Second in this introductory series is expenses. Like income last week, how you record your expenses will be impacted by how those expenses are incurred. You can also minimise your data entry depending on how you receive the receipt for the expense.
Step 1 – Capture Information
If you receive invoices for payment at a later date
The date you enter these will depend on how you are reporting your business (cash or accrual method). If you are using cash method you enter these on the date they are paid – they can either be processed as a bill when paid or directly as a receipt. If you are using accrual method you enter these as you receive them as a bill. For more information read my explanation article at https://clairewright.com.au/2018/03/18/cash-and-accrual-accounting-explained/
If you receive a paper receipt
Most bookkeeping software now come with apps that will scan, read and store your paper receipts (if yours doesn’t I’d consider a change or find a way to incorporate one into your system). Otherwise upload the receipt directly.
If you receive an electronic receipt
You may be able to email electronic receipts to your bookkeeping software for automatic upload and processing of the information. Otherwise PDF the email and upload directly.
* Note, these automations are normally limited to capturing the supplier name, date and amount. Then you need to enter any missing information (what you purchased and the chart of account to use) and verify the captured information is correct.
If you pay automatically, subscriptions, recurring payments and direct debit
You need to record these transactions manually with a source document showing the total. This includes any amounts where a fee has been deducted before a payment comes to you (Stripe, Square, Etsy, PayPal, course platforms etc). For items where the amount is the same you can use the original agreement as the source document. For items where the amount is variable you will need an itemised invoice/receipt for each entry.
Step 2 – Categorisation
Each expense needs to be coded to an account from your chart of accounts – this basically categorises your expenses. Pay particular attention to cost of sales and cost of goods sold – which is the cost of delivering a service or producing a product – these are costs directly attributable to the sale and would not have been incurred if you hadn’t made the sale.
PS : Have you reviewed your chart of accounts recently? Did you accept the default accounts from your bookkeeping package and they aren’t working for you? Reach out to see how I can help you get this sorted and track the things important to YOUR business at wryghtaccts@gmail.com
* As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.
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