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e-ccounting
May 2008

in this issue

Business Scenario
- Business use of Car Expenses

Answer

Accounting Tip

Did You Know ?

Definition

Sandy's Recommendations

Next Issue - Keeping & Organizing paperwork


 

about e-ccounting

e-ccounting is a monthly newsletter focusing on accounting tips and solutions. Our mission is to educate our clients, students and readers by offering these resources in response to your ongoing questions.

It is our objective to gather information and provide easy access for your current and future needs.
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These tips are not complete answers to complex questions. We therefore recommend, when in doubt, contact the professionals or government agency.

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Sandy's Question Corner

Do you have an accounting question? Send it to us at accountrain



Workshops

accountrain is now offering a series of three workshops. Take one, two or all three and save as you learn. The informative and interactive format guarantees a comfortable and fun learning environment. The topics:

1. Understanding How to Read
    Financial Statements

  • Who's interested in your reports and why
  • Why there's more to the Income Statement than just the "bottom line"
  • What's so important about the Balance Sheet, and
  • Key accounts, definitions, ratios and samples to review.

2. Accounting 101
    - for new and small business
  • Review of common questions, including GST, incorporating and many more
  • Choices for maintaining bookkeeping
  • Understanding government requirements
  • Shortcuts, tips and organizing all that paper!

3. Year-end Prep & New Year Planning
  • It's never too late to get organized
  • Understand what's different including: depreciation, accruals, deferred revenue and prepaids
  • How to choose accounting help
  • Preparing for an audit, and how about avoiding an audit!
  • Learn to streamline your bookkeeping methods to save time and money.


Limited seating, for more information or to register, email accountrain@magma.ca


  • Business Scenario
    - Business use of Car Expenses
  • I have a home based business, how much of my car can I write-off?

    As mentioned in the March issue discussing home expenses, let's re-word the question. What you actually should be asking is: What can I expense? When accountants hear the word write-off it usually pertains to transferring an aged (old) receivable to a bad debt.

  • Answer
  • The first step is deciding how much of your car (expenses) represent earning income for your business.

    There is one "real" method but many people have a difficult time as it involves tracking each trip's actual mileage.

    Most people choose a conservative (see the definition section) percentage based on estimating how much mileage was used for business versus personal. There is no right amount, as long as you feel you can justify the percentage.

    Once the percentage has been established, these are the items you can expense:

  • Monthly loan or Lease payment
  • Gas
  • Repairs & maintenance (examples: oil changes, car washes, snow tires, to name a few)
  • Insurance
  • License Plate Renewal

    How does one record Car Expenses on their Income Tax?

    The business portion of car expenses are recorded on your General Tax Return, in a specific section of the T2124 (Statement of Business Activities) form.
    If you lease your car, there is an additional lease section to fill out.

  • Accounting Tip
  • Separate parking receipts and parking tickets; if they pertain to the business. Include them in travel expense, as they should be recognized as 100% expense.

    Group like items together and total. For example, instead of recording each gas receipt, add up the total gas receipts for a month. Staple together and use the total.

  • Did You Know ?
  • Unlike house related costs, the percentage of car expenses should vary from year to year (seeing as it's based on actual mileage used for business.)

    For more Did You Knows?
  • Definition
  • GAAP

    In March's issue we introduced one of the Generally Accepted Accounting Priniples, Consistency.

    Conservatism is another principle.

    Text Book Definition: "The concept holds that where acceptable alternatives for an accounting determination are available, the alternative having the least favourable outcome (immediate influence on owners' equity) should be selected." (taken from the 3rd Canadian Edition of Intermediate Accounting by Welsch, Zlatkovich, Harrison, Nelson and Zen).

    Using this principle for car expenses means, when estimating (I don't want to use the word "guessing"), you should estimated a lower value.

    For example, if you feel you're using the car 25% of the time for business, if you can't prove this, you may want to expense 20%.


    For more definitions ...
  • Sandy's Recommendations
  • Unless you're producing monthly and / or quarterly reports, it is not necessary to record these car expenses until year-end.

    However, if you need to produce reports for external use, you should calculate car expenses monthly (or at least quarterly).

    I recommend you keep the details on a spreadsheet.
    Add each expense, ie. gas, let's say the total for the year was $2,120 (including gst), take this and multiply by the business percentage, ie. $2,120 x 32% = $678.40 (don't forget if you have a GST account, to record the GST separately).

    Bookkeeping Entry:
    As these are car expenses, I am assuming the expenses were paid for on your personal bank account, therefore:

    debit: Auto expenses
    debit: GST (if applicable)
    credit: Owner's contribution / draw

    Remember to keep the receipts as backup.

  • Next Issue - Keeping & Organizing paperwork
  • Learn:

  • Who's asking for what
  • How to organize papers to find them quickly
  • What to keep, what to toss
  • Do I have to keep everything and why
  • How long is it necessary to keep everything?
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