Scenario 1. 'My personal, business and superannuation fund accounts are done with BanktoBook. It's all loaded and balanced in minutes with no manual data entry.'
This person has two personal credit card accounts, a business cheque account, a home loan mortgage account and a self-managed superannuation fund account.
The self-managed superannuation/retirement fund account is a different tax entity and is a different client. It does not mix with the other accounts. It is governed by strict government rules. There are not many transactions and it is easily categorised. There were 5 years of transactions in the first upload. Note that financials institutions may vary has to how long they allow transactions. The initial rules were established and it subsequently achieves better than 90% automatic categorisation. The upload format was a unique third party format and it was several days before that was catered for. The format is now linked to this user for ongoing uploads.
The personal and business accounts can be mixed. BanktoBook understands business and personal. Even the personal accounts such as a credit card can have business transactions. On the first upload of a whole year's transactions for each account, it took 2 hours to do the rules. Subsequent uploads achieve better than 90% automatic categorisation. Since then it has taken 15 minutes to do all three accounts for one quarter. Sometimes 99%+ is achieved.
The business account is more complicated because it has expense cheques and income from cheque deposits. In both cases, the banks typically give very little information in the description so there is not much for the rules to detect.
With the expense cheques, a special rule extracts the cheque numbers but the payee is unknown so they are uncategorised with a special description containing the word '[name]'. They are easily identified in BanktoBook. Uncategorised transactions are sorted so that they appear first. It is a case of having the cheque book with the cheque butt details on hand and clicking on each cheque transaction and selecting the right merchant. The description is also edited so that the special text for [name] is changed to the merchant name.
The business account also has income from cheque deposits so there is a deposit book. The banks typically give very little information in the description so there is not much for the rules to detect. The rules make these uncategorised. There may also have been several cheques banked under the one bank account entry with a description like "DEPOSIT - CHEQUE(S) #Chq:3". The date and the amount identify which entry it is in the deposit book. It is a case clicking on the transaction and doing a 'distribution'. So if there are 3 cheques deposited, the distribution allows a split of the total amount into 3 individual amounts with the appropriate merchant. These actions are easy and quick especially after doing a few. It will not allow a save unless the distribution adds to the original amount.
The bottom line is that the tax returns are now getting done on time. It involves very little effort and guidance is given by a Bookkeeper. The tax deductable expenses are better identified and the tax preparation costs are minimised.
Scenario 2. 'This person has two rented investment properties, a home office business and a part-time job. By fine-tuning the category matching rules, most of the income and expense is now automatically categorized. The Category Listing can be presented to a tax accountant with all income and tax deductable expenses neatly identified.'
He was always late and struggled to assemble the details for a tax return. A mainstream accounting system was attempted but it was all confusing.
A Bookkeeper assisted him to get started. It was now May 2012 and the tax return for June 2011 was not done. He downloaded every transaction that the banks would allow for the 3 bank accounts going back into 2009. It took three hours to define the rules and to manually allocate merchants to the ones that were one-off and therefore didn't suit a rule.
The category listing was printed for tax year ending June 30, 2011. This enabled him to scan over all entries to see if some improvements were needed. An early copy was studied by his bookkeeper for feedback on business percentages and whether information could be improved.
The home office business still had income buried in the OTHER income category. These were changed to better categories. The end result was 'no tax payable' due to the negative gearing of the investment properties. The tax return was lodged and the coming year's return will be a lot easier.
Keeping prior year's transactions means last-year/this-year or previous-year/last-year enables an easy performance analysis. The accounting costs are kept to a minimum, it gets done on time and tax-paid is optimised.
All business related transaction were in one bank account.
She was receiving CentreLink payments (the Government agency for income support) and declared starting as a self-employed person.
The agency gave her 5 days to supply
The first attempt was done manually and after some anxiety and minimal assistance and using her online banking, it turned out OK. But this was only for one month of transactions.
However, it became apparent that the invoices did not add to income received into the bank account. It was explained to her that there is Cash Accounting and Accrual Accounting. She was only required to account on the Cash Accounting basis. This means that income is not recognised until it reaches the bank account. This is valid and the difference between invoiced amount and received amount is effectivly outstanding debts and this is an asset in the Balance Sheet. Therefore income and expense that has reached the bank account is all that is required for an Income and Expense Statement.
Note that BanktoBook, of the three requirements above, only produces the Income and Expense Statement (Profit and Loss Statement). The Balance Sheet is reasonably simple and can be a template in Word or a Spreadsheet. Sending copies of Invoices involved printing, scanning or photocoping and was the most time-consuming part of the task. The more important report is the end-of-year Category report which is best submitted to a tax agent for the finalisation of tax. It does not matter which accounting system the tax agent uses.
Now the agency wanted her to submit these reports every three months. The task was becoming more daunting.
She raises invoices on a Term basis. The invoice requests payment to a bank account. Cash payments are not recommended and children receiving lessons do not need to carry cash. If cash is received, it should be banked to the bank account. Cash not banked is open to tax fraud. In BanktoBook, cash can be accounted for by doing a split/distribution of a deposit.
She was also faced with more complex details for a tax return. A mainstream accounting system was considered but rejected as too difficult/confusing. Being a Home Office, she now had the ability to claim more things as valid tax deductions. In Australia, the figure of 10% for Home Office expenses may be considered as reasonable. Please note that one should consult a Tax Accountant or Agent for determining what is reasonable and acceptable. So whatever the percentage, it means that Rent Paid, Electricity used, Internet expenses, Motor Vehicle expenses and other may be claimed as part business expenses that are tax deductible.
After starting with BanktoBook and after fine-tuning the category matching rules, most of the income and expense is now automatically categorized. The Business-Only porting of Income and Expense can now be reported automatically. The End-of-Year Category Listing can be presented to a tax accountant with all income and tax deductable expenses neatly identified and showing private and business income and expense.