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Old 25-06-11
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Default Xero experts, plz help.

Hi, i am a sole tradere using Xero.
So far it has been just fantastic but i have questions on recording.

As i am sole trader, i have purchased lots of stuff using my personal fund.
Especially before i opened business account, i used my personal saving bank card or credit card to purchase working materials(these are comsumables, so it's 100% deductable)

I was going to use expense claim option on Xero and am a bit confused.
In this case do i need to paid these claims from 'owner's fund introduced'?
Will it still be deductable from my total tax payable income?



One more question is
I have purchased machine(over 1000$ so it will be capital purcahse. but was purchased the last day of last financial year 30 June 2010, Is there anyway i can record it on Xero ?

I know that it will be available to claim this years income tax deduction as i was advised from ATO, but i don't know how to record it as system is locked.



will appreciate any help or comment,


Thanks all!

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Old 27-06-11
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Default Re: Xero experts, plz help.

Hi, good to hear you are enjoying Xero.

Both your questions are really bookkeeping / accounting questions, rather than Xero per se, so for more detail you might want to talk to you bookkeeper or tax accountant, but in summary:

Yes you can claim expenses you have paid personally, as you suggest you can put them through as expense claims, then re-imburse yourself these costs. The expense claim will deduct the expenses from your income for tax purposes, when you pay the reimbursement that will just transfer the cash from your business account to your personal account.

Assuming you bought the machine personally, and that you have already done your tax return for the 2010 year then just put this through as an expense claim dated July 1 2010 (the ATO won't penalise you for claiming an expense later than you were entitled to). If you haven't lodged your 2010 tax return you could unlock the period in Xero and enter the purchase to June 2010.

This is general advise only, other factors such as GST registration dates may have an impact. Talk to your bookkeeper / tax accountant for more details.

Cheers, Rhys

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Old 27-06-11
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Default Re: Xero experts, plz help.

Hi,

In your particular case, using manual journal is more appropriate than expenses claim option in Xero for you to reimburse your business associated costs that used from your personal accounts.

In principle or by rule, the source document, invoice transaction date must match General Journal date, period. As your business account was not existed while all the transactions took place, money paid for the purchases was borrowed from somewhere (your personal account) not your business account.

Open up a new account called “Loan” account under the category of Liability in Xero (Settings /Charts of Accounts/Add Account); create a manual journal for each transaction in the system – Adviser/Manual Journal. In the Narration section, put the comments like ‘business expense paid by personal account’ or whatever you feel right, date is the day of the transaction took place. Debt expense account and credit loan account. The total amount under Loan account from the GJ entries is the amount you will be reimbursed from your business bank account later.

When you withdraw the loan amount from your business account, you need to Debit Loan account and Credit your business bank account dated the day the transaction took place so that it won’t affect your bank reconciliations.

If you purchased the machine at the last day of last financial year 30 June 2010, you need to record the transaction on that day in order to represent the true and fair value of your accounts. You may need to unlock the period (if you have done the tax return for the last financial year, you need to talk to your accountant regarding the changes and she/he will adjust your accounts accordingly when your current financial year tax return is being lodged), record the transaction by debt Machine and credit Accounts Payable/Cash dated 30 June 2010. You also need to record one day of depreciation amount using ATO approved depreciation rate. The carrying amount of the fixed asset (the difference between the cost of the machine and accumulated depreciation of the machine. In your case, the depreciation amount equals accumulated depreciation amount as it was only one day for the last financial year) can be depreciated each month from this financial year onwards until the carrying amount of the asset becomes zero or it is being disposed whichever comes earlier.

Kind regards,
Lauren

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Old 02-07-11
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Default Re: Xero experts, plz help.

I have only just seen the most recent post to this thread, having been tied up with all the usual joys of end of financial year.

I don’t want to get into an argument on this, so have been weighing up all afternoon whether to post this - I have decided to do so as I disagree with the reply below quite strongly. The advice given is (in part) technically correct but it is entirely unhelpful to tndfloors (or any other sole trader in this situation).

Quote:
In your particular case, using manual journal is more appropriate than expenses claim
I would never recommend a client use manual journals – to those of us who are accountants debits and credits seem obvious, to everyone else . . . too weird, too prone to error. Xero actually gives a warning on this – “We recommend that only your accountant or bookkeeper create journals, unless you have experience managing your general ledger.” It is advice well heeded.

