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The Pure Bookkeeping System

Understanding your Financial Reports

Delivering repeated experiences to have our clients feel delighted

Information for Clients 5

Disclaimer................................................................................................................ 5

Copyright................................................................................................................. 5

Three Types of Reports 6

The Balance Sheet........................................................................................................6The Profit and Loss.......................................................................................................6The Cash Flow Statement.............................................................................................6

The Balance Sheet 6

What is the Balance Sheet used for?............................................................................6Why is the Balance Sheet important?..........................................................................7

Balance Sheet Terminology 8

1. Assets.......................................................................................................................82. Current Assets..........................................................................................................8

2.1 Bank Accounts and Cash...................................................................................8

2.2 Accounts Receivable (Trade Debtors)...............................................................8

3. Fixed Assets..............................................................................................................9

3.1 Land................................................................................................................... 9

3.2 Buildings.............................................................................................................9

3.3 Office Equipment..............................................................................................9

3.4 Machinery..........................................................................................................9

3.5 Vehicles..............................................................................................................9

3.6 Total Fixed Assets...............................................................................................9

4. Total Assets..............................................................................................................95. Liabilities................................................................................................................106. Current Liabilities...................................................................................................10

6.1 Accounts Payable (Trade Creditors)................................................................10

6.2 Loans................................................................................................................10

6.3 Payroll Liabilities..............................................................................................10

6.4 GST Liabilities..................................................................................................10

6.5 Inter-Company Loans.......................................................................................11

6.6 Total Current Liabilities....................................................................................11

7. Long Term Liabilities..............................................................................................11

7.1 Loans................................................................................................................11

Pure Bookkeeping Pty Ltd 2009 2

8. Net Assets..............................................................................................................119. Equity.................................................................................................................... 12

9.1 Owner’s Equity.................................................................................................12

9.2 Retained Earnings...........................................................................................12

9.3 Current Year Earnings.......................................................................................12

10. Net Assets and Total Equity................................................................................12

The Profit & Loss 13

Profit and Loss Year to Date for Month......................................................................13Profit and Loss Multi Period Spreadsheet..................................................................14Profit and Loss (Accrual)............................................................................................15Other Reports............................................................................................................ 15

Health Check 16

Why do a Health Check?............................................................................................16How often do I need to do a Health Check?...............................................................17

How to do a Health Check 18

Step 1 Confirm Bank Accounts & Credit Cards Reconcile...........................................18

What to look for?...................................................................................................18

Step 2 – Reconcile Trade Debtors..............................................................................19

What to look for?...................................................................................................19

Problems when there figures aren’t “real”............................................................20

Problems when there is an “Out of Balance”.........................................................20

Reasons for an Out of Balance...............................................................................20

Step 3 – Reconcile Trade Creditors............................................................................21

What to look for?...................................................................................................21

Problems when there figures aren’t “real”............................................................21

Problems when there is an Out of Balance............................................................22

Step 4 – Reconcile SGC Superannuation....................................................................23

Payment of SGC Liabilities......................................................................................23

Problems with non payment or late payment of SGC............................................23

Reconciling the SGC...............................................................................................23

Step 5 – Reconcile PAYG Withholding........................................................................25

Due Date................................................................................................................25

Process...................................................................................................................25

Signs that a business may be in trouble 27Pure Bookkeeping Pty Ltd 2009 3

How to Make your Business a Lean Mean Fighting Machine 28

Customers..................................................................................................................28Stock.......................................................................................................................... 28Accounts Receivables.................................................................................................28Accounts Payables......................................................................................................29Costs and Overheads..................................................................................................29

How to Keep the Cash Flowing in your Business 29

Margins......................................................................................................................29Accessing Credit.........................................................................................................29Cashflow and Working Capital...................................................................................30Where is the cash?.....................................................................................................30

Other Resources 31

Chattel Mortgage.......................................................................................................31

How does a chattel mortgage work?.....................................................................31

Balloons and terms................................................................................................31

What are the benefits of a chattel mortgage?.......................................................32

Who should consider a chattel mortgage?............................................................32

What are the tax implications of a chattel mortgage?...........................................32

Are there any other options?.................................................................................32

Housekeeping 33

Business Records to Keep...........................................................................................33Filing Trays.................................................................................................................33Lever Arch Folders......................................................................................................33

