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Author: Sanjeev Archak

GST News-GST Interest: Delay in Payment of GST

by Sanjeev Archak Sanjeev Archak 1 Comment

Here is the latest GST News- GST Interest  on delayed payment of taxes.The Government has started sending out notices for recovery of interest on delayed payment of GST. GST interest has been on the radar of the GST department for a long time. This move comes after the GST collections have been below par this year. The, Central Board of Indirect Taxes and Customs (CBIC), which administers GST in the country, has issued a notification on 10.02.2020 requiring payment of interest.

Notices for payment of interest are being sent for the Financial Years 2017-18, 2018-19 and 2019-20. The CBIC estimates that Rs 45,996 crores remains unpaid to the Government on account of delayed payment of taxes.

Initially, the CBIC insisted that the interest be paid on the Gross Tax Liability (before setting off input credit). However, in a series of tweets the CBIC has clarified that the interest will apply on the Net Tax Liability (after setting off input credit). This is a relaxation given by the Government, despite the Telangana High Court ruling that interest can be charged on the Gross Tax as well.

Provisions of the GST Law

Section 50 of the CGST Act, empowers the Government to collect interest on tax dues. Tax dues are defined as tax payable without including interest, fees and penalty. However, the GST portal does not allow filing of returns without payment of tax. Hence, the Government imposes interest only after payment of taxes and not at the time of filing returns.

Rate of Interest

The rate of interest is 18% p.a.The interest is calculated from the date on which taxes become due till the payment of tax.  The calculation is done based on the net tax paid and the date of filing the return.

GST Return Details

Net Tax Paid

Total Interest

Return Month

Due Date

Date of Filing Return

Delay in Days

IGST

CGST

SGST

 Interest

IGST

CGST

SGST

Dec 19

20/01/2020

18/02/2020

29

100

100

100

18%

1.43

1.43

1.43

Nov 19

20/12/2020

18/02/2020

57

200

200

200

18%

5.62

5.62

5.62

Oct 19

20/11/2020

18/02/2020

90

200

200

200

18%

8.88

8.88

8.88

 

 

 

Total

500

500

500

 

15.93

15.93

15.93

How to pay interest?

The interest has to be paid after a notice has been received from the GST department. The notice so issued will contain the interest payable for every financial year. The interest on late payment of tax has to be paid  in Form DRC 03.This challan is available online on the GST portal. A copy of the challan has to be sent to the jurisdictional GST Officer. Further, such payment has to be made within 7 days of receiving the payment notice.

Final Thoughts

The levy of interest on delayed payment of tax is not new in India. Interest has been levied on delayed payment of income tax, service tax, and value added tax since long. It’s only now that the GST department has started the interest levy as well. However, on might argue that The GSTN requires a late fees payment of either Rs 100 or Rs 10 per day if returns are not filed on time. 

Delayed filing of returns will now incur fees for late filing as well as interest for delayed payment of taxes. Always file your returns on time. We can help. Get in touch today.

How to make smart decision using Financial Statements

by Sanjeev Archak Sanjeev Archak No Comments

Okay. Let’s start with the most quoted phrase “Data is the new oil”.A business operation contains tons of data in receipts, vendor bills, customer receivables, subscriptions, inventory among other things.All this can be overwhelming for a business owner. This information if used and analysed correctly, can drive growth in the business. In this post we shall explore how to make smart decisions using financial statements.

What are financial statements?

Financial statements comprise of:

  1. Profit & Loss Statement
  2. Balance Sheet
  3. Cash Flow Statement

In addition to the above you can add Financial Forecast or Budget Statements to the list. Now, let’s examine each of these items and how it can contribute to your business.

Profit & Loss Statement

This statement is also called as Income Statement. This statement will show:

  1. Revenue: sales generated in a particular period
  2. Costs: expenses incurred in a particular period
  3. Profits: which is the net of sales and expenses

Maximizing profits must be the ultimate goal for a business. This information will help you create a budget, control your expenses and increase your revenue. In order to make informed decisions financial statements must be compared for different periods to form a trend. Here is how a trend can help:

1.Check how your business is doing

Maximizing profits must be the ultimate goal for a business. Gross profits and net profits are useful indicators. These are often termed as top line and bottom line. An upward curve for both top and bottom line indicates that your business is making money.

