Which is more important – P&L A/C or your Balance Sheet?

Profit & Loss A/C or Balance Sheet? Though both are separate financial reports, they are inter-linked and only collectively reflect a business’s health. Hence, it is important to understand their similarities and their difference.

A Balance Sheet bearing both assets and liabilities is a reflection of past performance as well as a measure of a business’s future capability. On the other hand, a profit and loss statement (P&L), showing earnings, expenses and net profit, throws light on the current state of affairs and indicates where a business is going in the future.
Read together, these two financial statements offer invaluable insights into a business’s performance and potential.

Read More Usefuls: How to Create your Own Business Plan, How To Calculate VAT, How To Register For VAT in India

Profit & loss A/C or Income Statement
• It provides information on how a business performed over its accounting period (normally, a financial year).
• It provides detailed view of all income and expenditure of that accounting period, such that comparisons can be made with past performance or budgeted expectations

Balance Sheet
• It shows the extent of your business’s ownership of assets, liability and equity at a given point in time.
• It shows how much cash your business has on hand and also identifies the most valuable assets of the company.
• It helps you to keep a constant eye on the quantum of your debts, and helps you to decide when and how to service them
• Your Balance Sheet will be referred to by all your stakeholders (banks, financiers) in order to gauge your business’s strength and potential
There are several notional elements in a Profit & Loss a/c and the big factor which is not taken into account is movements in working capital. Anyone who has run a business knows that it is one thing to sell an item or a service at a price that produces a profit, but unless customers pay up on time that profit is not secure and is, at worst, an illusion. This simple fact needs to be borne in mind when you look at your P&L a/c. It is, therefore, imperative that you read your Balance Sheet along with the P&L a/c. If you do this, you will know how soon your customers will pay you and therefore give you the power to assess your cash inflows and outflows.

Finally, from an operations point of view, P&L is more important, but from a strategy point of view, Balance Sheet is more valuable. A review of the P&L alone may give the appearance that the company is performing well, while a standalone review of the Balance Sheet can highlight the fact that the company may be in financial trouble.

If you look at one, without reviewing the other, you may get an incorrect financial snapshot. Only by reviewing both the P&L and the Balance Sheet can you truly assess the financial performance and potential of your business.

Update to Sales Tax (VAT/CST)

We’re excited to inform you that QuickBooks India edition will have enhanced Sales Tax (VAT/CST) workflow from new financial year FY2015-16 (i.e. April 1st, 2015).

Key Enhancements include:
• Separation of Tax & Retail Invoice
• Central Sales Tax (CST) support such as invoice against C-Form, CST Reg No. tracking, CST Tax & Compliance
• Enhanced Sales Tax (VAT/CST) workflow which makes it easier to use QuickBooks for tax and compliance of VAT/CST
• Tracking and reporting of Unregistered Dealer Purchase
• Statutory VAT/CST reports to help with sales tax filing
o Sales Summary / Detail (bill wise)
o Purchase Summary / Detail
o URD Purchase
o CST Missing Declaration
o Tax Preparation Report / Excel Output

Read Some Usefull: Problem Solving for Beginners, How To How to Create your Own Business Plan, Getting to Know Your Investors Better, Make your Social business card

1. Chart of Accounts
Let’s start with the basics….
For VAT/CST, Output and Input tax account (Output tax accounts will include tax collected during sales and Input tax accounts will include tax paid during purchase) for each rate is added. E.g. for VAT 4%, Output VAT 4%, Input VAT 4% is added. For CST, only Output CST for each rate will be added.
VAT & CST Payable account is also included which will be updated during the Tax adjustment for a period.


Payable accounts will be typically cleared after the Tax payment for a particular period. In addition, users can use the Deferred VAT Input Credit account to defer the un-utilized credit from a period. This will show up as Excess Input credit forward in the VAT Computation report.

2. Sales
As mentioned in Chart of Accounts section, all sales tax (VAT/CST) collected during sales will be added to Output VAT or CST in the corresponding tax rate.

What are the key invoice structures your Business should consider?
Tax vs. Retail Invoice
QuickBooks now supports separation of Tax and Retail invoice for businesses that need it. First, turn on the feature in Company Settings > Sales > Classification of Tax and Retail Invoices.


