be recognized as the payment of this liability and recorded against the liability accounts ie. wages payable or super payable. If the bank transaction is posted as an expense item, the payroll expense is incorrectly duplicated.
Automatic bank feeds make bookkeeping easier and more
For businesses using Paypal where the Paypal expense is debited from their main operating account, the Paypal debit from the operating account is often recorded as an expense instead of a transfer. The expense will be recorded in the Paypal account. The debit out of the operating account is only a transfer of money and should be recorded as such, otherwise, the expense is recorded twice.