USER GUIDE For USERS OF MCLOWD SMSF SOFTWARE

PART 5: LIABILITIES

Mclowd Pty Ltd

July 1, 2016

Authored by: Lorraine Cobcroft

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DISCLAIMER:

Mclowd do not provide accounting or taxation advice.

The following is designed to act as a guide for Mclowd users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline.

Other methods that are more suitable for individual purposes may be used instead of processes outlined in this manual.

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TABLE OF CONTENTS

DISCLAIMER: .................................................................................................................................................... 2

5. Liabilities - Introduction ............................................................................................................................... 4

5.1 Liabilities: Add New Journal Entry ................................................................................................................ 4 5.1.1 Liabilities: Add New Liability - Accounting for GST ............................................................................... 9 5.1.2 Accounting for GST at Payment Time (Cash basis registration) ......................................................... 10

5.2 Liabilities: Add Loan Account ...................................................................................................................... 11

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5. Liabilities - Introduction

Click Mclowd's LIABILITIES tab to enter invoices and other debts to third parties. Currently, Mclowd requires you to enter these via a Journal entry.

The LIABILITIES tab also allows you to enter new loan accounts, which can also be entered through the Bank tab..

5.1 Liabilities: Add New Journal Entry

Liabilities are essentially debts - amounts payable (but not yet paid) to other entities for goods or services supplied. You will enter a new Liability when a supplier bills you for goods or services provided and you choose not to pay immediately. By entering the liability, you ensure that your Portfolio balance accurately reflects amounts due to be paid and that you have an accurate record of what is owed to whom.

Mclowd currently requires that you enter Liabilities as journals, using a double-entry (debit and matching credit). For this process, a basic understanding of double-entry bookkeeping is required.

In the following example, we have received an invoice from Super Lawyers for $1250.00 for updating our Fund Trust Deed.

To begin entry of this liability, click the LIABILITIES tab.

Mclowd displays a list of your current liabilities. (Note that thus far only your opening balance liabilities are shown and these are greyed out, because they belong to past periods.)

Click ADD NEW JOURNAL ENTRY.

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Mclowd displays the Journal Entry screen.

Click the Date field to access the popup calendar and enter the date on the invoice you have received.

Enter the supplier's Name.

Mclowd assigns a reference to your journal.

In the first row, under Member Account/Fund, select the Account (''Fund'' if the supply was to the Fund, or a member account if the supply related specifically to one of the member accounts).

Under Account, select the Expense account to be debited. In our example, this would be 5-1130 Management and Administration Expenses.

Enter a Description. Ensure the description clearly identifies the transaction and enables you to trace back to the source document if required. It is suggested you include any invoice or other document reference number, the supplier's name, and a brief description of the goods or service provided. In our example, we entered ''Invoice 372 Trust Deed Update''. The supplier's name had already been entered in the heading.

In the Debit column, enter the amount of the invoice. This amount will add to the previous total of Management Expenses for the current financial year.

Move to the second line to enter the corresponding credit.

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Enter the Fund/Member Account. (This will generally be the same account as entered on the first line, as the debt typically belongs to the same account as the expense. An exception would be where the Fund owes a debt to a Member, or a Member owes a debt to the Fund.)

Select the Account to be credited. In our example, we will credit 2-2000 Accounts Payable, because this is a typical creditor invoice.

In general, most liability items will be credited either to Accounts Payable or to Sundry Creditors, except if the debt is Income Tax Payable, in which case it would be credited to Account 2-1100, or other Tax Payable that might be credited to 6-1010.

Copy the Description used in line 1.

Enter the amount of the invoice in the Credit column. This amount will be added to the total of Accounts Payable.

Your entry should appear as:

Click ADD JOURNAL ENTRY in the bottom right corner to save the journals.

If you had viewed the Trial Balance report before making this entry, you would have seen that the total in Accounts Payable was $1350.