2.Where are you spending your money?

A cursory glance at your Profit & Loss statement will tell you where you are spending your money. Hence, ensure that there are clearly marked accounts in your expenses list like rent, salaries, and internet expenses. It is important to avoid accounts like suspense or loosely defined account heads like miscellaneous expenses. A multi-year comparison will tell you not just where you are spending but will compel you to look for reasons as to why you are spending.

3.Increase your margins

Margins are also called as Gross Profits. In simple terms Gross Profits=Sales minus cost of goods sold. What is Cost of Goods sold? Let’s take an example of a business selling toys.  The cost of purchase includes:

  1. Cost paid to the wholesale merchant/distributor
  2. Cost of transportation to the store
  3. Any other cost incurred in procuring the toys

It is important to note that cost of goods sold does not include indirect costs of such as rent, salaries or electricity. A lower cost of goods sold will lead to a higher margin. Therefore, in most businesses it is easier to control cost of goods than increase the sales price. A lower gross margin is a  sign that the business is under stress.

4.Impact of taxes

Taxes cannot be avoided. So there must be plans to minimize and plan your taxes. Tax planning includes a whole range of factors starting from selecting the legal entity for your business, availing sector specific deductions, labor law compliance’s etc. Always look for trained help to manage your taxes. Let our experts at Integra Books help you.

Balance Sheet

As the name indicates it is a statement that balances assets and liabilities. A balance sheet is a point statement i.e., that indicates the total assets and liabilities of a business as on particular date. Let us now look at what a balance sheet contains:

  1. Assets: this what your business owns
  2. Liabilities: this what your business owes

A healthy balance sheet must be asset heavy and light on liabilities. Further, while looking at a balance sheet you are likely to see terms like current assets, current liabilities, equity etc.

What is an asset?

Assets are what you have acquired to run your business. Assets are further divided into fixed assets and current assets. Fixed assets are defined as assets which are used to produce goods or render services. In other words, fixed assets are not held for sale. Examples of fixed assets include machinery, computers, and trademarks.

Current assets are typically held for sale. A prime example is inventory. Inventory is sold to generate revenue. Sales proceeds in the form of cash or bank balances are current assets as well. Dues from customers are also classified as current assets. Current assets can be converted to cash within six months to one year.

What are liabilities?

As the name suggests, liabilities are what a business owes to others including banks, lenders, vendors, credit cards, government and employees. Further, liabilities are grouped into current and non-current liabilities.Current liabilities are likely to be paid within one year whereas non-current liabilities are to be paid after a year.

How to compute working capital?

Working capital is the oxygen that keeps a business alive. How to compute working capital? It is done through a simple formula:

Working Capital=Current Assets minus Current Liabilities

A positive result means that the business will not run of cash in the near future. Whereas, a negative result means that a business will have to borrow money to meet expenses.

How does working capital impact a business?

All right let us break this down. Two important items of current assets are customer dues and inventory. High customer dues will lead to low cash balances as recovery is low. Similarly, a high inventory means that sales are low. Money invested in producing these goods is not getting converted to sales. 

Therefore, with cash becoming scarce a business no option but to hold off on paying current liabilities. This will lead to delayed payments to vendors, lenders or even employees which can lead to  halting the business.

What is equity?

Equity is what the sole owner or shareholders have invested in the business.  Theoretically, the business owes back the invested money to the investors.

Cash Flow Statement

The success of a business can be measured by its free cash flows. A cash flow statement indicates the 

  1. Cash Inflow: cash from sales, loans etc.
  2. Cash Outflow: cash paid to vendors, employees etc.
  3. Cash balance: Net off inflow and outflow

A positive cash flow means  cash coming into your business is more than cash going out. This denotes that your customers are paying on time and vendor gets paid on time. This is an ideal situation where  your business can run without taking on debt. As a business owner you must always have  an eye on the cash flow statement. It is imperative to have a positive cash flow.