Financials Folder....................................................................................................33

Debtors Folder.......................................................................................................34

Unpaid Debtors......................................................................................................34

Creditors Folder..................................................................................................... 34

Unpaid Creditors....................................................................................................34

Contact Us 35


The Pure Bookkeeping System

Information for Clients

DisclaimerWe have used our best efforts in preparing this manual for the benefit of small

business owners. We make no representations or warranties with respect to the

accuracy or completeness of the contents of this manual and specifically disclaim

any implied warranties of merchantability or fitness for a particular purpose. The

accuracy and completeness of the information provided herein and the opinions

stated herein are not guaranteed or warranted to produce any particular result

and the advice and strategies contained herein may not be suitable for every

individual.

Therefore the authors shall not be liable for any loss of profit or any other

commercial damages, including but not limited to special, incidental,

consequential or other damages.

CopyrightCopyright ©Pure Bookkeeping 2009. All rights reserved. No part of this manual

including interior design, cover design and icons may be reproduced in any form

by any means (electronic, photocopying, recording or otherwise).


Three Types of ReportsThe three financial statements that are used together to present a complete picture of

a company's finances are:

The Balance SheetThe Balance Sheet is one of the most important pieces of financial information issued by a company. It is a snapshot of what a company owns and owes at that point in time.

The Profit and LossThe Profit and Loss, on the other hand, shows how much revenue and profit a company has generated over a certain period.

The Cash Flow StatementThe cash flow statement describes the inflow and outflow of cash throughout the period.

The Balance SheetA Balance Sheet is a snapshot of a business’ financial condition at a specific moment in

time, usually at the close of an accounting period. A Balance Sheet comprises assets,

liabilities, and owners’ or stockholders’ equity. Assets and liabilities are divided into

short and long-term obligations including cash accounts such as Cheque, money

market, or government securities.

It's called a Balance Sheet because the two sides balance out. This makes sense: a

company has to pay for all the things it has (assets) by either borrowing money

(liabilities) or getting it from shareholders (shareholders' equity).

What is the Balance Sheet used for?A Balance Sheet helps a small business owner quickly get a handle on the financial

strength and capabilities of the business.

Is the business in a position to expand?

Can the business easily handle the normal financial ebbs and flows of revenues

and expenses?

Or should the business take immediate steps to bolster cash reserves?


It can identify and analyze trends, particularly in the area of receivables and payables. Is the receivables cycle lengthening?

Can receivables be collected more aggressively?

Is some debt uncollectable?

Has the business been slowing down payables to forestall an inevitable cash

shortage?

Balance sheets, along with income statements, are the most basic elements in

providing financial reporting to potential lenders such as banks, investors, and

vendors who are considering how much credit to grant the company.

Why is the Balance Sheet important?

It is clear then why the Balance Sheet must have accurate information. Without it you

are running your business with a blindfold on.

Concentrating solely on the Profit and Loss is a mistake which can contribute to a

business failing. It also leaves too many questions in your minds. One of the most

common questions is - why don’t I have any cash in the bank but I made a profit this

month?

Cash flow can be a huge problem for growing businesses. By examining the Balance

Sheet you will be able to see how “healthy” the business is. It answers the question

“where has my money gone?” and it shows if the business is adequately funded.


Balance Sheet Terminology

1. AssetsAssets are subdivided into current and long-term assets to reflect the ease of

liquidating each asset. Cash, for obvious reasons, is considered the most liquid of all

assets. Long-term assets, such as real estate or machinery, are less likely to sell

overnight or have the capability of being quickly converted into a current asset such as

cash.

2. Current AssetsCurrent assets are any assets that can be easily converted into cash within one

calendar year. Examples of current assets would be cheque or money market accounts

and accounts receivable that are due within one year’s time.

2.1 Bank Accounts and CashMoney available immediately, such as in cheque accounts, is the most liquid of all

short-term assets.

2.2 Accounts Receivable (Trade Debtors)This is money owed to the business for purchases made by customers


2.1

2.2

3. Fixed AssetsFixed assets include land, buildings, machinery, and vehicles that are used in

connection with the business.

3.1 LandLand is considered a fixed asset but, unlike other fixed assets, is not depreciated,

because land is considered an asset that never wears out.

