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Accounting and Bookkeeping for Your Business

coolmind — Tue, 28 Dec 2010 14:23:53 GMT

Being engaged in business is not a simple task. You must take care of a lot of things to keep the business going and the money flowing. However, many do not become successful at their attempts to put up a business because of loss of track of their finances and cashflows.

If you intend to stay in business for a long time, you need to know and understand your financial situation.

Taxes
Compliance to the law regarding taxes will keep you out of trouble. Keeping track of all your income and expenses is necessary for you to be able to ensure that necessary tax payments are correctly made.

Taking Control of Your Business
Using financial data is one of the best ways for one to achieve better control of their business. Monthly reports will show you how good or bad your business has been performing and in what particular area is improvement required. Things to watch out for are:

Overheads - to see if costs are under your control
Profit margins - to know if your profits are within the margins
Turnover - to see if it is high enough
Net profit - to see if you are actually making profits

Cashflow
Without cash, your business can succumb. Cash is needed to run your business no matter how much profit you are making on paper. If have not enough cash, your creditors might try to have your business liquidated.

Reporting
Varying types of reports and submissions need to be submitted to the authorities, as per the law requires. Cashflow, balance sheet, and annual profit and loss statement are examples of these reports. Self-employed or small businesses still need to make annual reports, though they are not that burdensome compared to large enterprises and corporations.

A Good Accounting System
The importance of a good accounting system is something a business owner (or an aspiring business owner) must know of because it can define if your business will stand the test of time. Putting up a good accounting system does not have to be all too complicated. Computers do a great job in making bookkeeping easier than before when they used to keep handwritten records.

One must also choose the best accounting softwares to use (most CPAs are aware of this and know the right software to use). A good accountant uses the right tools and employs the necessary skills to be able to perform his duties well.

Hiring a Chartered Accountant is a very wise step to make if you would want convenience, great profits in the long run, and staying power for your business. You will have more time to focus on other aspects of your business and be at ease with leaving accounting tasks to a professional.

Best Chartered Accountants For You

coolmind — Tue, 28 Dec 2010 14:22:44 GMT

To search and hire the right chartered accountant for you is not an easy task, but if you are going to start up a business, hiring an accountant must be one of your priorities. It is of course required that the one that you are going to hire has the qualifications. One of the best ways is to ask your professional associates or find a reliable source.

The internet is replete with accounting firms who advertise their services online. You can check out these firms and contact them. Most of them are promising and can help you find the right accountant for you, who of course, has the right qualifications. You should also go for a firm which offers a free needs assessment, as it is as important as hiring the right accountant for your business.

The Benefits of Having an Accountant

An accountant's job description includes studying and taking care of your accounts, diagnosing financial problems, and improving your company's financial state. Researching about specialized services can be of great help if you have specific needs like payroll services, bookkeeping or legal services. Others offer a wide range of services while some focus on a specific area wherein they specialize.

Not hiring accounting or bookkeeping services is one of the most common mistakes that a business owner makes. This usally results in consequences that are not favorable to the business. Hiring an accountant must always be included in every business plan no matter how small the enterprise may be.

Another great and easy way to find skilled and qualified accountants is to ask your friends or professional associates for recommendations. Yellow pages and the internet are also great and helpful resources. After doing a research, you have a few prospects but the search doesn't stop there.

Qualifications of the Right Accountant for the Business

Of course there are also points that you need to consider in choosing the right accountant for you. Are they skilled enough? Do they have enough experience? What is the credibility of the firm or source from which you have found your prospect?

Simply checking your books and records and taking care of payroll are not the only purposes that an accounting professional serves. They can also be financial advisors and valuable assistants aside from doing basic record-keeping.

Also, someone with sufficient experience, training, and expertise is what you really need because the tasks that an accountant is going to perform is of extreme value to the survival, growth, and improvement of a business. Finding a firm which houses skilled and qualified professionals is your best bet.

You also need to schedule a conference and meet with the potential employee for you to be able to know them better. Sometimes seeing their resumes is not enough. You have to see them in person for you to judge them better.

CPAs or chartered accountants are usually the best choice. They are trained to handle different accounting jobs and they are better equipped than ordinary accountants. The advantage of having a CPA over an ordinary accountant is the skills and knowledge that they have, which they can use to better handle the financial side of your business.

Bank Checking Accounts:

coolmind — Tue, 28 Dec 2010 14:21:37 GMT

There are quite a few checking account plans out there, that tempt retail bank customers with high yields if -those hopeful people qualify..