Quote:
In principle or by rule, the source document, invoice transaction date must match General Journal date, period.
So don’t use a journal to enter an invoice (why would you ever use a journal to enter an invoice?) If you enter the expense as an expense claim then – like pretty much every expense claim lodged in a business – it is fine to enter it at a date other than that on the invoice. Period.

More important than either of these is another over-riding principle – “keep it simple". The process described above is anything but simple, it requires an understanding of debits and credits, and also of reconciling balance sheet accounts.

Quote:
If you purchased the machine at the last day of last financial year 30 June 2010, you need to record the transaction on that day in order to represent the true and fair value of your accounts.
Yes a set of accounts should reflect a “true and fair value”, but for who? Who are the users of these accounts? If tndfloors is a sole trader the ATO are primarily interested in his tax return. If he has not claimed all the deductions he is entitled to - such as depreciation - they are unlikely to be bothered (there are circumstances where they might be, which is why I suggested to tndfloors that he should talk to his bookkeeper or accountant). Who else wants to see “the true and fair value”? His bank maybe (or any other lender)? But they would also want to see his tax return.

So yes let's prepare meaningful accounts, but the solution suggested requires adjustments to both prior year tax return and – if tndfloors is GST registered – to at least 4 BAS that have already been lodged. Benefit to client almost certainly less than the cost never mind the inconvenience or opportunity for error.

Cheers, Rhys

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Old 02-07-11
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Default Re: Xero experts, plz help.

Hi,

Good to hear you are enjoying Xero. It is a good solid small business accounting package.

But please confirm your situation with a Registered Tax Agent for tax effect accounting for achieving an optimum result for yourself prior to enteries being made, as there are different treatments for different classes of "assets" , eg the machine you purchased in 2009-10.

Any purchases a sole trader makes from personal finances is considered to be the equivalent of capital contributions for accounting purposes. Just these contributions arent in the form of money in the bank , but physical assets.

If you have invoices, or receipts, for these purchases, say for example, Harvey Norman, it would probably be easier to enter as a Manual journal if you are set up as a Financial Adviser in Xero. ( You can tell because the ADVISER tab will appear on the tool bar in light blue). Please remember to check the invoice for any GST charges that you can claim if you are GST registered, and meet the rulings.


Steven Thomas CPA - Xero Certified Partner.

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Old 05-07-11
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Default Re: Xero experts, plz help.

I agree with Rhys. Put it through as an Expense Claim. There is no reason to put a Journal Entry in. Itcan be done that way but why complicate things.

It will still hit the individuals Equity account when you pay it out of the Expense Claim area so the same result is achieved.

But, as suggested, speak to your bookkeeper/accountant about how they want you to put it through. If they don't know then contact one that does.

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Old 08-07-11
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Default Re: Xero experts, plz help.

Quote:
Originally Posted by LaurenL View Post
Hi,

In your particular case, using manual journal is more appropriate than expenses claim option in Xero for you to reimburse your business associated costs that used from your personal accounts.

In principle or by rule, the source document, invoice transaction date must match General Journal date, period. As your business account was not existed while all the transactions took place, money paid for the purchases was borrowed from somewhere (your personal account) not your business account.

Open up a new account called “Loan” account under the category of Liability in Xero (Settings /Charts of Accounts/Add Account); create a manual journal for each transaction in the system – Adviser/Manual Journal. In the Narration section, put the comments like ‘business expense paid by personal account’ or whatever you feel right, date is the day of the transaction took place. Debt expense account and credit loan account. The total amount under Loan account from the GJ entries is the amount you will be reimbursed from your business bank account later.

When you withdraw the loan amount from your business account, you need to Debit Loan account and Credit your business bank account dated the day the transaction took place so that it won’t affect your bank reconciliations.

If you purchased the machine at the last day of last financial year 30 June 2010, you need to record the transaction on that day in order to represent the true and fair value of your accounts. You may need to unlock the period (if you have done the tax return for the last financial year, you need to talk to your accountant regarding the changes and she/he will adjust your accounts accordingly when your current financial year tax return is being lodged), record the transaction by debt Machine and credit Accounts Payable/Cash dated 30 June 2010. You also need to record one day of depreciation amount using ATO approved depreciation rate. The carrying amount of the fixed asset (the difference between the cost of the machine and accumulated depreciation of the machine. In your case, the depreciation amount equals accumulated depreciation amount as it was only one day for the last financial year) can be depreciated each month from this financial year onwards until the carrying amount of the asset becomes zero or it is being disposed whichever comes earlier.

