COMMON ERRORS IN PHARMACY BOOKKEEPING PART 2
Last week we talked about how a good chart of accounts sets a good foundation for pharmacy bookkeeping. This week we will discuss another pain point we often come across. Common Errors in Pharmacy Bookkeeping Part 2:
GST on revenue and expenses
Pharmacy accounts tend to be more prone to GST errors than other businesses. It comes across many GST exceptions through the products/services it offers, and/or by the way they conduct their business (e.g. exports).
There are some errors which you can’t really control. For example ATO provides very generic guidelines and say SOME medicines, medical aids, healthcare products and services are GST free – but which ones in specific? Dwelling into the specifics may be a bit too much in this case, so it’s probably best to go with the guidelines/advices provided by the manufacturers and wholesalers. However, never assume they are correct. You should always engage in a GST audit once in a while and make the necessary adjustments. Not only you are more accurate with you reporting, but what’s more appealing is that 99% of the time you will find yourself getting a refund back from the ATO. Who doesn’t like more money in their pocket?
Other errors however are in your control and it’s what differentiates a set of good accounts from the not so good ones. Let’s look at these in more detail”
1. Assume all purchases have GST to them
Many products stock in a pharmacy are exempt from GST so it is not uncommon to come across supplier invoices where some products have GST charges and some don’t. I quite often see invoices being coded fully with GST, and as a result over claiming GST on their BAS. So it is very important to check the GST amount stated on invoices. Major wholesalers like Symbion and API provides you with a monthly GST report on their statements. Therefore it’s wise to double check your records with the statements as well
2. Different GST Codes – similar yet so different
Many people get confused about the different GST codes used in accounting softwares and they end up using the wrong codes or using one code for all. Some of the codes have similar effect e.g. they don’t apply 10% GST to the transaction, however they are quite different in nature and affects how the transaction is reported. Please make sure you understand at least the following codes:
GST – transactions that attract 10% GST and you report them on your BAS
GST free – these are transactions which are GST free supplies (refer to ATO for guidance), they don’t have the 10% GST to them but you still need to report them on your BAS.
Non-reporting – this code is for transactions that are not required to be reported on your BAS. Expenses such as depreciation, wages, payroll tax etc. should be using this code, rather than the GST free code.
GST not registered – suppliers whose ABN are not currently registered for GST (you can do a quick search online using their ABN) – the most common error I see is people coding these transactions to the GST free code. There is a difference between whether they are GST registered and whether they are providing a GST free product/services. So make sure you use the right code.
Make sure you know the differences and report using the right GST code.
3. Exporting goods
Export sales are GST-free if the goods are exported within 60 days from date of invoice or payment for the goods (whichever comes first). Please discuss with your accountant/adviser as to whether your business activities are actually counted as export activities. Selling goods to a local customer knowing he’s taking the goods offshore is NOT export hence you cannot issue a GST-free invoice.
4. Auto coding transactions
Modern day accounting software allow you to auto code your transactions and it will “remember” it for you so the next time you don’t have to code it again. Great for efficiencies however it has its downsides. Firstly, be very careful creating automatic rules using default GST codes. For instance, bank fees are GST free, but bank merchant fees on the other hand is not; Software expenses such as Xero/MYOB have GST where as software from offshore providers such as Microsoft does not. Secondly, GST status of a particular supplier can change over time – Adobe for example started charging GST from December 2016.
DO NOT ASSUME ONCE AN AUTOMATED RULE IS CREATED, IT WILL BE CORRECT ALL THE TIME.
Always do a quick check before approving any transactions.
Again, your accountant and bookkeeper should be an expert in this field. Talk to them and trust their expertise. Send me an email at firstname.lastname@example.org if you need further explanation on any points I’ve discussed.
*This post was written by Helen Yu*