Accountants play an important role in successfully maintaining the books of accounts in an organisation. Whether it is a small organisation or a large one, accounting is important in ensuring proper compliance with accounting rules and regulations applicable within the country. Proper maintenance of books of accounts and records can provide numerous benefits even to small business owners. However, there are many wrong beliefs especially among small business owners with respect to maintaining books of accounts and keeping proper accounting records. Some of the major myths that are common among small business owners are explained below:
1. Only large businesses need to maintain books of accounts:
This is a common myth among small business owners because they believe that because that not nearly as many transactions are made, they do not need to keep a record of all the transactions throughout the year. However, this is not correct because accounting records are required to be maintained throughout the year for a number of reasons:
- They provide good insight about the business performance at any point of time, and business owners can therefore make relevant decisions that could improve performance across different areas of the business.
- Regularly maintaining accounting records also eliminates any chances of errors in respect to debtors and creditors of the business.
- Tax compliance can be easily possible within time frame from maintaining books of accounts throughout the year.
According to the ATO, it is important that small businesses are also required to maintain books of accounts as per specific accounting policies and conventions specified by accounting regulatory authority board within the country.
2. Small businesses don’t need accounting software:
With the advancement of technology, there are many vendors offering accounting software customised to different business needs and requirements. Various small accounting packages are available in the market, and they can significantly help in recording day to day transactions and providing relevant insights about different business areas. However, the common myth among small business owners with respect to utilising accounting software is that the benefits of the software do not make up for the burden of extra costs. Although there are extra costs required in implementing accounting software, they provide useful information which could not be possible if you were manually maintaining accounting records. Modern day accounting software makes use of artificial intelligence to interpret data in a meaningful way and provide information which can enhance business processes and in turn, benefit customers. Considering the sheer convenience and the time that can be saved by using accounting software, the benefits far outweigh the costs.
3. Managing accounting records is easy:
A common belief among small business owners is that managing books of accounts is very simple. However, this is not true because small businesses are also required to comply with applicable accounting laws and regulations in maintaining books of accounts. Expert knowledge is required in maintaining books of accounts appropriately, and a basic understanding may result in errors that negatively impact the business. This may affect the true and fair view of books of accounts if they are maintained by an insufficiently skilled person. It is therefore not wise to consider the preparation of accounts as simple, it is imperative that a professional be entrusted with the responsibility of preparing organisation’s books of accounts.
4. All start-up costs can be deducted immediately
Small business owners often can make the mistake of failing to distinguish between capital and revenue expenditure, and they therefore have the belief that all types of expenses can be deducted against the revenue in the first year of opening shop. This isn’t true because capital expenditure cannot be deducted entirely against the revenue generated within a financial year. For example, property acquired by your business is a considered capital expense, and it cannot be written off against your revenue. However, depreciation can be charged against property during the financial year, but they cannot be written off completely. Hence proper accounting experts are needed in order to prepare books of accounts, so that they can appropriately assign costs against relevant items in the current year.
5. Accounting is only important for taxation purposes:
Most small business owners might think that maintaining books of accounts and recording each and every transaction during a financial year is only carried out in order to comply with taxation liabilities. By keeping books of accounts, profits earned from the business can be identified during a financial year, and tax liabilities can be sorted out. However, this is not always true because keeping books of accounts also provide information about payment cycle to creditors, collection from debtors, and it can tell you which areas of the business are excelling and those that aren’t. This will allow the business owner to make the right decisions in improving the areas of the business that are not performing well and focus more on the areas of the business that are. Therefore, accounts are maintained not only to comply with taxation obligations, but also to improve business performance.
It is therefore important to dispel these myths so that small business owners can take appropriate decisions in relation to maintaining books of accounts.
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