All businesses need to keep records of their financial transactions for several practical reasons:
You need to know how well you are doing, whether you are making or losing money – using Management Reports , what money you have on hand - using Bank Reconciliations , what money is owed to you - using Accounts Receivable and what money is owed by you – using Accounts Payable .
If you keep up-to-date records, you will have a reasonable idea of your company’s financial health.
By law you are required to keep all the documents for a pre- determined amount of time - bills and receipts - which form the basis of information for your TAX and GST returns.
You need to show periodically the taxman, bank manager, any investors and/or shareholders how things stand within the company.
Record keeping is one thing, interpreting the figures is another and by keeping tidy, accurate and well laid out reports, you can use the information to make decisions that are informed, timely and accurate to your business.
Creditors are the people to whom you owe money for goods and services supplied by them to you on credit. Most businesses will run a monthly account once a Credit Application has been completed. This gives your company an extended period of time to pay, usually the 20 th month following date of invoice, allowing you to utilise your cash resources to their full potential.
You buy on credit, therefore you are a creditor, and the credit purchases that you have yet to pay are part of your liabilities.
Goods and services tax (GST) is a 12.5 % tax on most goods and services in New Zealand. GST is due to increase to 15% as of the 1 st October 2010.
Being registered for GST helps your business. Generally, businesses prefer to work with GST-registered businesses.
Completing regular GST returns helps keeping your records up-to-date and accurate.
Charging GST enables you to work with this tax money over your taxable period (one-monthly, two-monthly or six-monthly) before filing your GST return by the due date and, if applicable, paying GST back to us.
If you purchase goods and services from someone who's GST-registered, you'll be charged GST and you'll be able to claim it back sooner than waiting until your income tax return is filed.
The profit and loss statement shows your business trading figures over a set period, usually a year, but can be run for any periods required. It is broken into three main sections showing sales, cost of goods ( COGS) and overhead/expenses costs: Sales
The profit and loss statement starts by showing your sales over a period of time including both sales already paid for, and sales made but not yet paid for.
Cost of Goods
Cost of goods or direct costs are the costs of actually providing your product or service such as the cost of buying raw materials. They go up or down depending on how much you make and sell.
You can use ratios created from your profit and loss statement to check performance and to measure changes over time. For example you might want to monitor the ratios between cost of goods and sales to check that if production or costs goes up or down your sales margin is maintained.