Once the feature is on, every time an invoice is created, QuickBooks will classify the invoice as Tax invoice or Retail invoice based on the customer registration (i.e. Tax Reg. No.).
If the Tax Reg. No. for the customer is present, it will be considered Tax Invoice, otherwise it will be Retail invoice. The user can override this auto classification, if needed.




Users (typically auditors) can also run report (“invoice list”) to see a list of tax and retail invoices.

CST Invoices:
If your business includes sales out of state, you can add your customer CST Registration No. under Tax info. Once you setup your customer, when you create an invoice, CST related fields such as CST Form Type, Form No. will appear in the invoice. If you have setup tax (See Tax Center), CST Tax rates will appear in the Tax drop down under the items.


CST Form No. can be entered later by running ‘CST Sales with Form No.’ report under the CST Tax agency.

3. Purchase
As mentioned in Chart of Accounts section, all sales tax (VAT/CST) paid during purchases will be added to Input VAT or CST in the corresponding tax rate.

Tracking of Unregistered Dealer (URD) purchase
All purchases (bills) entered for suppliers who are not registered will be considered as an Unregistered Dealer (URD) purchase. Registration is determined by the entry of the Supplier Tax Registration Number and Effective date.


All bills created for suppliers with Tax Registration Number on or after the effective date is considered a registered purchase and everything else is considered unregistered purchase. All URD Purchases are listed in the form of report under the VAT Tax agency.

4. Tax Center
For QuickBooks companies which has already turned on tax (i.e. Setup tax), CST tax agency will be added with a default tax rate of 2% besides existing VAT and Service Tax. Users can add additional tax codes and rates as required for their business.
For QuickBooks companies that are new or not yet setup tax, CST tax agency will be included along with VAT and Service Tax when tax is setup.

Sales Tax Workflow


For both VAT & CST, the Tax workflow has been enhanced to include:
i. Tax Computation
This will show the Output (Sales), Input (Purchase) tax for the current payment period along with computed Tax Payable for both VAT, CST

ii. Tax Adjustment
This will show the common adjustment for VAT/CST in the form of a journal entry. Consider this entry as a starting point populated for your convenience and make the necessary adjustment as needed to suit your business.

As mentioned on QuickBooks, please consult your Chartered Accountant / Tax Professional before saving the changes. The purpose of the Tax adjustment is to compute the correct Tax payable for the current payment period.

iii. Record Payment
Record payment is used to track your Tax payment in QuickBooks. You can use Record payment to track the payment for the current payment period or previous (missed) periods. After the Tax Payment, the payable account will typically be reset or cleared (i.e. zero balance).

iv. Reports
QuickBooks provides all the Sales Tax reports for both VAT / CST under reports drop down. This is mainly useful for reference, internal / external Audit, Tax preparation and filing. We discussed some of the reports such as URD Purchase, CST Sales with Form numbers in the above sections.
The Tax Prep Report is useful for extracting all the necessary data from QuickBooks transactions for Sales Tax filing purpose. Here is a screen shot of the Tax Prep Report exported to excel.

Getting to Know Your Investors Better

Choosing an investor is one of the most important decisions you’ll make, when setting up your business venture. An investor who believes in you and your idea and is simultaneously capable of supporting it monetarily is a boon to any startup.
These are a few points that you need to keep in mind in order to choose the right investor for your start up.

How old is your investor?
Yes age does matter. If you have an older investor who is on the verge of retiring you will not have financial support for a long period of time. Older investors are looking for savings and profits so they will be less open to any kind of risk that you might want to take. An investor in his or her thirties to fifties is more inclined to take a higher level of investment risk and this is what you should capitalize on.

Read Some Usefull: Problem Solving for Beginners, How To How to Create your Own Business Plan, Working With Consultants

When did you investor start investing?
You investor is also, in some way your mentor and hence you must bank on their experience. An experienced investor will always warn you of impending financial disasters which in turn will allow you to plan ahead and mitigate the risks to avoid the same.

