One of the undeniable successes of the last seventeen years has been the ability of SARS to increase its efficiency and collections. In this period, tax law has become increasingly complex as we become more exposed to globalisation. Yet many of us will have noted that this comes with a cost to the taxpayer - as the amount in dispute increases, it becomes increasingly difficult to deal with SARS. The old days of bringing our documents to SARS and getting swift resolution only apply if the amounts in question are small.

The reality is that SARS have become more like a large corporate company. If you want to resolve issues which revolve around larger amounts of money, you need to involve lawyers and accountants. Like a large corporate, SARS hangs tough and basically wears you out. This is perhaps not, in the greater scheme of things, a bad thing. It means SARS are getting increasingly sophisticated. We need to recognise that the rules are changing.

It's up to us to see potential dispute areas ahead of time and plan accordingly. Remember that when we get into areas of dispute, we have to pay up front and the taxman has the resources to drag the matter on for years.

Don't let that happen to you - take proper advice before disputes arise!

YOU, THE CONSUMER PROTECTION ACT, AND YOUR RIGHTS

The Consumer Protection Act (CPA) has been in operation for five months, yet surveys indicate that there is still widespread ignorance of this legislation. For example, if you as a consumer buy a product or service and it is defective, you may return it within six months of purchase - in which event you have the right to elect whether you would like to have the goods or services repaired, or to be refunded.

Yet retailers are still getting away with responses like "it is not our policy to give refunds"!

Another aspect of the CPA where there is no sign of change is the right you have to sue for damages if you suffer loss due to buying a defective product or service. Before the introduction of the Act, the consumer had to prove that the producer of the product or service was at fault, something which can be very hard to do. Now there is "strict liability" - all that you need to prove is that you suffered loss due to a defect in the good or service you purchased. Further, you may sue either individually or jointly all members in the supply chain - producer, importer, distributor, wholesaler, retailer etc.

The scales used to be tipped against the consumer, but the CPA has now more than levelled the playing fields. It's now up to you - the consumer - to make use of the new rights conferred on you.

Suppliers: If you haven't already done so, limit the substantial risks to which the CPA exposes you by auditing your quality control procedures and return/refund policies now!



ACCOUNTING 101: FINANCIAL STATEMENTS MADE EASY! THIS MONTH - THE BALANCE SHEET

Last month we looked at John's Furniture Deliveries Income Statement. This month we look at the Balance Sheet.

What is a balance sheet? It measures our financial position at a point in time, as opposed to the income statement which measures our activities over a defined period of time.

Why bother with a balance sheet? Because it tells us how good our infrastructure is - do we have sufficient assets and money to grow into the future?

Before going any further, there are some accounting conventions that we should understand. No doubt you will have heard that accountants deal in debits and credits. In life there is a ying and a yang. For every action, there is an equal and opposite reaction. This is exactly what debits and credits do. If I buy a fridge for R4,000, two things happen (ying and yang). I get the fridge but my bank account reduces by R4,000. Alternatively, I could borrow the money from a bank. I still have the fridge but I owe the bank R4,000.

Back to debits and credits. If we follow our logic, every time there is a debit (ying), there is a credit (yang). In accounting convention, an increase in an asset is a debit and correspondingly a credit is an increase in our liabilities or a decrease in our assets. In other words:

Debit (R4,000 fridge which increases our assets) = Credit (we owe the bank R4,000 which increases our liabilities or we pay R4,000 from our bank account which decreases our assets).

The beauty of this for accountants is that it is always self balancing.

We can apply this to our lives. Our bank asks us to fill in asset and liability forms when we want to borrow money. The assets are the properties, cars, investments, cash holdings and personal effects (including fridges!). Liabilities are our owings - mortgage, hire purchase, bank borrowings, creditors etc. In our asset and liability form there is a difference when we subtract our liabilities from our assets. This is the wealth we have built up or our capital.

We can express this as follows:

Assets - liabilities = capital.

That is a balance sheet! As we said above, it measures our financial position at a point in time.

For example: Let's look at John's opening balance sheet before he commences trading.

He opens a bank account and puts R5,000 into it. This is the capital investment that John makes to start the business.

Debit bank R5,000 = Credit capital R5,000.

Note that an increase in capital is a credit.

John also purchased a bakkie for R12,500. This is a long term (in accounting convention "non-current") asset as it will be used in the business for more than one year. John also purchases stock for R20,000 so the business can commence trading (in accounting convention a "current asset" as stock is purchased for resale). John paid for both these assets out of his own funds.

John could choose here to make these purchases part of the initial capital of the business or to make a loan to the business which it can repay to John when it has generated sufficient money. As it will be easier to get the money back via a loan, this is what John chooses to do.

Non-Current assets R12,500 + current assets R20,000 = Non current liability R32,500.

The assets are debits and the non current liability is a credit. It is a non current liability, as John does not expect to be repaid within a year.

Accountants express the equation differently in a balance sheet as follows:

Assets = Liabilities + Capital

This is a convention used by accountants, as they feel it is the most understandable way to present a balance sheet.

So now we have -

(Note - if the balance sheet above does not display correctly, please see the "online version" - link above, under masthead)