Your business’s financial data will help you make informed, strategic decisions that maximize revenue and turbo charge your business’s growth. In order to stay ahead you need the best technology available. Zoho Books is a cloud based accounting software which has a dashboard which containing all the vital details of your business. Not just that there are tens of reports which you use to make informed decisions.

Of course, you need a combination of technology with human expertise. At Integra Books, we combine technology with the best experts to provide the best services. Get in touch today.

Purchase Order-Purchase to Payment Cycle

by Sanjeev Archak Sanjeev Archak No Comments

A purchase order is a document sent from a purchaser to a vendor to confirm a specific purchase of goods or services. One little document can go a long way in clearing up the logistical confusion of a growing business. A purchase order is an important part of the purchase to payment cycle.

What is a purchase order?

A purchase order is raised by a buyer to a vendor. A purchase order denotes what exactly the buyer requires, terms of the delivery, quantities and prices of products or services. Often a purchase order is initiated by the purchase manager in an organization. Further, the purchase order or P.O. as it is called, goes through multiple levels of approval within the organization. Post approvals it is sent to the vendor. Needless to say, quotations have to be obtained from vendors before a P.O. can be raised.

Zoho Books allows the users to configure multi-level approvals for a purchase order with e-mails or in app notifications sent to all stakeholders.

Why use Purchase Orders?

1.They make life easier:

A purchase order is a document which puts down in writing the deliverables of a vendor. It is the best way to avoid miscommunication and time consuming back and forth with vendors. Further, all the internal stakeholders in the business are aware of what is purchased and can plan the business ahead.

2.Provides audit trail:

Purchase orders remove a lot of stress from the auditing process by providing auditors with a conclusive audit trail and an easy way to cross-check invoices and packing slips. Without purchase orders, prepare for a long, painful process of poring over invoices, receipts and emails with vendors.

3.Purchase Order is a legal document:

Once a vendor acknowledges a P.O. as accepted by him, it creates a mutually binding contract between the buyer and the seller. The seller is bound to deliver as per the terms agreed.

4.Tracking Orders becomes easy:

A purchase order makes it easy to track the goods and services coming into a business. It is essential for a business to track when shipments are arriving, how to pay for them etc., a concept like “Just in Time” will work only if production planning works in sync with purchase and receiving functions.

What should the Purchase Order Contain?

Here is list of items a P.O. must contain:

  1. P.O. Number
  2. P.O. Date
  3. Vendor name and billing address
  4. Buyer name and shipping address
  5. Additional contact information
  6. Delivery date
  7. Shipping method
  8. Shipping terms
  9. Item name
  10. Item description and technical information
  11. Item quantity
  12. Item unit cost
  13. Line total
  14. Taxes
  15. Total price
  16. Payment terms

What happens to a P.O. goods or services are delivered?

Upon the delivery of the goods, a goods received note (GRN) is generated detailing the items received. This GRN is compared with the P.O. to check if the ordered goods have been received. If the GRN is in agreement with the P.O. it is forwarded to the accounting department and the P.O. is “closed” The accounting folks do a three way match between:

  1. Purchase Oder
  2. Goods Received Note
  3. Vendor Invoice

If all three are in agreement, then the vendor is paid. This completes the “purchase to payment cycle”.

When not to raise a Purchase order?  

Certain regular, recurring purchases relating to the day-to-day operations of a business including rent, electricity, internet are usually billed for the month and do not require a purchase order.

We hope in this post we have able to address the basics of the Purchase to Payment cycle.

How to reduce debt?- An easy guide

by Sanjeev Archak Sanjeev Archak No Comments

All businesses have to borrow at some stage to fund growth. Debt in your balance sheet is not an unusual item. However, it is not a comforting factor in your financial health. India has seen several large scale debt related defaults by large corporate’s. This begs the question-How to reduce debt? Debt Management is the answer.

Here’s a step-by-step plan to help you reduce your business debt, so you can reclaim your sanity and start focusing on other important tasks.