How much can your investor afford to lose?
Investors will always weigh their potential risk versus their potential reward. If your investor is a high-profile one, they will be willing to take risks and pump in more money in the event of an initial failure because it is not going to affect their standard of living. On the contrary, if your investor doesn’t have much to invest – they will be less likely to take risks increasing the chances of failure for your startup. With a higher affordable percentage (or reservation price), one could potentially consider more risky investments.

Does your investor have an extrovert personality?
According to experts in psychology, extroverts are more likely to take risks than introverts. Extroverts are relatively more comfortable with their surroundings which make them more open to risks.  The idea of failure doesn’t scare an extrovert as much as it does an introvert.

How often does your investor regret bad choices?
This is a very personal question to ask and you probably cannot ask this question but if your investor has a big name, you can probably find news reports on how they take failures. If your investor typically regrets “bad choices” for a long time, high risk investments are not their cup of tea.
At the end of the day, your choice of an investor depends on your requirement and you need to choose wisely after proper research. Always choose an investor who is willing to invest in your idea even if there is substantial amount of risk involved. It is very important that – while sending in applications for investment choose investors based on what you need. Simply sending in your plan to all available investors is never a good idea. If you want your business to expand you need good investors.

Working With Consultants

Hiring a consultant can improve your business to a great extent. Consulting is one of easiest professions to join – almost anyone can set up a business at minimal cost and use the job title “consultant” to sell their services and herein lies the problem of hiring a consultant.

Ideal consultants are extremely skilled and experienced people and this makes it a little challenging to work with them. Here are a points to keep in mind in order to effectively work with consultants:

Check your need for a consultant: Before you recruit a consultant, you need to first check your need for one. If your client is simply in the need for resource and not consultancy, then it is a better idea to hire someone because consultants tend to be very expensive. If someone within the company is capable enough to take up the new role, it is a good idea to go on with this option.

Read Some Usefull: Problem Solving for Beginners, How To Calculate VAT, How To How to Create your Own Business Plan

Plan Meticulously: It is extremely important that you plan each and every aspect of your consultancy project. A successful consultancy project is one that is meticulously planned and the outcomes are assessed even before hiring a consultant. It is essential that you are able to clearly define the brief and set your expectations right from the start.

The cost: Always make it a point to be clear about the amount of money that your hired consultant will charge and how much are they going to deliver for the amount they charge. This is important to assess the ROI that you are getting out of investing on a particular consultant.

Does your consultant fit in: Since consultants are highly skilled and experienced people they might not be able to fit-in with the culture in your office. That being said, a good consultant will be able to communicate well with your business managers as well as your employees seamlessly. Before making a hiring decision ensure that you consult your employees and managers. For a consultant to work effectively – they must be able to work together, with other employees.

Appoint a project manager: For a consultancy project to be successful, it needs to be managed well. Ensure that you appoint an excellent project manager who will be responsible for the consultant and will work with him/ her to ensure the project stays on track.

Consultancy is one of the most niche and professional services that individuals provide. Your business will benefit, to a great extent on employing a consultant but the real question is the need for one. That being said, you will have to spend a substantial amount of your resources in order to employ a consultant, which, as you are starting up might not be a great idea, can as your business grows become a profitable endeavour for your business to undertake.

Problem Solving for Beginners

All startups have their unique set of problems but it is more important to identify them and create answers to problems by reducing their recurrence from previous years. Business problems entail achieving objectives by preventing a situation from happening or recurring. Small businesses are required to set up goals and ways to solve these problems to understand what can be achieved and the path that the business would like to follow. There are a few barriers that come in the way of meeting our goals and these barriers can be accounted for as problems. Problem solving takes shape to overcome these barriers that prevent the instantaneous achievement of goals. Here are a few steps to solve problems:

Identify the problem:
Determine, isolate and recognize the problem, understand the nature of the problem and classify the problem. This will help you locate and separate the issue and provide problem solving solutions. Here you can provide answers to problems by detecting and recognizing the problem; learning the nature of the problem; defining the problem.

Read More: How to Create your Own Business Plan, How To Calculate VAT, How To Register For VAT in India

Problem Structuring:
Small businesses must review their internal and external problems. This includes a period of observation, inspection, fact-finding and developing a clear picture of the problem. Startups need to find out what exactly is the problem and build on the larger picture to assess the severity of the problem.

