In this the final part of 10 things your Accountant needs to know when preparing your accounts I am going to discuss unusual transactions, stock and work in progress and expenditure which is partly business and partly personal.
Have there been any unusual receipts or payments to and from your bank accounts?
Business bank receipts usually consist of money from customers. Have you paid in any money of your own, if so when and how much, and how have you recorded it in your accounts? Have you banked any loans from friends, family or the bank? Again your accountant needs to know when, how much and how you have recorded it. If your accountant is not informed and depending on how your accounts are prepared this money could be incorrectly included in sales. The money you borrowed from the family, did you make a series of repayments or just one and where did you record them? These are clearly amounts that should not be shown as a tax deductible expense.
Have you calculated the value of your stock and work in progress to be included in the accounts at the year end?
The value of stock on hand at your financial year end needs to be deducted from the total of your stock purchases for the year to ensure that you only allow for the cost of those products sold to arrive at the correct profit.
How much time has your workforce put into projects before the financial year end that has not yet been invoiced to your customers? This work in progress needs to be shown as additional income, at the amount you will eventually charge your customers, in your accounts.
Has a proportion of any of your household expenditure been incurred for business purposes?
Do you use your home telephone for business purposes? If so what proportion of the call costs do you estimate are for business? Do you have a room at home that you use as an office for the business? Depending on the amount of time you spend in it running the business a proportion of your household costs can be claimed as a business expense. The sort of expenses we are talking about are heat and light, rent, rates and, in some cases, mortgage interest. Do you use your car for business purposes? If so how many business miles do you travel in a year and what proportion of the total mileage does this amount to. You can either claim a rate per mile or a proportion of the total cost as a business deduction.
What are the benefits of preparing this information for your accountant?
Firstly your accountant will think that you have much more financial knowledge than the average business owner. Secondly he may well take substantially less time to prepare your accounts. Thirdly his bill may be lower than in previous years. Lastly your accounts will more accurately reflect the profit of the business and, because you have accounted for every relevant expense, your tax bill may also be lower.