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James Millar
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Dropbear, post: 246729, member: 92330 wrote:
Hey all, I have been using cash based accounting for the last 3-4 years of my business.
I went to my accountant yesterday and he advised me to switch to accrual based accounting as it meant I could write off all my shipping costs from this financial year in this financial years tax return.

I don’t completely understand this though.

I currently use the cash accounting method. So each item I import, has a shipping cost factored into the COG.

So if I buy 100 items, for $10 each, and shipping them here costs $100, and they are all the same size, the COG is $11 per item.

So, if I sell 50 of them in the same financial year that I bought them, $50 of the shipping cost guest taken off my taxable income as an expense.

Apparently the Accrual method would allow me to take all $100 of the shipping cost off my taxable income as an expense. Which would be fantastic if I can do this, can someone help me to understand why this is so?

I am also unsure how I would transition between the 2 methods. Would I just change methods in the new financial year? What problems or errors could this cause?

Thanks all for you advice.

Irrespective of whether you account for income tax on a cash or accruals basis, the trading stock provisions prevent claiming the cost of sale BEFORE the sale is made. You need to account for closing stock at the end of each year and this includes direct costs associated with its importation. Your accountant should have explained this.

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