3.2 BuildingsBuildings are categorized as fixed assets and are depreciated over time.

3.3 Office EquipmentThis includes office equipment such as copiers, fax machines, printers, and computers

used in your business.

3.4 MachineryThis figure represents machines and equipment used in your plant to produce your

product. Examples of machinery might include lathes, conveyor belts, or a printing

press.

3.5 VehiclesThis would include any vehicles used in your business.

3.6 Total Fixed AssetsThis is the total dollar value of all fixed assets in your business, less any accumulated

depreciation.

4. Total Assets

This figure represents the total dollar value of both the short-term and long-term

assets of your business.


3.3

3.5

5. Liabilities

6. Current Liabilities

This includes all debts and obligations owed by the business to outside creditors,

vendors, or banks that are payable within one year.

6.1 Accounts Payable (Trade Creditors)This is comprised of all short-term obligations owed by your business to creditors,

suppliers, and other vendors. Accounts payable can include supplies and materials

acquired on credit.

6.2 LoansThis represents money owed on a short-term collection cycle of one year or less. It

may include Commercial Bills, mortgage obligations, HP liabilities and can include

Provisions for AL or LSL.

6.3 Payroll LiabilitiesThis includes PAYG Withholding, SGC Liabilities that are owed for employees but have

not yet been paid.

6.4 GST LiabilitiesThis includes the GST Collected and GST Paid, PAYG Installment and can include an

ATO Payment Arrangement


6.1

6.3

6.4

6.5 Inter-Company LoansThis is used if multiple entities are owned by the one Director and money is loaned or bills paid by another entity.

6.6 Total Current LiabilitiesThis is the sum total of all current liabilities owed to creditors that must be paid within

a one-year time frame.

7. Long Term Liabilities

These are any debts or obligations owed by the business that are due more than one

year out from the current date.

7.1 LoansThis is the balance of a mortgage or other loan that extends out beyond the current

year. For example, you may have paid off three years of a fifteen-year loan, of which

the remaining eleven years, not counting the current year, are considered long-term.

8. Net Assets

The Net Assets is the total after you subtract your Total Liabilities from the Total

Assets. This is the Net Worth of the business i.e. the real value. Using the example

above, the figures in the green boxes are summarised in the following table:

Credit Debit

Total Assets $98,407.21

Less Total Liabilities $99,126.75

Equals Net Assets $ 719.54


7

8

9. EquityEquity is made up of the initial and ongoing investment in the business as well as any

retained earnings that are reinvested in the business.

9.1 Owner’s EquityIn the case of a Sole Trader this is the Owner’s Capital (i.e. any money you have put

into the business) and Owner’s Drawings (any money you have taken out of the

business).

9.2 Retained EarningsThis is an accumulated figure of previous year’s earnings.

9.3 Current Year EarningsIf you look at your Profit and Loss for the same period ending as your Balance Sheet,

you will notice that MYOB takes the Net Profit on that report and transfers that

amount into Current Year Earnings on the Balance Sheet.

10. Net Assets and Total EquityThe Total Equity and the Net Assets are always the same. The Total Equity tells you

how the Net Assets are funded. In this example the Net Assets (i.e. Total Assets minus

Total Liabilities) are funded by Retained Earnings and Current Year Earnings. In the

case of a Sole Trader it will also include money you have put into the business

(Owner’s Capital) and money you have taken out of the business (Owner’s Drawings).

Once again, using this example, the value of this business is negative i.e. the Total

Liabilities (the cash you owe) is greater than the Total Assets (the cash you have).

NOTE: This is a snapshot of time, and a negative Equity does not necessarily indicate

that the business is going badly. Refer to the information later in this manual “Signs

that a business is in trouble” and consult with your accountant if you have concerns.


99.2

9.3

10

The Profit & Loss

The Profit and Loss shows how much revenue and profit a company has generated

over a certain period.

Profit and Loss Year to Date for MonthThis report is useful because it gives the monthly figures, the % of sales for each of the

accounts and YTD figures also represented as a %. You can see which of your income

streams is generating the most income and the % each expense is of the total sales.

This will help you identify where your costs are positioned in relation to your sales and

if they are excessive.

Example


Profit and Loss Multi Period SpreadsheetThis report is useful because you can see a month by month comparison of the figures

over a three month period and includes a total for the quarter.


