The following information is for small businesses who wish to keep a basic set of accounts in order that income tax returns and other taxation requirements may be met. It is not an accounting course nor is it intended to be for large companies but instead aimed at the grassroots businessperson who requires a small amount of basic accounting information.
The information is general in nature. You should obtain professional advice or talk to the IRC if you need specific advice on how to keep records.
All businesses that operate in Papua New Guinea are required to lodge income tax returns. They are also required to keep such books of account as to correctly record all the financial transac¬tions carried out by that business. In addition, if the business is a Company, certain records are required by the Registrar General to be maintained under the Companies Act.
While that may be the legal side of why you have to keep books of account, to run a success¬ful business the owners or manager must be aware of how much money they have at their disposal to spend.
It is not much use giving money to your wantoks or buying a fancy car if the following week you have to find some money to buy more stock or make a bank loan repayment, in order to keep your business running.
FAILURE TO KEEP TRACK OF THE FUNDS HAS BEEN IDENTIFIED AS THE MAJOR CAUSE FOR MOST BUSINESS COLLAPSES.
Many people believe that the taxation office requires extensive books to be kept so that Income Tax Returns can be prepared and that these returns must be completed by Professional Accountants.
The Taxation OfficeIRC does not require you to keep extensive books of account if they are not appropriate to your business. You are only required to keep books of account which correctly record all the financial transac¬tions carried out by that business. requires the firm to keep such books of account that are appropriate for the business. Books that are correct and would be able to supply sufficient information to prepare an Income Tax return.
Most businesses need to run a bank account of some sort so that, at the very least, payments received by Cheque may be negotiated.
Using a cheque account can assist you keep track of payments mad as they are a record of expenses may be kept on the Cheque Butt Stubs. Also, in the event of a total loss of records by the business the bank can supply copies of the cheques written as well as statements of account.
It is generally easier for a business to keep track of its business payments and receipts if it keeps private and business payments separate.
Many firms keep track of their business income by using a bank account specifically for their business. By banking all business payments for work done it is easier to keep track of your business receipts.
All your business expenses should be separate from your private day to day living expenses. You will need to identify which payments have been made for business. You can do this easily by using a business cheque book to pay for business expenses. You will also need to keep receipts for your business expenses as well.
For the ability to correctly itemise your expense accounts it is necessary usually best to write your cheques to a person or business. Writing cash cheques should be avoided. When writing a cheque ensure that the details are entered on the cheque stub for later transfer to the cash book. Failing to fill out the stub makes it difficult to write up your cashbook correctly.
The IRC does not look stop you taking money out of your business. You are in business to make a profit. You must, however, be careful to record all money you take from the business and ensure that you do not treat it as a business expense. When you write a personal cheque simply ensure that the cheque stub is noted accordingly for the transfer of information to the Cashbook.
If you are operating your business as a company, the company can pay you salary or wages (eg director fees) in your capacity as an employee of the company. The company will need to keep proper records of the wages paid and ensure it complies with its obligation as an employer (click here for more information)
In fact the office looks at the accounts to see that these expense cheques have been made as a quick check that all deposits have been banked or that personal expenses have not been included in the taxation deductions claimed. When you write a personal cheque simply ensure that the cheque stub is noted accordingly for the transfer of information to the Cashbook.
An invoice book is handy for writing quotes, noting acceptance of quotes, completion of contracts and the billing and receipt of payments for the contract. An invoice book is widely available at large stores and office suppliers. They are in either duplicate (two copies) or Tripli¬cate (three copies) and are serial numbered.
You can increase the efficiency of this number by adding an identifier on the end of the number to make the number unique to this book. EG. a Serial number of 050 may become 050/B/03 with the /B meaning the second book used for the year and /03 for the year involved. This makes looking up invoices easier.
An invoice book is used as follows;
How does this invoice book assist, you may ask. By perusing the book it is a short task to find out;
A receipt book one of the more important books in a simple accounting system.