Start with a Budget

We can’t emphasize how important it is to have a budget. In fact, we have written a whole blog about this. A budget is the best way to set target for revenues and limits for costs. Measuring these targets with actual revenues and costs will give you a good idea where you stand as a business. A business owner will actually be able to determine how much he can borrow and how long it will take to repay the loans.

Make a repayment plan

EMI’s for debt repayment are known to very borrower right from the start. So for a business, it is all about having money to fund the repayment schedule. One of the key aspects of this plan is cash flow management. A business needs to have enough cash for EMI payments. There are two thumb rules a business can use to save cash:

  1. Control spending: spend only on essentials. This is a tough plan which requires a lot of discipline.
  2. Earmark cash for repayment: set aside a % of your sales or profits each month to pay EMI’s

Set an “Exit Date” for Debt

This is a part of the “Repayment Goals”. Marking out a date in your calendar to be debt free will keep your motivation levels up. The lenders too would have specified a repayment schedule and pre-closures are not penalized anymore by lenders.

Negotiate Terms with Vendors

It is simple, ask for more credit. Most successful retail companies let vendor manage their working capital for them by asking for discounts or more credits. This will help you streamline your cash flows as well.

Avail the right debt product

 Identify the debt product which works best for your business. If working capital is what you are looking for then consider availing cash credits, overdraft or a working capital term loan. However, if you want to fund an asset purchase then avail a term loan. The security for the loan depends on the type of loan for e.g, for an asset purchase a mortgage on the asset will be security. However, an overdraft or a cash credit will be secured with stock or receivables of the business.The interest rates for these debt facilities vary as well. Choose an option that suits you best.

Renegotiate the terms of loans

What if you are not able to pay EMI’s? Don’t panic. You always have the option of renegotiating your loans. This requires the lender to recast the repayment schedule or include a moratorium period. Additionally, you can ask for a funding of interest via a funded interest term loan. This is easier said than done as it takes an excellent track record of the borrower to renegotiate.

Keep an eye on margins

Interest payments have a huge impact on margins. It is important to minimize the hit of interest on margins. As a business change your product or service mix to reduce low margin offerings.

Explore leasing

Leasing equipment’s often works out cheaper than owning them. Leasing will help reduce huge upfront payments for equipment’s.

Final Thoughts

It’s perfectly normal to be worried about repaying loans. The best way of getting rid of this stress is to pick debt management/reduction ideas, commit to a plan and make it happen.

Penalties for Fake Invoices

by Sanjeev Archak Sanjeev Archak 1 Comment

Ever since the introduction of GST, input credit has become a focus point for most tax payers. GST was supposed to have automated the process claiming credit. However, this facility has not seen light of the day. Further, confounding the problems is the recent ruling imposing input credit restrictions. In October last year GST department mandated that  a tax payer will be able to claim only 10% of input credit if the vendor has not filed his returns. The Government was forced to bring in this rule as only a handful tax payers were filing GST 1 returns. Another major problem the Government is battling is that of fake GST invoices. In order to combat this problem the Government has announced penalties for using fake invoices. This penalty will be applied to both persons accepting & making the fake invoices.

Recent Budget Amendments

The Budget presented by the Finance Minister earlier this month has introduced a new Section called Section 271AAD in the Income Tax Act. This Section provides for penalty for:

  1. A false entry in the books of accounts
  2. Omitting entries in the books of accounts which are required to compute total income with an intention to evade tax

It is important to note that these penalties will be applicable from 01.04.2020. The Assessing Officer (the Income tax officer examining books & returns) is empowered to direct the tax payer to pay this penalty if he finds there are fake entries or omissions in the books of accounts.

What is the quantum of penalty?

The penalty shall be equal to the aggregate amount of such false entry or omitted entry.

What is a false entry?

False entry has been defined to include the use or intention to use:

  1. A false or forged document such as a false invoice or in general a false piece of documentary evidence
  2. An invoice for supply of goods or services where the actual goods or service has not been delivered
  3. Invoice from or to a person who does not exist

The definition is wide ranging one which includes even the “intention to use” and further it goes to include not just invoices but all other documentary evidence. This could include balance confirmations from vendors/customers or any other correspondence with business associates.