Kind regards,
Lauren


thanks


Last edited by tndfloor; 08-07-11 at 03:20 PM.
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Old 08-07-11
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Default Re: Xero experts, plz help.

Quote:
Originally Posted by steve201 View Post
Hi,

Good to hear you are enjoying Xero. It is a good solid small business accounting package.

But please confirm your situation with a Registered Tax Agent for tax effect accounting for achieving an optimum result for yourself prior to enteries being made, as there are different treatments for different classes of "assets" , eg the machine you purchased in 2009-10.

Any purchases a sole trader makes from personal finances is considered to be the equivalent of capital contributions for accounting purposes. Just these contributions arent in the form of money in the bank , but physical assets.

If you have invoices, or receipts, for these purchases, say for example, Harvey Norman, it would probably be easier to enter as a Manual journal if you are set up as a Financial Adviser in Xero. ( You can tell because the ADVISER tab will appear on the tool bar in light blue). Please remember to check the invoice for any GST charges that you can claim if you are GST registered, and meet the rulings.


Steven Thomas CPA - Xero Certified Partner.

Steven.
Thanks for the reply. Yes, i had all receipts that are relevant to business.
All machines we purchased are worth more than 5000$ and receipts kept.
As i was new to business, i did select the right accounting program when i did bas for this quater. But i did put through all spending and receivings into MYOB and got the right figure and managed to lodge BAS.

GST paid for these purchases are done for the period 1st June 2010 to 30th June 2010. I didn't know the manual option. so it would be really helpful. thanks.!

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Old 08-07-11
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Default Re: Xero experts, plz help.

Quote:
Originally Posted by Rhys View Post
I have only just seen the most recent post to this thread, having been tied up with all the usual joys of end of financial year.

I don’t want to get into an argument on this, so have been weighing up all afternoon whether to post this - I have decided to do so as I disagree with the reply below quite strongly. The advice given is (in part) technically correct but it is entirely unhelpful to tndfloors (or any other sole trader in this situation).



I would never recommend a client use manual journals – to those of us who are accountants debits and credits seem obvious, to everyone else . . . too weird, too prone to error. Xero actually gives a warning on this – “We recommend that only your accountant or bookkeeper create journals, unless you have experience managing your general ledger.” It is advice well heeded.



So don’t use a journal to enter an invoice (why would you ever use a journal to enter an invoice?) If you enter the expense as an expense claim then – like pretty much every expense claim lodged in a business – it is fine to enter it at a date other than that on the invoice. Period.

More important than either of these is another over-riding principle – “keep it simple". The process described above is anything but simple, it requires an understanding of debits and credits, and also of reconciling balance sheet accounts.



Yes a set of accounts should reflect a “true and fair value”, but for who? Who are the users of these accounts? If tndfloors is a sole trader the ATO are primarily interested in his tax return. If he has not claimed all the deductions he is entitled to - such as depreciation - they are unlikely to be bothered (there are circumstances where they might be, which is why I suggested to tndfloors that he should talk to his bookkeeper or accountant). Who else wants to see “the true and fair value”? His bank maybe (or any other lender)? But they would also want to see his tax return.

So yes let's prepare meaningful accounts, but the solution suggested requires adjustments to both prior year tax return and – if tndfloors is GST registered – to at least 4 BAS that have already been lodged. Benefit to client almost certainly less than the cost never mind the inconvenience or opportunity for error.

Cheers, Rhys


Thanks Rhys
You are right. Everytime i ask questions about this accounting program. the most common answers i get is talk to the accountants.
I understand it is most suitable and safe way to deal with it. But I think the as well as keeping a record for business is prime purpose of this program. i also think it can enable people, especially small business owners. to understand how it works. I have no problem using professional service but i also do want to find a way that i can deal with it. and at least want to understand how things are working.

So, really appreciate your answer.

I did expense claim, as naturally it has been purchased from personal fund. I and put that through it marked as paid from [owner's fund introduced] as it is advised Xero help.

I have put these 3 items purchased last financial year still on expense claim section and cant do anything else at all. so do i unlock the conversion date paid them off?


Regards
TND FLOOR

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