Developing possible solutions:
Your business will answer these problems by developing a plan of action. This involves a creation of a strategic course of action that helps to evaluate and build on solutions that you make to eradicate the problem. Here is an attempt to evaluate the problem is made.

Decision Making:
Here your business will carefully understand and solve problems based on the analysis of various courses of action. Once the best solution is selected, it is implemented in a manner that would be beneficial to the organization. It is the role of heads of startups to take a firm decision and the right course of action.

Implementation:
A small business must understand that in order to successful execute the decision, they should implement it. Implementation includes accepting and carrying out the selected course of action.

Reviewing Feedback:
Once your business has implemented your answer to the problem and look for ways to solve it, and include relevant feedback based on the outcome of the selected solution.
As a beginner, learn to identify the problem and construct ways to ensure a favourable outcome. This will encourage you to review feedback and make necessary changes to your plan. Look out for warning signs and put a system into place to ensure that you have a problem solving mechanism in place.

How to Create your Own Business Plan

A business plan is vital to any form of business that you might want to start up. It clearly defines the goals that you set for the business and also streamlines the methods for achieving them. Every business needs one and its best to start writing one as early as possible.

 

The business plan can and should include the following points –
•    Description
•    Goals
•    Marketing Plan
•    Financial Plan
•    Management Plan

Read Some Usefull: How To Apply For A TIN Number, How To Calculate VAT, How To Register For VAT in India

The Description will allow you to have a clear idea of what you are aiming for. It also gives others who might want to invest in your business or who want to be a part of it a clear idea about your business. It helps to build trust with all those that you might interact with.

Goals are important in all aspects of a business otherwise you would not know if you are creating a profit or not. Set goals for the short term and also for the long term. It is very good practice to go over your goals and make changes to them when deemed necessary to make sure that your business is not stagnating.

Marketing is a very important part of a business. Without the force of marketing even the best product would find it hard to get off the ground. You will have to allocate a decent amount of time and financial commitment to marketing your products and ideas to the world so as to make a profit. Make sure you put a lot of thought into who you should market your product to and the most effective way to reach that audience.

Before you start a business make sure that you are able to provide for the growth of the business financially. You will have to allocate money for start-up costs (amount required to get up and running) and also operating costs (money required to keep the business running.) Start calculating what these costs might be and if you have the finances required to get everything started and running. The financial plan will help you get your business started and running till you start seeing some cash inflow from your new business.

Your management plan along with your other plans will set the foundation for your company to grow. Managing your own company will require lots of dedication and persistent effort from you to get things done. You will have to look at yourself and assess what skills and qualities you have and decide on whom to hire for the skills that you might be lacking in. Employees are very integral to any business and so is the way in which you treat them. Be open to ideas and educate your team about what is happening in your business so that they feel they belong.

These are just a few tips about what can go into a business plan. Make sure that you spend time on creating one for your business so you know exactly where you are headed and how you will go about it.

How to Apply For a TAN

TAN stands for Tax Deduction and Collection Account Number. It is a 10-digit alpha numeric number issued by the Income Tax department in India.

Who should have a TAN?
All those persons/employers who deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.

Read More: How To Apply For A TIN Number, How To Calculate VAT, How To Register For VAT in India

How to Apply for TAN?

Offline:
1. Application forms can either be obtained from Tax Information Network Facilitation Center (TIN-FCs), PAN centres, any other vendors providing such forms or can be freely downloaded from this website.
2. TAN should be applied through Form No 49B
3. The application form should be accompanied with photocopies of your ‘proof of identity’ and ‘proof of address’ and a fee of INR 62.
a. Demand draft/cheque shall be in favor of ‘NSDL – TIN’, payable at Mumbai.
b. In case you are paying by cheque, deposit a local cheque (drawn on any bank) with any HDFC Bank branch across the country (except Dahej). Mention TANNSDL on the deposit slip.
c. Mention your name on the reverse of the demand draft / cheque.
4. Submit the duly filled form with the necessary enclosures and demand draft/cheque at your nearest TIN-FC. These centres are established by NSDL (which is an appointed intermediary by the Government) across India. To find a TIN-FC near you, click Find TIN-FC