Who shall be liable to pay penalty?

The penalty shall be levied not only on the person using the false entry but also on the person providing such false entry.

This amendment has far reaching consequences. The Government has now synced both Income Tax and GST data bases so that there real time information sharing. If a tax payer gets found out for a false entry in an Income Tax proceeding, it is safe to assume that, he will be sent a notice under the GST law as well.

Suitable changes have been made to Section 122 & Section 132 of the IGST Act, which deal with penalties for improper invoicing and frauds. Apart from monetary fines, GST registration can also be cancelled by the authorities.

So every business owner needs to be vigilant and not indulge in unethical or fraudulent business practices. It is evident that penalties for fake invoices will be steep.

Year End Payroll Compliance’s

by Sanjeev Archak Sanjeev Archak No Comments

As we welcome the New Year 2020, we must get ready to say good bye to the Financial Year 19-20. Every organization must prepare itself to handle a basket of employee related statutory compliance’s. Let’s explore the year end payroll compliance’s.

The Government has entrusted the employers with handling duties which are critical to employee’s finances. Accordingly, every employer has to:

  • Deduct taxes from employers
  • Contribute towards statutory components viz, ESI,PF,Bonus,Gratuity
  • Remit taxes & other dues to the Government
  • File returns with various Government departments

Deduction of Taxes

The Income Tax Act, 1961 mandates that it is the employer’s responsibility to deduct the correct amount of taxes from the salary of an employee. In order to arrive at the tax amount the employer must collect proofs of investments from the employees. It is these proofs which ultimately result in a Form 16, which is used by employees to file their tax returns. Here is what an employer must do:

  • Communicate to the employees about the need for investment proof
  • Clearly list out the documents which is called as “Proof”
  • If possible, hold multiple rounds of proof collection
  • Re-calculate the TDS based on proof submitted
  • Deduct the TDS from employees salary
  • Remit the TDS to the Government within due dates

In addition to the above, every employer must file E-TDS returns for the January-March quarter within the due dates. The credit of tax deducted from the salary is transmitted to an employee only when the E-TDS returns are filed. The TDS deducted by the employer appears in the Form 26AS of every employee from whom tax has been deducted.

Further, it is important to note that a Form 16/Form 12BA can be generated only when the employer files his E-TDS returns. The Government requires that the Form 16’s be provided to employees within certain due dates. The Form 16, so issued by the employer, contains all the information required by an employee to file his income tax returns.

What happens when there is salary from more than one employer?

Section 192(2) of the Income Tax Act deals with situations where an individual changes employers during the year. The Law requires that the employee provide to the present employer details of salary income received from the former employer and TDS done thereon. The present employer will be required to deduct taxes on aggregate amount of salary (including salary from the previous employer)

If the employee fails to provide these details, it will be likely that he will have to pay interest on the taxes owed at the time of filing the return.

Contribution to Provident Fund & Employee State Insurance

The Provident Fund rules require the employer to deduct 12% from the salary of every employee as “Employee’s Contribution to Provident Fund”. The employer contributes 12% from his side as “Employer’s Contribution to Provident Fund”.

The employee’s contribution to provident fund is allowed as deduction from income tax under Section 80C. It is imperative that the employer includes the PF contributions in the Form 16 of the employee.

In order to ensure PF gets computed correctly and remitted on time, the entire payroll process has to be automated. We recommend Zoho Payroll for effortless payroll processing.

Employee State Insurance scheme stipulates that employer & employee contribute 4.75% and 1.75% of salary to the Insurance scheme. This scheme is applicable to employees who have a salary of less than Rs 21,000. Further, employees are not eligible for an income tax deduction for contribution to this scheme.

