Accounting for business owners

 

You can't run a business without accounting - at least not without headaches. You can run a business without becoming an accountant - but you do need to understand the basics. You might think your software can do it all - but it is only as good as the way it's used. You can get someone else to do it all. That will cost you, but free you up for more important tasks. However, it may still get you offside with IRD (which can be expensive) if the other person gets it wrong.

 

Even if you did that, you'd still have to collect and collate all of the information and deliver it to the person doing the accounts. It's always a good starting point to keep separate bank accounts for the business from your personal accounts. (These days most accounting software offers bank feeds to save time.) Plus you're still responsible for accounts and taxes, even when you use a third party. (That's why it helps if they have professional indemnity insurance.)

 

What does accounting cover anyway. Well the first thing most people are interested in is selling stuff and getting paid for it - sales and debtors. The other side of this is buying stuff and paying for it - purchases and creditors.  And then there's keeping track of where money's coming from and where it's going to. Generally, that's done by some sort of cash book.

 

Of course, some of these things raise other issues. For example, not everything that's purchased is for sale. Some of it is to keep the business running (e.g. power), and some of it is used to run the business for several years (e.g. assets such as a car). These things often involve finance arrangements, and the main cost is not allowed directly as a business expense, but through depreciation allocated over the estimated useful life of the asset.

 

Then there are other complications required by the IRD. GST is one such thing, as is personal "wages" from your business. And then there are special rules around items with both business and private benefits, such as FBT.

 

All in all, it's complex - despite the government's wonderful "tax simplification". It's certainly simpler than say the USA - even our GST is simpler than across the ditch. But lack of knowledge is no defence - so relying on advice from "down the pub" can be risky for your business.

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