| Why do we use Accounting?Accounting became a | | | | making a profit?Obviously, the short answer must |
| necessity as merchants needed to track who | | | | be that we sell a product or service for more |
| owed money to them and what they owed to | | | | than it costs to produce.What are these |
| suppliers.The next need was to determine | | | | costs?They are what we call Direct Costs such |
| whether the business was making a profit, or in | | | | as the purchase price of materials and labour used |
| the case of a charitable venture of at least | | | | in producing the good or service. Wherever |
| covering costs. The concept of how this is | | | | possible, these should be traced and allocated to |
| achieved is the subject of many accounting | | | | the Cost of Goods Sold (COGS).Then we have |
| theories and will be dealt with later.Of course, in a | | | | the Indirect Costs such as the running of an |
| Western Society we must all contribute to the | | | | office, marketing etc. that do not relate directly |
| cost of providing community services and this | | | | to the cost of manufacture or the provision of a |
| means the determination of taxes.After the | | | | service. These are often referred to as 'oncosts' |
| taxes have been calculated, then what remains | | | | and must also be recovered in the base of any |
| may be distributed to the owners of the | | | | selling price that we may arrive at. In addition to |
| business.Unfortunately, the pressure of meeting | | | | all these base costs, we need to provide for a |
| the requirements of the Australian Tax Office | | | | profit if the owners are to justify investment in a |
| means that few public accountants have the time | | | | business venture. Unless they obtain a reasonable |
| to assist the business owner evaluate his or her | | | | return, they may just as well invest in some |
| specific measures, and to guide them in setting up | | | | other venture, or in the short term money |
| an appropriate method of reporting on | | | | market.Any net profit is then taxed both in the |
| performance.When the GST was introduced in | | | | hands of a company, and in the hands of |
| Australia the need arose to account for not only | | | | shareholders or proprietors. That is the realm of a |
| year end trading result taxes, but also for the | | | | Registered Tax Agent and professional advice |
| collection of GST. What was originally a very | | | | should be obtained.This is a very brief summary |
| simple value added tax concept has gradually | | | | of why we use accounting systems whether |
| become more complex as the requirement to | | | | they be manual or computerised. Much of this will |
| cater for different groups in our community has | | | | need to be considered, and a Business Plan |
| become apparent.The Australian Tax Office has | | | | written up before the risk of starting a new |
| indicated a preference for accounting performed | | | | business venture is assessed. It is at this point |
| on a commercially produced computer accounting | | | | that those contemplating a venture must decide |
| system that meets with specifications that have | | | | why they want to go into business. They should |
| now been provided to the various software | | | | also decide even at the outset what they want |
| writers.What are these requirements?Well broadly | | | | to do in retirement. That is, they have only one |
| speaking the system must provide a record of all | | | | life on this earth and therefore they should plan |
| transactions undertaken, and of any changes that | | | | an exit policy. Who should take over the business, |
| have been made to those transactions. This | | | | what will be expected - should it be sold, or |
| means that a proper audit trail or log of those | | | | handed to the remaining family or families. Would |
| transactions must be maintained. Some accounting | | | | family members have sufficient interest or |
| packages need this to be turned on in a new | | | | capability to carry on the business?Future articles |
| set-up in others it is active by default.In addition, it | | | | will deal with the concepts of cost accounting, |
| is desirable that the system be set-up with | | | | then budget setting in more detail.Peter Robertson |
| account cards (some systems use columns) that | | | | ACIS, CPA, PNA is not a Registered Tax Agent, |
| automatically allocate the correct GST code to an | | | | however, he had forty years of practical |
| entry when it is made. These accounts | | | | experience covering both industrial and |
| accumulate totals of the relative | | | | government accounting, and including efficiency |
| transactions.Some so called Australian packages, | | | | and effectiveness audits. He is concerned that the |
| also do not provide the correct GST allocation | | | | former Australasian Institute of Cost Accountants |
| until a specialist approved by the Australian Tax | | | | has virtually disappeared. Consequently, he has |
| Office (pursuant to S251L) has visited the | | | | decided to pass on some proven costing and |
| installation and entered the correct defaults. These | | | | general accounting theories in the hopes that it |
| specialists are also authorised to turn on the audit | | | | may assist prospective entrepreneurs. |
| trail.How do we determine whether we are | | | | |