How Does Poor Record-Keeping Create Tax Problems?

A business cannot claim an expense simply because money was spent. The expense needs to satisfy the relevant tax requirements and be supported by appropriate records.

When receipts and invoices are lost, business owners may forget about eligible expenses or decide not to claim them because they cannot properly substantiate the transaction.

This can increase taxable income unnecessarily.

For instance, a business may pay for accounting software, professional subscriptions, advertising, insurance and other operating costs throughout the year. If these transactions are not captured correctly, some legitimate business expenses can disappear from the final accounts.

2. BAS figures can become unreliable

GST reporting depends on accurate transaction information.

If sales, purchases or GST amounts are entered incorrectly, the figures used to prepare a Business Activity Statement may not reflect what actually happened during the reporting period.

Common causes include incorrectly categorised purchases, duplicated transactions, missing supplier invoices and personal expenses being recorded as business expenses.

A BAS Accountant can help businesses review their GST records and ensure the information used for BAS preparation is properly supported.

3. Your taxable profit may be wrong

Profit is not simply the amount sitting in your business bank account.

Your accounting records need to reflect relevant income and expenses accurately. If expenses have not been entered, income has been duplicated or transactions have been incorrectly classified, the reported profit may not represent the actual financial position.