To qualify of course, you need to meet their (demanding) expectations in being an ideal customer - which means, that you'll need to show them your goodwill by being regular enough with certain kinds of profitable banking transactions.. One very good example would be spontaneously using their online mode of bill payment service in paying your debit card for a month or more.

Bankrate conducted an analysis, wherein they discovered about 50 banks situated in the country, offering high rate business checking account plans to customers; With an astounding high interest rate of 3% for average up to as high as 6%.

After qualifying and getting used to it for several months there would be certainly come a time when you're not making sufficient business payroll checks with the bank; Your interest rate are then being considered by the bank, like cutting your rate down to their regular rate which would be below half of the percentage point.

Although you might not notice, but these banks are very much aware that interest rates at a range of 3 - 6% add up to their strategy of still tempting customers not to cut short their savings and stock investments into their high interest business checking accounts. These banks do not settle these type of accounts for big personal investments.

To guard against this, high interest checking account plans usually come with a ceiling on how much money you can hold in them - usually it's something under $30,000. Anything you hold above this will usually just drop you down to the default interest rate for the excess.. With some banks, that ceiling can come down to $1000, if you want to earn their highest interest rate.

Getting in touch with banks or credit unions like these is not that difficult; but if you are having a tough time locating a high interest checking account in your area, you just need to search around. The biggest complaint most people have with high interest checking account plans is the fact that they have a few simple rules for how many transactions a month you must have to qualify, among others. One can save money buying payroll check blank checks and software online. Top quality computer checks and even blank check paper is all available for the lowest cost online.

There's always no sweat hitting this particular business checking account rule - all you need is just to avail your debit card in buying lunch and other goods. What else is to grumble about when you're rewarded a 6% interest rate.

Accounting

coolmind — Tue, 28 Dec 2010 14:20:38 GMT

There are a daunting amount of companies out there practicing accountancy so what should you consider when choosing an accountant...

There are a number of factors to consider when choosing an accountant but the most important is whether you need a general or specialist accountant. A general accountant can help service the overall needs of your business or can help with personal finances; a specialist accountant will be able to help with more specific areas of finance such as cash flow projections or VAT. The following will help explain the specific services that accountants can provide:

Account Production - Account Production is the preparation of annual accounts for inspection by the Inland Revenue; you are required to keep track of your spending, profits, tax returns and all manner of transactions.

Audit - An audit is the systematic examination and verification of a firm's accounts which results in the publication of an independent opinion on whether those financial statements are relevant, accurate, complete and fairly presented.

Bookkeeping - Bookkeeping is the systematic recording of financial aspects of business transactions in appropriate books of account.

Cash Flow Forecast - Cash flow forecasting is an estimate of the timing and amounts of cash inflows and outflows over a set time period, generally a year. It shows if a firm needs to borrow, how much, when and how it will repay them. This can also called cash flow budget or cash flow projection.

Management Accounting - Management Accounting is the process of preparing management accounts that provide accurate and vital financial and statistical information that is necessary to allow managers to make informed decisions; this information is generally presented in weekly/monthly reports and contains details of available cash, sales revenue generated, orders in hand, accounts payable and receivable and outstanding debts.

Payroll - Payroll is the amount paid to employees for services they have provided during a set time period. Payroll is a crucial part of any business calculating wages, National Insurance and income tax and the arrangement of payment to employees. Payroll and payroll taxes can considerably affect the net income of most companies and as a result are subject to strict laws and regulations.

Tax Returns - A tax return is a document the must be completed for the HM Revenue & Customs which declares liability for taxation. At the end of every year of trading a company is required to pay Corporation Tax;

Online Accounting - Often called E-accounting it is the application of online and Internet technologies to the business accounting function.

Accounting

coolmind — Tue, 28 Dec 2010 14:19:07 GMT

The new government accounting system (NGAS) is the shift to new accounting procedures in order to facilitate the process of recording system, and expand a range of users who can use and understand the accounting system.

The important features and policies of the new government accounting system comprise of the following

1. Accrual basis of accounting system (all expenses shall be recognized when incurred)
2. Adoption of one-fund concepts
3. A new coding structure wit a three-digit account numbering system shall be adopted
4. All national agencies shall maintain two sets of books, regular agency books and national government books, (National Treasury)
5. Financial statements books
6. Us of two money column trial balance
7. Allotment and obligations accounts (Registry allotments)
8. Notice of cash allocation
9. Financial expenses
10. Depreciation, accounting for borrowing and loans, recognition of liability
11. Elimination from contingent accounts
12. Registry of public infrastructure
13. Allowance for doubtful accounts
14. Recognition of liability
15. Interest accrual
16. Contingent accounts
17. Corollary or negative entries

Petty cash fund shall be maintained under the Impress system. As such, all replenishments shall be directly charged to the expense account and at all times.