Online:
1. Apply for your TAN online. Click here – Apply for TAN
2. On confirmation, an acknowledgment screen will be displayed. Save and print this acknowledgment. The acknowledgment consists of the following.
• A unique 14-digit acknowledgment number
• Status of applicant
• Name of applicant
• Contact details (address, e-mail and telephone number)
• Payment details
• Space for signature
3. Sign within the box provided in the acknowledgment. For applicants other than ‘Individuals’, the authorised signatory shall sign the acknowledgment and affix the appropriate seal or stamp.
4. Once you have applied online, documents showing your ‘proof of identity’ and ‘proof of address’ need to be sent over post/courier to NSDL – TAN Application division

Payment:
The fee for processing TAN application is INR 62 (INR 55 application charge + 12.36% Service Tax). Payment can be made by demand draft or cheque or credit card/debit card or net banking. Note the following important points:
1. Demand draft/cheque shall be in favor of ‘NSDL – TIN’, payable at Mumbai.

2. In case you are paying by cheque, deposit a local cheque (drawn on any bank) with any HDFC Bank branch across the country (except Dahej). Mention TANNSDL on the deposit slip.

3. Mention your name and the acknowledgment number on the reverse of the demand draft / cheque.

4. On successful payment by credit card/debit card/net banking an acknowledgment will be displayed.

5. Send the acknowledgment duly signed, along with demand draft, if any, shall be sent to NSDL at
National Securities Depository Limited
3rd floor, Sapphire Chambers,
Near Baner Telephone Exchange,
Baner, Pune – 411045

6. Super-scribe the envelope with ‘APPLICATION FOR TAN – Acknowledgment Number’ (e.g. ‘APPLICATION TAN – 88301020000244’).

7. Your acknowledgment and demand draft, if any, should reach NSDL within 15 days from the date of online application.

Once NSDL receives your TAN application along with said documents, either through TIN FC or online, the details will be verified and then sent to Income Tax Department. Upon approval, the Income Tax Department will allocate a unique number and send you the confirmation and number through NSDL.

(Disclaimer: The above-mentioned steps are a guide to the procedure of applying for a TAN. We request our readers to check with the appropriate Government department to get the complete regulations regarding TAN application)

Professional Tax Requirements in India

What is Professional Tax? Professional Tax is a tax levied on professions and trades in India. It is a state-level tax and has to be compulsorily paid by every member of staff employed in private companies.

Applicability of Professional Tax as per the Constitution of India: Article 276 of the Constitution of India lays down that “there shall be levied and collected a tax on professions, trades, callings and employments, in accordance with the provisions of this Act. Every person engaged in any profession, trade, calling or employment and falling under one or the other of the classes mentioned in the second column of the Schedule shall be liable to pay to the State Government tax at the rate mentioned against the class of such persons in the third column of the said Schedule. Provided that entry 23 in the Schedule shall apply only to such classes of persons as may be specified by the State Government by notification from time to time.”

Read More: How To Apply For A TIN Number, How To Calculate VAT, How To Register For VAT in India

What is the Amount of Professional Tax? The maximum amount payable per annum towards professional tax is INR 2,500. The professional tax is usually a slab-amount based on the gross income of the professional. It is deducted from his income every month.
The slab for professional tax varies across the different states in India. Click here for the different slab rates.

In Which States is Professional Tax Applicable? The state governments of the following states have levied professional tax – Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamil Nadu, Gujarat, Assam, Chattisgarh, Kerala, Meghalaya, Orissa, Tripura and Madhya Pradesh.

Who is responsible to deduct Professional Tax?
• The owner of a business is responsible to deduct professional tax from the salaries of his employees and pay the amount so collected to the appropriate government department.
• He has to furnish a return to the tax department in the prescribed form within the specified time.
• The return should include the proof of tax payment. In case the payment proof is not enclosed, the return shall be deemed incomplete and invalid

How To Register for Professional Tax?
• Apply for the Registration Certificate to your state’s tax department within 30 days of employing staff for your business
• If you have more than one place of work, apply separately to each authority as regards the place of work coming under the jurisdictionof that authority

Penalties for Non-Compliance on Professional Tax Payment:
• Delays in obtaining Registration Certificate, a penalty of Rs. 5/- per day
• In case of non/late payment of profession tax, penalty will be 10% of the amount of tax
• In case of late filing of returns, a penalty of Rs. 300 per return will be imposed

How To Register For VAT in India

What is VAT?
Introduced to replace the Sales Tax, VAT is a multi-point levy on each of the entities in the supply chain with the provision to allow ‘Input tax credit (ITC)’ on tax at an earlier stage, which can be appropriated against the VAT liability on subsequent sale.

Read More: How To Apply For A TIN Number, How To Calculate VAT, How to Apply For a TAN

Who is liable to register for VAT? Any trading or manufacturing business, whether a sole proprietorship or a partnership firm or a private limited company, that sells its products is liable to be registered for VAT.

What is the procedure of VAT registration?

i. Submit an application for VAT in Form 1 along with the following documents to the local VAT office:
• Central Sales Tax registration certificate(Form A)
• Professional tax registration certificate(Form 2)
• Copy of important documents such as the address proof, ID proof of the Proprietor/Partner/Director
• Four PP size photographs of the Proprietor/Partner/Director
• PAN No. & Bank Account No of the Proprietor/Partner/Director
• Copy of the rental agreement of the business place
• Details of business activities
• Partnership deed (in case of a partnership firm)
• Memorandum of Association and Articles of Association (in case of a Private Limited company)

ii. The authorities from the local VAT office will inspect the premises of where you conduct business within a prescribed time

iii. Once the inspection is over, you will have to pay a specified fee to the local office for your VAT registration

iv. On payment of the fee, a TIN number will be allotted to you for your business and you will also be given the VAT registration Certificate.

How To Calculate VAT

In simple words, VAT = Output Tax – Input Tax
Now let’s see how Input and Output Tax are calculated:

Input VAT: Amount paid by a buyer as a percentage of cost price for goods/services used to make a final product
Say the Cost Price of a goods/services is = INR 100
Assuming the VAT rate to be 12.5%,
Input VAT (VAT paid during buying) = INR 12.50

Read More: How To Apply For A TIN Number, How To Register For VAT in India, How to Apply For a TAN

Output VAT: Amount received by a seller as a percentage of the selling price of the final product
Say the Selling Price of the Product is = INR 200
Output Tax (VAT collected during resale) = INR 25

VAT Payable:
VAT Payable = Output VAT – Input VAT
= INR ( 25 – 12.50) = INR 12.50
VAT is therefore calculated by deducting tax credit from tax collected during the payment period.

Remember:
• If you are registered for VAT, you are liable to pay VAT only at one stage, when you are selling the product
• You would have paid VAT while purchasing goods from your suppliers. This VAT will not be your cost as you will deduct a corresponding amount from tax on your sales.

You can also find many VAT calculators online, such as www.vatcalconline.com, www.easycalculation.com/finance/vat.php, etc.
We would however urge you to check with your accountant before using the afore-mentioned sites

How To Apply For A TIN Number

What is a TIN? 

Tax Information Network (TIN) is an initiative made by Income Tax Department of India to modernize the current system for collection, processing, monitoring and accounting of direct taxes using information technology. It is a repository of Tax related information from across the country. It is unique registration eleven digit number that is used for identification of dealers registered under VAT.

Read More: How To Register For VAT in India, How To Calculate VAT

Who should register for TIN? TIN number registration is required for Manufacturers, Traders, ,Exporters and Dealers. When new registration is undertaken under VAT or Central Sales Tax a new TIN will be allotted under registration number. The TIN number should appear on all Quotations/Orders/Invoices by both Sending Company and Receiving Company.

What is the procedure of TIN registration?

You can apply for this number online or visit one of the governments many facilitation centres across the country and submit this form.

These are the documents that you will need to apply for a TIN number

1. ID Proof / Address proof / PAN card of proprietor with six photographs

2. Address proof of Business premises

3. 1st Sale / Purchase Invoice, copy of LR/GR & payment/collection proof with bank statement

4. Surety/Security/Reference.

This may differ slightly from State to State. After these documents are checked and scrutinized, a unique TIN number is provided to applicant. For applicants who have Central Sales Tax number, this can be changed to TIN number on request by the tax department.