A receipt book is readily available through large stores and office stationary supply stores. These books are usually in duplicate and have a space for Name, Amount, Date and what the payment was in relation to. Also they are Serial Numbered although it is advisable to use an identifier similar to the invoice book mentioned above for ease of finding copies of receipts.
A receipt issued usually contains:
Your copy of the receipt in the book is used for two things;
A cash book is a listing of receipts issued and payments made (either in cash or cheque).
Cash books are easily obtainable in most large stores or office suppliers. The books vary as to the amount of columns on offer and to size but all perform the same function, which is to spread the expenses out into a number of categories.
An Example of a Simple Cash Book
The business is run by Ernie Kila who;
Ernie Kula’s Cash Book would appear as follows:
It is easy to see now that Ernie has increased his balance in the bank by K 204.00 and has spent K 503.00 on supplies, K 30.00 on Fuel and K 22.00 as personal expenses.
As can be seen the running of a Cash book comes from using a cheque book and receipt book. The cash book provides an easy break up of the expenses in the business as well as telling him how much money he received in a given period.
An easy way of keeping track of bills to be paid is when you receive an account, write on it the date due for payment. You can then store this bill in a safe place with all your other accounts IN PAYMENT DATE ORDER. As that day approaches write a Cheque for the amount, note the details on the cheque butt and write on the bill PAID CHQ NUMBER ……. ON (DATE)
You can then transfer the bill to another box kept in date order for safe keeping. At the end of the year (after you have completed all your taxation obligations, such as lodging income tax returns or GST returns etc) this box, and any others filled up in the year, should be sealed and put in a safe place as the IRC requires you to keep these records for a period of seven years.
If you employ staff, you may be required to register as a Group Employer with the IRC and withhold tax from your employees salary or wages. You would also be required to keep records on the payments to staff and that an annual reconciliation of Salary paid and tax deducted be made. This task requires the keeping of a separate wages book.
A wages book is widely available at large stores and office suppliers and is specially set up for the purpose. These books are recommended but a ruled exercise book can perform the functions.
A new page is started for each employee. This assists when the statement of earnings are to be prepared at the end of the year.
Below is the wage record for a staff member of Ernie Kila’s.
EMPLOYEE NAME: Lester Ihul
|Date||Wage Period||Salary||Allowances||Total Salary||Tax Deducted||Nett Salary|
|24-06||9-6 to 23-6||250.00||25.00||275.00||10.37||264.63|
|08-07||24-6 to 7-7||250.00||25.00||275.00||10.37||264.63|
|22-07||8-7 to 21-7||250.00||25.00||275.00||10.37||264.63|
As can be seen from the above it is a simple matter of adding the payments together to establish Mr. Ihu’s yearly salary as well as the tax deducted from his salary to enable the completion of the Statement of Earnings at the end of the year
For more information about your obligations as an employer, click here
There are other specific reporting obligations placed on businesses depending on their activities.
If your business is registered for GST, click here for more information about your GST obligations;
Your business may also have to keep special records under the Income Reporting System and Business Payments Tax rules. Click here to see if these rules apply.
For other obligations or requirements, look in our website. If you need further information, consult your accountant or tax advisor, or contact the IRC.
Notice of Management Fee Withholding Tax - [more]
Public Notice: PRWT – Prescribed Royalty Withholding Tax - [more]
Taxpayer Public Notice – Management Fee Withholding Tax - [more]
Reinvigorating Certificate of Compliance - [more]
General Notice to Suppliers of IRC - [more]
GLOBAL FORUM: PNG Peer Review Report on the Exchange of Information on Request - [more]
PUBLIC NOTICE: ISSUANCE OF A SECTION 65A NOTICE - [more]
Appointment for Acting Commissioner of Tax - [more]
Small gains to Report 14.5.2020 - [more]
MOU between IRC and IPA Media Release - [more]