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Xero/Reckon/MYOB - Bookkeeping entries for loans – Lending money to business

images/Loan Money to the Business.pngA regular client emailed to check they had entered a transaction correctly - lending money to pay business expenses - in this case, to cover a PAYG payment to the Australian Tax Office (ATO) – they emailed –

"I am a little unsure about an entry I have made and wonder if you can tell me if I have done correctly.

I had a PAYG for Chris and at the time there wasn’t quite enough funds in Bus. a/c so I transferred money from personal a/c to cover.

For MYOB entry I put to..              Receive Money

Payer:  C and  personal

Amount: $ ----- 

Method:  Other – then put note in details.

Memo:  funds transfer from Pers. to Bus a/c

Then I credited  

21410 - PAYG Tax    which is where the payment will come from

is this correct or should I have put to something else?

Kind regards, L"

Answer –

Good effort – nearly right!

There are 2 transactions to do, just to be clear (and a third one to pay it back later) -

1              You lend money to Business Bank account –

a.     Receive Money

                                          i.    Top account is Bus bank account, then date, $ etc

                                         ii.    Memo – eg “C&L loan to Bus bank”

                                        iii.    Lower account is YOUR Personal Loan account – either a number 2 Liability (Long Term), or Equity – but number 2 and set as a CREDIT CARD allows you to use in other Transactions like a bank account at the top account

2              The Business PAYS the PAYG –

a.     Spend Money

                                          i.    Top account is Bus bank account, then date, $ etc

                                         ii.    Memo – eg “Pay ATO PAYG” – add name if specifically matches an employee amount

                                        iii.    Lower account is the 2-1410 PAYG Tax account

3              The Business pays you back – if this occurs later (or can just leave as is and business always owes you this later)

a.     Spend Money

                                          i.    Top account is Bus bank account, then date, $ etc

                                         ii.    Memo – eg “Pay ATO PAYG” – add name if specifically matches an employee amount

                                        iii.    Lower account is the 2 Liability Personal Loan Account

Hope that is clear!

Need help? Not sure? Call for FREE30min advice / strategy session today!

Call 0407 361 596 Aust

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Business Tax Tip – GST and Leasing – How it works

images/Business Tax Tips.PNGBusinesses can acquire assets such as motor vehicle s or equipment by entering into hire purchase or leasing agreements to pay for and use goods over a period of time rather than paying the full cost up front. Then they need to know how GST applies.

Here is information about leasing and how GST applies from the ATO website to assist, including links for further information -

Leasing

Leasing agreements commonly apply to goods such as vehicles, office equipment and machinery.

Under a lease agreement, the person who:

  • grants the lease (lessor) is the owner of the goods
  • leases the goods under the lease (lessee) uses them for a specified time and, in return, makes a series of payments that can be fixed or flexible.

Paying GST on lease agreements

Generally, lease agreements are subject to GST.

On each activity statement you report payments you made in that tax period for leased goods. That is, you treat each payment as though you are making a separate purchase each tax period, even though each payment is for the same goods under the same lease agreement.

Claiming GST credits on lease agreements

You may be able to claim GST credits for any GST included in the lease charges.

If you account for GST on a non-cash (accruals) basis, you are entitled to a GST credit of one-eleventh of the lease instalments for each tax period when you do any of the following:

  • make any part of the lease payment due in that period
  • receive an invoice from the supplier.

If you account for GST on a cash basis, you claim a GST credit of one-eleventh of the lease instalment amounts paid in each tax period. (same).

If you take ownership of goods

At the end of the lease, you may have to pay GST on residual payments under lease agreements. These are payments you make to take ownership of the goods, which is treated as a separate transaction to the lease agreement.

If you purchase the goods at the end of the lease agreement, you may be eligible to claim a GST credit for any GST you paid in the price of the purchase.

See some working examples further down the page at the ATO site HERE.

Need Help? - Email i This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia
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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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