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Learn & Best Practices

SME Tax & Audit Secrets

Insider strategies for Malaysian business owners to legally maximize deductions.

Secret: Small Value Asset Write-Off

Standard assets must be depreciated over multiple years. Under LHDN Rules, any single equipment/asset costing RM2,000 or less can be written off completely (100% Capital Allowance claim) in the very first year. The annual cap for this is RM20,000.

SME Practice: Classify phones, tablets, or small printers costing RM1,900 under Office Equipment, and claim the full write-off immediately to reduce current year tax.

Tip: Staff Welfare vs Client Meals

LHDN treats entertainment strictly. Taking a client for lunch is only 50% tax deductible. However, staff welfare entertainment (e.g. employee annual dinner, festival lunches, office snacks) is 100% tax deductible.

SME Practice: Keep distinct accounts for Client Entertainment (50%) and Staff Welfare (100%). Ensure receipts show participant names.

Secret: Double Deduction Incentives

You can claim a 200% tax deduction (claiming double the actual spent amount) on:
• Monthly allowances paid to approved student interns (minimum RM500/month).
• Expenses spent on overseas export promotions and marketing.
• Employment salaries of senior citizens (aged 60+) or ex-convicts (monthly salary limit RM4,000).

Tip: SOHO Home Utility Deduction

If operating from home, you cannot claim rent, but you can claim a proportion of home electricity, water, and internet bills. Estimate the percentage of home floor space used exclusively for office operations (e.g. 20% home area) and apply that exact percentage to utility bills. Keep clean records of calculations.

Audit-Proof Description Formula

Tax auditors flag vague lines. Always describe using this structure:
[Item/Details] + [Business Purpose] + [Who/Period]

Bad: "Paid Maybank", "Ads", "Client Dinner"
Audit-Proof: "Maybank Corporate Loan repayment - July 2026", "Facebook ads for Scentrium product launch", "Business dinner discussion with Scentrium suppliers re: raw materials discount".

1000 — Cash in Hand

Physical cash in safety box or cash till. Keep below RM1,500 for security. Reconcile physically at the end of every week.

1010 — Bank Account

Corporate current account bank ledger. Strictly no personal expense usage. Match ledger entries with bank statement files monthly.

1200 — Accounts Receivable (Debtors)

Unpaid client sales invoices. Review outstanding debtor balances every 30 days and follow up with reminders.

1300 — Fixed Assets (Equipment / Laptops)

Computers, printers, and office equipment costing above RM2,000. Do not write off directly; capitalize here to claim Capital Allowance.

1310 — Fixed Assets (Motor Vehicles)

Company cars, vans, or lorries. Keep mileage logs for all company vehicle trips to prove business purpose to LHDN.

2000 — Accounts Payable (Creditors)

Unpaid bills from raw material suppliers or third-party service providers. Helps track supplier credit terms.

2100 — Accrued Expenses

Expenses consumed/incurred but not paid or invoiced by month/year-end.
Examples: TNB bill for Dec arriving in Jan, professional auditor fees, employee bonuses.

2150 — Deferred / Unearned Revenue

Advance payments received from clients for services not yet delivered. Recorded as liability until work is completed.

2200 — Bank Loans / HP Liabilities

Outstanding principal on bank loans or vehicle hire purchase. Repayments reduce liability; only interest is expensed.

3000 — Owner's Capital / Share Capital

Initial funds invested by founders or shareholders to launch or fund corporate growth.

3100 — Retained Earnings

Accumulated net profit or loss kept in the business from previous years after tax and dividends.

3200 — Drawings / Dividends

Cash withdrawn by owners for personal use. Sole Proprietorship drawings are non-deductible for tax purposes.

4000 — Sales Revenue

Main income from primary operations (product sales, service fees). Must align with issued sales invoices.

4100 — Other Income (Commissions / Interest)

Secondary business income like bank deposit interest, affiliate commissions, or gains on selling old equipment.

5000 — Cost of Goods Sold (COGS)

Direct purchase costs of inventory or raw materials sold to generate revenue. Key for calculating Gross Profit.

5100 — Freight & Carriage Inward

Import duties, shipping fees, and transport charges paid to bring raw stock/goods into your warehouse.

6000 — Advertising & Promotion

Facebook ads, Google Ads, printing flyers, or hiring influencers. 100% tax-deductible. (Export promotions qualify for Double Deduction).

6100 — Director Salaries & SOCSO

Remuneration paid to active directors. Must be approved in corporate minutes. Subject to standard PCB/EPF/SOCSO rules.

6110 — Employee Salaries, EPF & SOCSO

Standard employee salaries and statutory contributions. Ensure monthly EPF is paid on time to keep this deduction valid.

6200 — Rent & Office Rates

Monthly rental payments for business office, store, or warehouse space. Keep stamped tenancy agreements for tax audit proof.

6300 — Utilities & Internet

TNB electricity, water bills, and corporate broadband subscriptions. Registered under business name.

6400 — Entertainment & Client Gifts

Client lunches or corporate gifts. subject to 50% limit. Employee welfare meals are exempt and 100% deductible.

6500 — Professional Fees (Audit / Tax / Secretarial)

Yearly audit, tax filing, and company secretary retainers. Fully deductible as necessary operational costs.

6700 — Repairs & Maintenance

Office painting, fixing broken desks, air-cond servicing. (Extensions or major renovations are Fixed Assets, not repairs).

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