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Checking the Trial Balance after the entry is complete will reveal that the balance has increased to $2600.

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Expense Splitting

Occasionally, a single invoice will itemise a number of supplies. For example, an invoice from the Fund accountant might list charges for

• Preparing financial statements $800 • Obtaining actuarial certificate $110 • Payment to independent auditor $180 • Preparing and lodging tax returns $150 • Preparing member statements x 4 @ $80 $320

In this case, multiple line entries can be made to Debit each individual charge to the relevant expense accounts, and a single Credit entry made to Credit the total to Accounts Payable. The entry screen would appear as:

NOTE: When entering journals, Mclowd, like all double-entry accounting software, requires that Debits and Credits are always equal. Journals will not save until the total Debits and Credits shown in the box at bottom left of the screen are equal, and the Out of balance by figure is 0.00.

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5.1.1 Liabilities: Add New Liability - Accounting for GST

If your Fund is registered for GST on a non-cash (accruals) basis, you will need to make a separate Journal Entry to account for the GST for each creditor invoice that includes GST in the charge.

In this case, you should debit the net cost (exclusive of GST) to the expense account and debit the GST component to Account 2-1000 GST Paid. Then credit the total invoice value to Accounts Payable or Sundry Creditors.

NOTE: If your fund is registered for GST on a cash basis, you will need to account for GST at the time of paying the invoices. Please refer to Section 5.1.2: Accounting for GST at Payment time.

NOTE: GST on invoices related to segregated assets

If this invoice was allocated to a member (because it relates to a segregated member asset), only the NET cost should be entered to the Member account. (Refer rows 3,4 and 5 showing entry of an invoice for investment advice offered specifically to member Annabel Smith.)

Both the GST component and the Credit should be allocated to the Fund, as the debt will be paid by the Fund and the GST credit will be claimed by the Fund at the next BAS lodgement.

For instructions for entering your end of period BAS return, please see ACCOUNT MAINTENANCE: JOURNALS - BAS RETURNS

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5.1.2 Accounting for GST at Payment Time (Cash basis registration)

It may be useful for Trustees of funds registered for GST on a cash basis to understand the correct procedure for accounting for GST when paying Liabilities.

You should not allocate the GST when recording the Liability if your fund operates on a cash basis for GST.

When you pay the liabilities, you should create a Journal to DEBIT the total amount due and payable to the Accounts Payable account to which you credited the invoice.

The corresponding journal will credit the Bank or Cash account from which the payment was made.

You will then add additional lines to the Journal entry to CREDIT the expense account(s) to which the expense was originally allocated and DEBIT Account 2-1000 GST paid.

The invoice for ABC Accounting that was entered above as:

Would require the following journal entry when paid:

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5.2 Liabilities: Add Loan Account

Mclowd allows the creation of loan accounts (similar to bank accounts, but with a negative balance). If you had existing loan accounts as at the date of commencement of recording in Mclowd (migration date), you should have created loan accounts in the Fund Setup process. The ADD NEW LOAN ACCOUNT facility allows the creation of new loan accounts set up after the migration date.

To create a new LOAN ACCOUNT, click the LIABILITIES tab.

Mclowd displays a list of your current liabilities, and the LIABILITIES button menu.

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Click ADD NEW LOAN ACCOUNT.

Mclowd displays:

Select the Account Owner (fund or a member).

NOTE: Where members invest in segregated assets, a loan account may belong to a Member rather than to the Fund. For example, if Joe Smith decides to use part of his account balance to put a deposit on a rental investment property financed through a loan, and other members of the Fund do not wish to share in this investment, both the property and the loan can be assigned to Joe's Member Account. All transactions relating to this property would then be allocated to Joe's account.

Enter or select the Set Up Date for this loan account.

Select the Asset against which this loan is secured.

Enter the Account Name

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Select the Lender from the dropdown list.

Enter the BSB and Account Number for this loan account.

Click ADD ACCOUNT to create this loan account.