Remit taxes & Filing returns with the Government

Every employer has the onerous responsibility of depositing the amounts deducted from the employees with the Government. These returns have to be filed within specified timelines:

Sl.No

Particulars

Due Date

1

TDS

Deposit of TDS by  7th of every month

2

Provident Fund

Deposit of PF by 15th of  every month

3

Employee State Insurance

Deposit of ESI by 15th of  every month

4

ETDS

Filing of ETDS by 31st of every quarter

Non deposit of statutory deduction will lead to penalties and even criminal prosecutions. It can have a worse impact on the business’s reputation, because compliance violations tend to cause customers to lose faith in the business.

Needless to say that being compliant with regulations is a best bet for any business. As more employees get added to the business, more automated compliance management must get. Here is where Integra Books can help. We have a unique solution where expert human resources use the best technology to manage your business. Get in touch today.

PS: As a related piece we recommend that you read our previous blog on payroll here

Understanding Debits and Credits

by Sanjeev Archak Sanjeev Archak No Comments

Every industry runs on jargon. These jargon often trip people. In the accounting world the tripwires are “Debit” and “Credit”. There is no doubt that Debit and Credit are the cornerstones of the accounting block. Understanding debits and credits will help a business owner read financial statements better than before.

What are Debits and Credits?

In a nutshell, debit represents all the money flowing into business and credit represents all the money flowing out of business. Most businesses these days use double-entry system of accounting. Under this system, every transaction has two legs i.e, a debit and a credit leg.The entire business is organised into individual accounts. For ease of understanding lets call these accounts as buckets

For example:

  • the cash in your bank account will be the  “Cash” bucket
  • the value of your  furniture will be the “Furniture” bucket
  • the bank loan taken by your  business will  be the “Loan” bucket

Whenever your business purchases furniture or repays or avails a loan the balances in these buckets changes. Recording the changes in these buckets requires a language other than English. That is where debits and credits come in. Often, accountants abbreviate debits and credits to dr and cr.

How do debits and credits operate?

In a business money doesn’t appear or disappear out of nowhere. Debits and credits are designed to track where money is coming from and where to it goes.

Let’s take an example where you decide to buy a piece of furniture for Rs 50,000, here is how it will look like in our bucket system:

  • Firstly, money will move out of the cash bucket, cash bucket stands credited for Rs 50,000
  • Secondly, the furniture bucket will increase by Rs 50,000

As mentioned earlier, in the double entry system every debit has a corresponding credit. Here is how the entry will look like:

Account Debit Credit
Furniture          50,000
Cash          50,000

An accountant would say that we are crediting the bank account for Rs 50,000 and debiting furniture for Rs 50,000.

How do debits and credits operate in liability accounts?

The cash and furniture buckets are “asset” buckets. There are “liability” buckets as well. Examples of liability bucket are business loans, share capital. Yes, your own share capital is a liability for the business. We will get to that later in this post. Let’s see how debit credit and operate when you borrow a loan of Rs 50,000:

  • Firstly, money will move into the cash bucket, cash bucket stands debited for Rs 50,000
  • Secondly, money will move into the loan bucket, loan bucket stands credited for Rs 50,000

This transaction has increased the cash and loan balances. Cash balance denotes what you have and the loan balance denotes what you owe. Here is how the entry will look like:

Account Debit Credit
Cash          50,000
Loan          50,000

How do debits and credits operate in equity accounts?

Let’s take a situation where you invest Rs 50,000 as equity share capital in the business, debit and credit will operate as under:

  • Firstly, money will move into the cash bucket, cash bucket stands debited for Rs 50,000
  • Secondly, money will move into the equity bucket, equity bucket stands credited for Rs 50,000

Why is it that crediting an equity account makes it go up, rather than down? That’s because equity accounts don’t measure how much your business has. Rather, they measure all of the claims that investors have against your business. Here is how the entry will look like:

Account Debit Credit
Cash          50,000
Equity          50,000

The Debit and Credit Thumb Rule

Here is a simple way to remember debits and credits in accounting:

Debit Credit
Increases an asset account Decreases an asset account
Increases an expense account Decreases an expense account
Decreases a liability account Increases a liability account
Decreases an equity account Increases an equity account
Decreases revenue Increases revenue
Always recorded on the left Always recorded on the right

If you’d rather not deal with debits and credits at all, try Integra. We’ll do your double-entry bookkeeping for you, all online, no matter where you are in world.