What is a national budget?

The national budget is the government's estimate of its income and expenditure, it is what the government plans to spend for its programs and projects, and where the money will come from. It is based on what the government thinks it will spend during the year. They're the sources of what it hopes to have as funds either from revenues or from borrowing with which to finance such expenditure.

National budgets are allocated for the implementation of various programs and projects, operation of government offices, payment of salaries of government employees, and payment of public debts among others.

The basic laws, rules (conforming to general accounting standards and priciples) with accompanying manuals are written in the book in detail; and for the easy use of student, academe, offices, government and the general public.

Finally, Filipinos hope that public officers are accountable for the resources entrusted to them, and must justify every voucher and receipt with honesty.

If everyone would help each other and be fair in dealings, accounting will not be a problem; because only a few audit would be required and dealings even with just the name and identification of payer, payee, parties concerned (with ordinary documents needed), signed would prove authentic and undoubted.

Accounting Issues

coolmind — Tue, 28 Dec 2010 14:17:59 GMT

When folks talk about accounting generally they think about business and corporate accounting, and yes that is a huge topic with corporate audits, SEC rules, Sarbanes Oxley, and the latest new accounting rules. Still, government accounting is very important too, along with Government like organizations, yes, I speak of Freddie Mac and Fannie Mae. Now then, we have the Government Accounting Office, GAO, and the OMD - and many other accounting agencies to keep a check on our money.

And that's just at the Federal Level, as the same thing goes for our States and Counties. Yes, and our cities, many of which have millions of people in them. Take the New York City for instance, where does all that money go, how is it spent, and how is it all accounted for, or is it. Well, this is a troubling question as New York City recently discovered. For instance there was an interesting piece in the New York Times recently.

The article was tiled; "New York City Payroll Accounting Chief Resigns" by Serge F. Kovaleski and John Eligon, which was published on December 23, 2010. In this article it told of how the Mayor's office canned the accounting chief due to a "Federal Corruption Case" and the administrator "said he was leaving as executive director of the Office of Payroll Administration effective Dec. 31. Mr. Bondy, who has not been charged, was suspended without pay. His biography was removed from the agency's Web site earlier this week."

Question is or was he a fall guy to the gross accounting irregularities, was he caught up in union politics, or was there something else. You can bet that if the Feds step in something is going on, or the politics have reached epic proportions. Sure, it's nearly an impossible task to keep track of it all. But if that happened in a company the State would come shut down the company or impose huge fines. Well, it appears there are just as many problems in our public sector as in our largest companies involved in the last financial crisis.

Indeed, we might all suspect as more cities get closer to bankruptcy, and have their muni-bonds close to default that the veil will be uncovered on more and more accounting irregularities, in more and more cities across the nation, as they so desperately attempt to make the impossible balance out, and make sense. If you have additional comments and question along this line of thinking, then I hope you will please consider all this.

Interpreting Accounting Data for Small Businesses

coolmind — Tue, 28 Dec 2010 14:16:37 GMT

Liquidity is simply defined as the ability of a company to convert its assets into cash quickly or in the short term (usually encompassing a 12-month period). When your business is liquid, it means your company can easily turn assets into cash and pay-off its short-term debts or liabilities to creditors.

Liquidity is important when applying for a loan since this will be used by banks and other creditors to gauge your company's ability to pay off your debts and not go bankrupt. It can also be used to make financial and management decisions. For example, would you continue to buy inventory with cash to get a discount from your supplier, but risk not having enough cash to pay for wages, taxes, and interest on your loan?

There are two common ways to measure your company's liquidity just by looking at your accounting sheets:

1. Current Ratio

Current ratio is calculated as the current assets divided by current liabilities (Current assets / Current Liabilities). It is often expressed as a factor such as 2:1 (2 current assets per 1 current liability). The term current means receivable or payable within the next 12 months. Current assets then is defined as cash + accounts receivable + stocks or inventory while the current liabilities is simply all short term debts. Both current assets and current liabilities can be easily obtained from your business' balance sheet.

If the current assets are lower than current liabilities, then it may indicate that the company is in a bad financial standing. It is commonly accepted that a ratio of 2:1 is ideal but use it only as a guide since the situation of each company is unique.

2. Acid Test or Quick Ratio

We stated above that current assets include a business' stocks or inventories. Since it's possible for a business not to sell all of its stocks in the near future, we can then take this out of the equation to have a better gauge at a business' liquidity. Acid test is simply the ratio between the current assets minus the stocks/inventories, and divided by the current liabilities ( [current assets - stocks] / current liabilities).

