Accounting Lingo 101

What is BAS?

What People Think: "Isn't it just about paying taxes?"

What It Actually Is: BAS (Business Activity Statement) is a comprehensive form that businesses in Australia are required to submit to the Australian Taxation Office (ATO). This form is crucial as it reports your business’s various tax obligations, which include Goods and Services Tax (GST), Pay As You Go (PAYG) installments, and other tax-related responsibilities. By accurately completing and submitting the BAS, businesses ensure they are meeting their tax compliance requirements, thereby avoiding potential penalties and maintaining good standing with the ATO.

What are Assets and Liabilities?

What People Think: "Assets are just cash, and liabilities are just debt."

What It Actually Is: Assets encompass everything your business owns that has value, including cash, equipment, inventory, real estate, and intellectual property. These are resources that can be used to generate revenue and support business operations. On the other hand, liabilities are obligations your business needs to fulfill, which include loans, bills, accounts payable, mortgages, and other forms of debt. Liabilities represent the financial responsibilities that your business must manage to maintain its financial health and operational stability.

What is Depreciation?

What People Think: "Depreciation is just about losing money!"

What It Actually Is: Depreciation is the reduction in value of an asset over time, like how a car loses value the moment it’s driven off the lot. This decrease in value occurs due to factors such as wear and tear, age, and obsolescence. Depreciation is an accounting method that allows businesses to allocate the cost of a tangible asset over its useful life, reflecting its gradual decline in value. By accounting for depreciation, businesses can more accurately represent the current value of their assets on financial statements, which is crucial for making informed financial decisions and planning for future investments.

What is GST?

What People Think: "GST is just extra money I pay when I buy things."

What It Actually Is: GST (Goods and Services Tax) is a 10% tax applied to most goods and services in Australia. This tax is not just an additional cost for consumers; it plays a crucial role in the country's tax system. Businesses are responsible for collecting GST from their customers at the point of sale and then remitting these collected amounts to the Australian Taxation Office (ATO). This process ensures that the government receives a steady stream of revenue, which is used to fund public services and infrastructure. Additionally, businesses can claim credits for the GST they pay on business-related purchases, which helps to offset the tax they owe. This system of collecting and remitting GST helps maintain a fair and efficient tax structure, ensuring that the tax burden is shared across the economy.

What is PAYG?

What People Think: "Is PAYG just another tax form?"

What It Actually Is: PAYG (Pay As You Go) is a system where businesses pay tax installments throughout the year, rather than all at once at the end. This method of tax payment helps businesses manage their cash flow more effectively by spreading out their tax liabilities over regular intervals, typically monthly or quarterly. By doing so, businesses can avoid the financial strain of a large lump-sum payment at the end of the financial year. PAYG also ensures that the government receives a steady stream of revenue throughout the year, which aids in the planning and allocation of public resources. Additionally, PAYG can apply to both income tax for employees and business income, making it a comprehensive approach to managing tax obligations.

The bottom line

Understanding common accounting terms and concepts is essential for running a successful business. Familiarity with BAS, assets and liabilities, depreciation, GST, and PAYG can help you make informed financial decisions and stay compliant with tax regulations.

If you're feeling overwhelmed by accounting jargon or need assistance with managing your business's finances, consider seeking professional help from an accountant or financial advisor. Taking proactive steps can ensure your business remains financially healthy and compliant with all regulatory requirements.