Profit and Loss (Accrual)This report is produced for the following periods:

July to September (three months)

July to December (six months)

July to March (nine months)

July to June (12 months)

Important

The July to March reporting period is particularly important because after nine months

of trading, it is possible to forecast the trend for the rest of the year. It is after this BAS

period has been completed that we recommend that you visit your accountant for a

review and tax planning.

Other ReportsThe Cash Flow Statement describes the inflow and outflow of cash throughout the

period. This report is recommended and can be generated outside the MYOB

software.


MYOB can produce several other reports which may be useful to your specific

business. Discuss this with your bookkeeper.

The Business Fitness Review – is recommended for analysis of specific financial KPI’s.

These, and other reports, are available on request

Health Check

Why do a Health Check?Keeping good bookkeeping records is vital and more information is available on the

topic “Records to Keep” in the Housekeeping section of this manual.

Outsourcing your bookkeeping

makes sense. It enables you to

spend time doing the important

work of developing your

business and ensuring that you

are not overwhelmed by “The

Bookkeeping Monster”.

However, this is your business and you are ultimately responsible for its health. One of

the most dangerous things you can do is abdicate this responsibility to your

bookkeeper.

You have all heard the old saying of “garbage in/garbage out”. There is no point in

analysing your Balance Sheet if you have inaccurate information in it.

You must be able to answer confidently that the figures are accurate and queries have

been answered before generating the reports you need to create strategies to keep

your business strong.

Doing a “Health Check” regularly and discussing this information with your bookkeeper,

accountant, business coach or mentor is a must.


How often do I need to do a Health Check?We recommend that a Health Check is done monthly, after the bank reconciliations

have been completed and before printing off your monthly reports. At the very least, it

should be done quarterly before the BAS is lodged.

The following information is a guide so that you will be able to perform a mini Health

Check on your own data files. It is not comprehensive, but it does cover key points to

look for.

Important

If you discover a problem during the Health Check, then further investigation is

required. There are many ways to correct problems that you may identify during the

Health Check. We suggest you discuss the options with your bookkeeper or accountant

if you are unsure.

NOTE: When preparing this information, it is assumed that you are able to find your

way around MYOB into the areas we are describing. Refer to your MYOB Manual or call

us if you have any queries.

For the following examples we are using MYOB Accounting Plus v18


How to do a Health Check

Step 1 Confirm Bank Accounts & Credit Cards Reconcilea) Go to “Reconcile Accounts” for main bank account

b) Enter the “Bank Statement Date” from the previous bank reconciliation

c) Enter the Closing Balance as of that date in “New Statement Balance”

Repeat this process for all bank accounts and credit cards.

What to look for?1. Ensure there are no old unreconciled transactions.

If there are old unreconciled transactions it can indicate that the

transaction has been entered twice or the expense was paid from a

different account

2. Ensure there is a Zero “Out of Balance”

If a previously reconciled transaction has been deleted, then the bank

account will no longer reconcile and future reconciliations will be

impossible until that is resolved.Pure Bookkeeping Pty Ltd 2009 18

b

1

c

2

3

3. Ensure the correct closing balances have been entered.

In a difficult bank reconciliation, it is possible to enter the figure you want it

to be rather than spending time to identify and correct inaccuracies.

Step 2 – Reconcile Trade DebtorsPrint a “Receivables Reconciliation (Summary)” Report as of the end of the processing

period. This will give you a printout of Aged Debtors as of THAT date.

Example

What to look for?1. Ensure there is a Zero “Out of Balance” (or investigate-see below)

2. Reconcile the report with the hard copy of the sales invoices to ensure the

transactions are “real” and your customers do owe you this money


1

Problems when there figures aren’t “real”1. You won’t have accurate information to chase your debtors

2. Payments may have been allocated against incorrect invoices

3. Payments may have been processed as “Receive Money” instead of “Receive

Payments” (which puts it into the MYOB Bank Account, but does not allocate it

against an invoice) which will affect your Profit and Loss

Problems when there is an “Out of Balance”

If there is an “Out of Balance (OOB)” in the Aged Receivables it causes a problem with

the Balance Sheet. The figure just above the OOB amount is the “Receivables

Account” balance. This is the actual Trade Debtors account and is the amount that

appears on the Balance Sheet. The problem is that the amount of the OOB is included

in the Trade Debtors Account and distorts the true Trade Debtors figure.

