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The Australian Tax Office defines Small Business with a turnover of under $2 million per year as small business entities/micro businesses. There certain concessions available to micro businesses. MB(micro businesses) usually account for their business transactions under Tax Office rules and on a cash basis. Classified next are small to medium enterprises ( SMEs ), with a turnover in excess of $2 million, and large corporate entities, which have a turnover of more than $20 million per year and are often list on the stock exchange. These enterprises account for their business transactions on an accrual basis under Australian accounting standards, but they still use the same bookkeeping methods as MB. The main taxation concession available to you is that you can calculate your net income for income tax purposes on a cash basis. If you elect to do this this, you can also calculate your goods and services tax (GST) liabillity on a cash basis. This book assumes that you have elected to use cash accounting for both your income tax and the GST. It also assumes that your annual turnover exceeds $75000. If it is less than this amount, you do not have to register for the GST. --------------------------------------------------------------------------------------------- Why accounting? Accounting is the process of identifying, measuring and communicating econimic information t opermit informed judgements and decisions bu users of the information. In the case of small business, the users are the owners themselves, using information to determine the profit they made. They also use the information to report their GST liability to their accountant via their quarterly Business Activity Statement (BAS) and calculate their income tax due on an annual basis. (my notes: to do income tax need GST liability, to get GST need BAS) The accounting system identifies and records business transactions through a mechanism known as journals that summarises the information that is then recorded into a set of accounts, based on a system of accounting known as double-entry bookkeeping. The recording of information is called bookkeeping, while the interpretation and reporting of the information is called accounting. The boundary between bookkeeping and accounting is usually considered to be the trial balance, which is a summary of all information entered into the system over a given period. It is from the trial balance that the financial statements are derived. Accounting information, once recorded in the set of accounts, is then communicated using financial statements prepared from those accounts. ------------------------------------------------------------------------------------ The main financial accounting statements The purpose of financial accounting statments is mainly to show the financial position of a business at a particular point in time and to show how that businesses has performed over a specific period. the 3 main financial accounting statements that help achieve this aim are:
How Trial Balance being the boundary of bookkeeping and accounting: All processes invovled up to the trial balance stage, including your bank reconciliation statement and BAS preparation, could be considered to be bookkeeping. ------------------------THE BOUNDARY :p ---------------------- The process of taking that trial balance and modifying the figures to meet accounting standards and then producing your BS and IS, including your income tax return, is considered to be accounting. |
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