Search

Accrual option threatens cash

CREDIT management is set to become a major issue for companies operating on an accrual accounting basis under the new tax system.

While the tax burden rests primarily on the consumer, businesses acting as tax collectors for the government may experience cash flow difficulties when their receivables fall overdue.

Jackson McDonald tax consultant Graham Harrison said the accrual accounting system was based on the invoice system.

Mr Harrison said the danger for businesses using this system was they could end up having to pay GST before they were actually paid.

The GST under the accrual system is levied the moment the invoice is made.

Greenwood BKT Chartered Accountants Vanessa Priest said, for companies with an inadequate receivables management system, accumulated outstanding invoices could result in a cash flow squeeze.

She suggested companies examined their day sales outstanding and aged receivables ledger and to anticipate the GST effect on their cash flow.

“Businesses may have to consider tightening their trading terms or risk carrying a greater investment in receivables,” Ms Priest said.

“Credit managers will undoubtedly realise poor collections will result in a 10 per cent increase in receivables after 1 July next year.”

Austral Mercantile Collections general manager Mark Logue said businesses would be well advised to lay plans to deal with overdue accounts before 1 July.

Mr Harrison said businesses with an annual turnover of less than $1 million could opt for a cash accounting system.

That meant the GST was passed on to the Australian Tax Office when the company was paid – not when its invoice was sent.

He said businesses would also have to receive tax invoices from their suppliers if they wanted to claim input tax credits.

Add your comment

BNIQ sponsored byECU School of Business and Law

Students

6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
47 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer