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Keep your accounting records for five years and avoid a R16 000 fine from SARS

by , 19 April 2013
SARS requires companies and close corporations to keep accurate accounting records and documentation to support all transactions (revenue declared and expenses claimed).

You could face up to R1 million in fines if you don't comply with the regulations of the new Companies Act
If your company doesn't conform, and you're caught, you could be fined up to R1 million.

Need expert advice to avoid this? Click here.


What's an IT14?

This is the income tax return for companies and close corporations (CCs). You must complete and submit this return within 12 months after your company or close corporation's financial year-end. No excuses – it's the law! And with SARS' slogan being 'Pay now, argue later', you don't want to end up paying thousands of rands in fines, when you don't have to, and possibly never see that money again…

Tip: Keep your accounting records for at least five years - the 2008 Companies Act says you've got to keep your company records for at least seven years. If you don't, you could be liable for a very hefty administrative penalty. Take a look…

Your penalty will depend on how much you've crooked SARS out of. So, if you've cheated SARS out of R1 000 000,  your fine – for every month that you don't pay SARS what you owe it – will be R1 000 plus the previous month's fine. So, if you owe SARS R1 000 000 for one year, you'll end up paying them R12 000, plus interest… Couldn't you think of better ways of spending R12 000? I know I could! Here are the other penalties:
If you owe SARS between…   You'll have to pay them…
R0 R250 000   R250
R250 001 – R500 000  R500
R500 001 – R1000 000   R1 000
R1 000 001 – R5 000 000 R2 000
R5 000 001 – R10 000 000  R4 000
R10 000 001 – R50 000 000 R8 000
Above R50 000 000 R16 000

This means you need to keep your accounting records and supporting documentation on hand if SARS has any queries.

Some of our subscribers are having trouble getting their accounting records correct...

... so they sent in their questions to our Accounting Helpdesk. I've included them below so you can also keep your accounting records accurate – and avoid any administrative penalties from SARS.

Q: My client paid R12 500 for a car which cost R20 000. The garage gave my client R7 500 when he traded in his old car. The old car cost R22 000 and had depreciated by R5 000. How do I record this transaction in my client's business journal?

Tip: 'DR' means 'debit'. Put this entry onto the debit side of your journal. 'CR' means 'credit'. Put this entry onto the credit side of your journal.

A: The journal entry would be:

Dr New car R20 000
Dr Accumulated depreciation R5 000

Dr Loss on disposal R9 500 (R22 000 - R5 000 + R12 500 - R20 000)
Cr Old Car (cost price) R22 000
Cr Bank R12 500

Q: What is the entry for the claim recovered from fire insurance?

A: This depends on the exact asset/s that were destroyed in the fire and to what extent these were covered:

1)    Let's say your storeroom and its contents, valued at R60 000, were destroyed by fire. The insurer pays your business R60 000. In this case, the entry would be:

Dr Insurer (debtor) R60 000
Cr Storeroom (asset) R60 000


Dr Bank R60 000
Cr Insurer (debtor) R60 000

2)    Now let's say the agreed amount of the claim was R50 000, instead of R60 000.

The journal entry would be:

Dr Insurer (debtor) R50 000
Dr Loss R10 000
Cr Storeroom (asset) R60 000


Dr Bank R50 000
Cr Insurer (debtor) R50 000

In the second scenario, record the loss (the difference between the value of the asset lost and the amount of the claim) of R10 000.

For asset/s that were destroyed and were subject to depreciation, take out the accumulated depreciation account too.

3)    A delivery vehicle, which cost R10 000 and had accumulated depreciation of R3 000, was  destroyed by fire. The insurance claim amounted to R5 000. The entries would be:

Dr Insurer (debtor) R5 000
Dr Accumulated depreciation R3 000
Dr Loss R2 000
Cr Delivery vehicle (asset) R10 000

Dr Bank R5 000
Cr Insurer (debtor) R5 000

Q: I'm trying to do a general journal entry for the following and was having trouble. Could you help me with what accounts to debit and credit in this situation:

XYZ Delivery Service began operations by receiving R5 000 cash and a truck valued at R10 000. The business issued shares to acquire these assets.

A: Here's the journal entry:

Dr Bank R5 000
Dr Delivery truck R10 000
Cr Capital R15 000.

Remember: If you're a paid-up subscriber to the Practical Accountancy Loose Leaf, you can send in your accounting-related queries to the Accounting Helpdesk and one of our accounting experts will send you an answer within 72 hours.

Until next week.

Philip Rosenberg
Managing editor: Practical Accountancy Loose Leaf

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