Example

Reasons for an Out of Balance

Any transactions posted directly to the Trade Debtors account (commonly the

EOY GJ from the accountant)

A false OOB. This happens if a payment applied to an invoice is dated prior to

the invoice itself. This will also happen if a credit note is applied on a date prior

to the date of an invoice or the credit note itself

Partially deleted Finance Charge transaction


Step 3 – Reconcile Trade Creditors

Print the “Payables Reconciliation (Summary)” Report as of the end of the processing

period. This will give you a printout of Aged Creditors as of THAT date.

Example

What to look for?1. Ensure there is a Zero “Out of Balance” (or investigate)

2. Reconcile the report with the hard copy of the Bills to Pay to ensure the

transactions are “real” and you do owe your suppliers this money

Problems when there figures aren’t “real”1. You won’t have accurate information so that you can plan your payments and

manage Cash Flow

2. Payments may have been allocated against incorrect Bills

3. Payments may have been processed as “Spend Money” instead of “Pay Bills”

(which deducts it from the MYOB Bank Account, but does not allocate it against

an bill) which will affect your Profit and Loss


Problems when there is an Out of BalanceAs described previously in Aged Debtors, if there is an “Out of Balance (OOB)” in the

Aged Payables it causes a problem with the Balance Sheet. The figure just above the

OOB amount is the “Payables Account” balance. This is the actual Trade Creditors

account and is the amount that appears on the Balance Sheet.

The problem is that the amount of the OOB is included in the Payables Account and

distorts the true Trade Creditors figure. Which is why it is vital that this is identified

and corrected.

Example

For detailed information about identifying and correcting OOB, refer to the notes in the

previous Section – Trade Debtors.


Step 4 – Reconcile SGC Superannuation

Important

Ensuring that your SGC is reconciled and paid up to date is one of the most important

tasks to complete every month. Non payment or late payment of your SGC Liabilities

can incur fines and interest in addition to the time it takes to calculate the amounts

and complete the forms for the ATO.

Payment of SGC Liabilities

Important

The SGC must be paid no less than 2 working days before the due date (28th of the

month following the reporting period) to allow for time delay in being deposited into

the various staff superannuation accounts.

Problems with non payment or late payment of SGC

There can be hefty fines and penalties

If a staff member reports the client to the ATO this may result in serious

consequences

If demanded by the ATO, the calculation of interest and penalties that is

required is time consuming and costly

Reconciling the SGCEven if you have a bookkeeper who is responsible for this task, it is important that you

are familiar with the correct way of reconciling this account so that you can ensure that

these steps are followed.

Reconcile the Bank account

Reconcile the Payroll Clearing account

Print and save a PDF of the “Payroll Activity Summary” for the month

Print and save a PDF of the “Superannuation Accrual by Fund Summary”

Print and save a PDF of the “GL Summary” for Super Liability

Confirm the GL figures reconcile with the Payroll Activity Report and the Super

Accrual by Fund Report for the period

Investigate and correct discrepancies


Payroll Activity Report (Summary)

Superannuation by Fund Report

GL Summary Report


NOTE: Employee Additional Super and Salary Sacrifice super not included in Payroll Activity Report or SGC Control Account

Step 5 – Reconcile PAYG Withholding

Important

Ensure that your PAYG is reconciled prior to paying either your monthly IAS or your

quarterly BAS

Due DateMonthly IAS - The due date if you are on monthly IAS is the 21st of the month after the

reporting period.

Quarterly BAS – The due date if you are reporting your wages and PAYG quarterly is

the 28th of the month after the reporting period.

Process Reconcile the Bank account

Reconcile the Payroll Clearing account

Print and save a PDF of the Payroll Activity Summary for the period

Print and save a PDF of the GL Summary Report for:

Wages

PAYG Withholding

Super Liability

Confirm the GL figures reconcile with the “Payroll Activity Report” for the

period

Investigate and correct discrepancies


Example

Example


Note the Total Credits in this example include $400 Salary Sacrifice

Signs that a business may be in trouble

The following information, obtained from an insolvency practitioner (liquidator), may

be useful in determining if your business may be struggling. It is important to

determine if the decline is a “trend” or simply a “glitch”. Different approaches can be

used to solve the problem and this will be determined by the accountant.