A Slackers Guide to Bookkeeping-The Lewbowski Way

by Sanjeev Archak Sanjeev Archak No Comments

Doing your books isn’t exactly a fun activity. You could be a slacker or a hardworking person, but there are definitely other entertaining things for you to do. So, we have come up with a slackers guide to bookkeeping.

Use technology to make it easier

Keeping track of receipts/bills is hard. You are likely to lose most of them. So use some simple tools which will make your life easy. Try using:

Cam Scanner:  A great way to digitize your receipts. Take a snap and store them forever. Also, don’t forget to send it to your accountant.

Zoho Expense: Lets you create expenses, store receipts. This also has an optical scanner for scanning receipts that you upload. You can skip entering details manually.  

De-clutter your business

Technology to the rescue again! Choose a software like Zoho Books to do the heavy lifting. Use automated workflows to send invoice reminders, get notified when a customer pays. Connect your bank accounts to auto-match receipts & payments with invoices. These will save a lot of time.

Separate your Business & Personal Expenses

Ancient wisdom says don’t mix business with pleasure. Therefore separate your business & personal expenses. For starters open a business bank account. Have all your business expenses & revenues in this account. You can always draw money from this account as salary or reimbursement. 

Make it a Habit

In between all the fun you are having, take some time out to do bookkeeping. Bring all your smartness to fore at least once a week. Check for vital signs like cash flow, unpaid invoices & vendor bills, payroll and taxes. 

“This is a very complicated case, Maude. You know, a lotta ins, a lotta outs, lotta what-have-yous.” — The Dude

Be the Dude and let Integra Books to do the heavy lifting. We will pair you with an expert and a software. 

(PS: If you are a hard-working, diligent person, we are sorry we wasted your time. Here is something for you too)

 

E Commerce Accounting 1.0- A must read

by Sanjeev Archak Sanjeev Archak 1 Comment

The internet is fueling the world economy. India is no exception. An enormous population, increasing smart phone penetration and cheap data rates make India a prime market for any  e-commerce business.  A report by Business Today states that Indian e-commerce business has reached $38.5 billion. But before you start up you need to figure out a business model,buy a software platform, have a logistics partner,  have a sales & marketing plan. However, do not forget to have an accounting plan in place. A online venture is a challenge to an accountant and the founder.  E-Commerce Accounting 1.0 is the prep lesson before you hit the ground running.

Choose an E-Commerce Platform

It all starts from having a tool for handling your entire online business. A e-commerce platform will enable you to:

  1. build your website
  2. catalog your products
  3. handle orders/invoicing
  4. connect with payment gateways
  5. manage your inventory

Some of the  popular tools are Shopify, Magneto & Zoho Commerce. These tools will help you set up an online store quickly with least effort.These tools have to integrate with books of accounts for recording sales, purchase transactions. We recommend Zoho Commerce for the automatic integration with Zoho Books. This integration will save critical man hours.

Payment Gateways

A majority of your customers will pay you online. Your customers will  make payments for purchases via a payment gateway. Your bank accounts will have to be integrated with payment gateways. There are multiple payment gateways to choose from like Razor Pay, PayU & PayPal. These gateways charge anywhere between 1.5% to 5% of the payment received as gateway charges. Further, they do not transfer amounts received instantly to the bank account. There is lag of 2-3 days before amounts are credited.

Moreover, a reconciliation has  to be done between the invoices raised and cash received  from the payment gateway. Your books of accounts must automate, partly if not fully, this process.

Manage Inventory

If you hold inventory, then opt for an inventory management tool. Always remember that unsold inventory blocks cash. Therefore, an inventory tool will give you an insight into fast,slow and non moving items. It makes sense to sell only fast moving items and stock slow moving only when there is a demand.For instance, offering discounts on slow moving items can unblock cash.  Zoho Inventory allows you manage the entire process from procurement to sale seamlessly. Re-order level can be set for all items of inventory. This will prevent you from selling items that you don’t have.