Important

These signs are not meant to alarm, but to alert you to the need for some proactive

steps, rather than waiting until it’s too late.

1. Your overdraft is near or at its limit for a significant period of time

2. Difficulty meeting your suppliers payment terms

3. Staff spending time on telephone with suppliers about outstanding payments

4. Suppliers are threatening COD terms or stop supply

5. Suppliers putting your business last for service priority

6. Cheques dishonoured by your bank

7. Suppliers issuing demands or threatening legal action

8. Creditors balance increasing whilst debtors and inventory/WIP remaining static

9. Difficulty paying GST and payroll tax deductions to Tax Office

10. Hesitation to lodge GST returns due to funds being required elsewhere in

business

11. Correspondence received from Tax Office about outstanding GST lodgements or

overdue payments

12. Needing to sell capital assets to fund ongoing trading

13. Unable to place orders for stock due to cash constraints

14. Staff morale down due to perception of cash-flow difficulties

15. Higher than normal staff turnover as a result of above

16. Bank requiring more information or security in order to maintain credit facility

17. Putting off costs of maintenance on equipment which could cause an

interruption to running your business

18. Your bank has suggested refinancing

19. Behind with Superannuation obligations for employees


20. Behind with insurances e.g. workers compensation, product and public liability

21. Accountants expressed concern over financial accounts prepared

How to Make your Business a Lean Mean Fighting Machine

Customers Watch out for credit-worthiness of customers. If you are a service based business, try

to get up front deposits and progress payments. If you are a product based business,

check previous payment history of customers who make big purchases and negotiate

better payment terms from them.

Stock Closely monitor stock requirements. Check sales figures to see trends and allow for

some decline in sales compared to previous periods. Don’t get sucked into buying

stock because of discounts, unless you are absolutely certain you can turn stock over

quickly. Think of stock or work-in-progress as cash piled up on the shelves! Work

closely with good customers to predict their short and long term requirements.

Accounts Receivables Put someone in charge of Accounts Receivables and give them a system to work

with. Give them targets to meet.

Get regular reports from and meet weekly with the person who is doing your

collections.

Ensure your customers know what your 'Terms-of-business' are and that they

are clearly stated on your invoices and statements.

Provide as many ways as possible for customers to pay you.

Make speedy follow up calls and make arrangements to pay off larger sums if

they can’t be paid in whole immediately.

Don’t hesitate to call in the debt collector.

Let your customers know you're serious about payment from day one.


Accounts Payables Get the maximum terms possible from suppliers and know what business you're doing

with suppliers monthly to get better terms. Be prepared to shop around for

alternatives.

Costs and Overheads A small reduction in Costs can have as much impact on the bottom line as a big

increase in sales, and may be easier to achieve. Shop around and look for more

effective ways to achieve the results.

Don’t just ‘slash and burn’ when it comes to cost reduction. Get a copy of your last

Profit & Loss statement and take the time go through each line of the P&L asking what

can be cut and what can't.

Assess if you could manage with one less staff member

Cut phone costs and rent and a lot of little things

Look closely at all your overheads and ask yourself 'How does this cost

contribute to the profit?'.

Don’t cut the wrong overheads e.g. marketing and good staff

How to Keep the Cash Flowing in your Business

Margins You must try to maintain margins as much as possible – not just through more sales but

by good cost management. Competitors may falter which may give an opportunity to

increase prices and allow you to maintain margins. Supply, quality and reliability are

just as important to customers as price. You need to convince customers you will be

around for the long term.

Accessing Credit Banks are now more stringent about lending. You need to go to them with good

information, such as 3 years historical reports, which are accurate, as well as 3 years


forecast of profit and cashflow. You will need to convince the Bank you can repay the

funds and they will look at how you manage your own money as well as theirs.

Cashflow and Working Capital Now more than ever you need to be able to ‘crystal ball gaze’. You need to be able to

see where your cash will be in the future – 3, 6, 9 and 12 months out. You need to

understand where your money is and keep it for longer in your bank account.

Where is the cash? Sitting on the shelves in stock

With customers who haven’t paid yet

With suppliers paid too quickly

Jobs in progress that haven’t been invoiced yet

Excessive costs and overheads

Assets or equipment that should have been leased or hired


Other Resources

Chattel Mortgage

The following information is to give you an understanding of Chattel Mortgages. It is a

financial product that is commonly used for business owners which is why we have

included the information here. The main attraction for the client is that the full

amount of the GST can be claimed at the time of the purchase.