Handling Product Returns, Credits & Discounts

E-commerce business thrives on discounts, cash backs & other credits. All of these have a financial impact.  Seamless integration between the e-commerce store and accounts will help. As the number of transactions rise, discounts and returns are bound to increase. An accountant must be fed this information for tracking numbers. Financial insights from books of accounts can be used to calibrate business strategies. You can read our post on retail metrics here

Managing Logistics

This is the “last mile” for an online business. The most critical part of the business is on time delivery.  Delivery deadlines have to be met and measured as a KPI. Indians still prefer Cash on Delivery, which means the delivery  partners  have to collect cash as well. Secondly, the cash has to be deposited into your bank account. Typically, there is a 2 week gap between collection & deposit of cash. In other words, your logistics partner becomes your debtor as well.

An accounting software must support integrations with logistics partners. This is a must as cash is involved.

Comply with GST Rules

In addition to the above, you must abide by GST regulations. GST in India is complicated. Different rates of taxes apply to:

  1. sales between the states
  2. sales within  the state
  3. export sales
  4. warranties
  5. additional services tied to product sales

Therefore, all the tools of your business must combine to meet this regulation. For example Shopify or Zoho Commerce must apply GST rates based on the customer location. Further, inventory tool must apply GST on warehouse transfers. Similarly,materials sent out for job work must also be addressed. As transactions increase GST filing must get automated as well.

Final Thoughts

This post is the result of handling clients in the e-commerce space. Integra Books uses and implements all the Zoho products mentioned in this post.  The benefits of technology and automation can transform your business. Let Integra Books assist your online business. Get in touch!

Messed Up Accounting: Books Breaking Bad

by Sanjeev Archak Sanjeev Archak 2 Comments

We have given you a guide on effective accounting and setting up financial systems.  What if these guides are not followed? The result will be messed up accounting and a bad set of books. Here is a primer on how to identify mistakes in your books of accounts.

 Accounts not Reconciled

Bank accounts, credit card statements, inventory, debtors and creditor accounts have to be reconciled. If the accounts aren’t reconciled, it’s very likely that there are erroneous transactions or missing transactions. It is very important to reconcile the TDS & GST accounts. Left undone, these could lead to tax issues for the business.

High Accounts Receivable & Payable

Accounts receivables & payables are dynamic numbers. Old invoices need to be paid and the new ones marked as to be paid. If these two are static then your accountant is not marking money received or paid against invoices. This can lead to double counting of revenue & expenses. A customers & vendor balances report will throw up this anomaly.

Negative Inventory Balance

This means that you have sold products that you do not have. This can have an impact on your profits as well. If the negative balances add up over time, it takes huge efforts to bring it back to the current position.

Incorrect Capitalization

Another recurring problem we see is that accounts which need to be capitalized are not done and instead expense accounts end being capitalized. Missing out on capitalization will lead to lower depreciation claim and thereby higher taxes.

Payroll not booked correctly

Payroll is a significant cost for your business. This is an expense and a liability as well. Wages have to be paid to employees and payroll taxes to the Government.  A simple thumb rule is there must 12 entries in the payroll expense accounts and payroll taxes account must not have any balance. Variations from these norms mean that there is an error.

Inconsistent method of accounting

You must adopt either cash or accrual method of accounting. This often depends on the nature of the business. Once chosen, follow the method consistently. If you have switched between methods or have used a hybrid of these two will mess up the books.

Negative Balances in Accounts

Accounting is much more than arithmetic. Accounting rules do not permit negative balances in any account. If you spot negative balances then it is another case of bad bookkeeping.

Incorrect Capital Accounts 

Funding rounds raised by your company needs to show in the capital. The cap table is also derived from this account. Different categories of capital need to be shown separately. Further funding rounds could become complicated if all types of capital are lumped together.

 

So hire Integra Books to make your life easy. Integra Books is a modern and effective way of managing your business finances. We use a combination of technology and human expertise to make sure you get the best financial services for your business.