Important

You should consult your accountant for advice if this is the right product for you.

A chattel mortgage is a business finance product where the customer takes ownership

of the motor vehicle at the time of purchase.

How does a chattel mortgage work?Under a chattel mortgage the finance provider funds the purchase of the vehicle. The

customer takes ownership of the motor vehicle at the time of purchase.

The financier then takes a mortgage over the vehicle as security for the car loan.

Once the contract is completed, the mortgage is removed giving the customer clear

title to the motor vehicle.

Balloons and termsThe chattel mortgage balloon is the amount that will need to be paid to the finance

provider at the end of a chattel mortgage. Having a balloon put into your agreement

makes the monthly lease payments cheaper and much more affordable. The decision

of having a balloon or not is entirely up to you, you may choose to pay the motor

vehicle down to zero which means once the final lease payment is made, you own the

motor vehicle.


What are the benefits of a chattel mortgage? Chattel mortgage terms range from 12 to 60 months

A tax deduction is available if used for business use

The Interest Rate is fixed for the term of the chattel mortgage agreement

Chattel mortgage repayments are fixed for the term

Lower interest rates due to the vehicle lease being secured against the vehicle

No GST is charged on the monthly chattel mortgage payment

Customers registered for GST can claim the GST that is included in the vehicle

purchase price

Who should consider a chattel mortgage?A chattel mortgage is suitable when you use your vehicle wholly or predominantly for

business purposes. This means that the vehicle is used for business for more than 50%

of the time. It's also a great option if you would like to own the motor vehicle at lease

end.

What are the tax implications of a chattel mortgage? The monthly repayment or balloon amount is not subject to GST

Where the vehicle is used for business use, the hirer can claim "interest and

depreciation". That is interest on the lease payments and depreciation up to the

luxury car tax threshold or depreciation limit of $57,180

GST is also claimable on the purchase price of the vehicle in one lump amount

Are there any other options?Other options are Finance Lease, Commercial Hire Purchase or Novated Lease.


http://www.1300carlease.com.au/novated-car-lease.html

http://www.1300carlease.com.au/commercial-hire-purchase.html

http://www.1300carlease.com.au/finance-lease.html

Housekeeping

Business Records to KeepThe ATO have a wealth of information for small business owners. You may find useful

the following guide “Business Records to Keep” from the ATO website www.ato.gov.au

Filing Trays

Filing Trays can be a useful tool to help you organise your financial paperwork

Generically the drawers of the Filing Trays are labelled as:

Bills to Pay

Bills paid from Cheque Account

Credit Card dockets

Cash dockets

Bank/Credit Card Statements

Lever Arch FoldersA4 Lever Arch folders are recommended for filing processed financial information. The

number of folders varies depending on the number of debtor and creditor invoices to

file, but essentially the system is the same if you have 3 hours processing a month up

to bookkeeping a day a week.

There are three groups of folders for each Financial Year:

Financials FolderUse manila dividers to separate the following

Bank statements

Credit card statements

Monthly Reports

GST/BAS

Current year payroll information (if applicable)

Asset Register


http://www.ato.gov.au/

Debtors FolderDebtors can be included in the Financials Folder if the number of sales invoices are

small. In that case, create an additional divider called Debtors.

Otherwise create a separate Debtors Folder and use A-Z dividers to file from the oldest

to most recent on top. Filing by invoice number is also acceptable if you have a system

for tracking by number.

Unpaid DebtorsFile copies of unpaid invoices in the front of the paid Debtors with a copy of the Aged

Receivables Report on top.

Creditors Folder File all creditor invoices A – Z

Oldest to most recent on top

Group together according to account number the following suppliers:

Telstra

Optus

Utilities Suppliers eg AGL, TXU, Origin, Water suppliers

Unpaid Creditors

These are filed in the Filing Tray, or if too many for that you can create another Lever

Arch Folder for Unpaid Creditors:

File A -Z

File OLDEST invoices on top (i.e. invoices that are next due for payment) and

most recent invoice behind that


If you have questions about the information provided in this document or if you would

like to meet with the Director of INSERT YOUR BUSINESS NAME, then please call the

office during business hours to arrange an appointment.

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