The acid test, which is sometimes called as the 'quick ratio', is probably a better measure of a business' liquidity compared to the current ratio since it might be difficult for businesses to dispose of its stocks in the short term. People are saying that an acid test ratio of 1:1 is ideal.

But then again, we cannot assume that a company is in bad shape if it has a ratio of less than 1:1. It's very unlikely for all liabilities to be due on the same month (think of taxes, wages, credits from suppliers, etc). A business may receive payments from debtors, and may even make enough sales to meet its current liabilities as they become due.

Small Business Accounting Software

coolmind — Tue, 28 Dec 2010 14:15:13 GMT

One of the key software that every small business owner should consider buying is an accounting software. Not only does it decrease cost and time in preparing financial information, it can also be used by businesses to instantly generate reports for decision making.

Choosing an accounting software is an important decision for small businesses since choosing the wrong one would mean losing a substantial amount of money, and losing productive time and other business opportunities due to time spent learning and implementing the system. Here are some guidelines to follow when evaluating different accounting software packages in the market:

1. Cost

Most accounting software can be had for a one-time fee while some charge recurring yearly or monthly payments. There are free accounting software but these packages usually lack support and various updates that paid programs provide. Similarly, open source accounting software, like any other open source programs, must be programmed to fit the specific needs of a business; which translates to hiring computer programmers or specialists to modify the program and in some cases, maintain it for the company.

Remember that you shouldn't base your purchasing decision on cost alone. We all want to get the most value out of our money but this doesn't necessarily mean that the cheapest software will give you more value. It might make sense to pay a premium for an accounting software that better suits your needs.

2. Ease of Use

An easy to use system is ideal for small business owners since every bit of time spent on accounting is time that could have been spent running or growing the business.

Simpler systems will most likely have a low learning curve associated with them, and the faster you learn how to use a software package, the faster you gain the benefits from using it. Complicated systems are also prone to user mistakes and if they're not corrected, any reports and documents generated from it would not be accurate.

A simple single-entry system (as opposed to double-entry or full general ledger) will suffice for the vast majority of small businesses. This will allow you to do your bookkeeping in-house and hire a CPA or accounting firm to produce your end of year financial statements.

3. Other Features and Reporting Capabilities

Depending on your needs, advanced features and reporting capabilities can save you countless hours. Some accounting software may offer advance features such as automatic payroll calculations, invoicing and stock management features. Reports produced by the system allow you to quickly assess your accounts and give you financial insights into your business to help you in decision making.

These features maybe bundled in, sold as an upgrade or provided as add-on modules to the original system. A modularized system is ideal for businesses that doesn't need a particular feature now, but may do so as their company grows. Having all available features may seem nice but these things will most likely cost more. You must determine your needs before hand so that you don't end up paying for features or add-ons that you won't use.

4. Support and Program Updates

Computer and software error can happen when you least expect it so it's a good thing to know that you can contact someone to resolve your issue. Personal and timely support provided by people skilled in the particular software package can be invaluable and save time, money and stress. Ideally support offered will be more than simply knowledge-base and email. Knowing you can pick up the phone and talk to someone can be important. Some companies even provides webinars and in-person training sessions to help you master their software.

Program updates are important to fix unforeseen bugs, provide software improvements and even new features to the software. Updates are also released whenever there's a change in accounting law (most specially the tax rate). Support and updates are generally considered as a premium service by the industry. Most companies usually offer per-year or per-month subscriptions to support and update programs while others may also utilize a pay-as-you go model.

Conclusion

As you embark on your search for the right accounting software, remember to spend some time to determine your business needs. Take advantage of the various 'free trial' offers. Ask questions of the software provider, get a feel for the extent of their support. This will allow you to effectively evaluate different software first hand before you commit your business' money and time to a particular product.

Bank Account Reconciliatio

coolmind — Tue, 28 Dec 2010 14:13:53 GMT

Account reconciliation or balancing bank accounts is representing vital financial management task. You improvise on the correctness of your bookkeeping assuring that bank haven't made any errors, and by regularly reconciling your records you reduce your chances of being a victim of fraudulent transactions.

Bank Account Reconciliation Problem

At times reconciling a personal or corporation bank account with Microsoft Money can be frightening. If a comparative study between your records and the balance in your bank account and its records show inconsistency. Reconciling a bank account would just explain you the difference between your records and the bank's.

Missing Transactions

Usually two factors explaining the discrepancy between two sets of records are: your unrecorded transactions in your account that has been recorded by the bank could be for reasons like either the transactions that you have missed to record or bank fees transactions or interest that you did not realize to include until it appeared on the bank statement. There is also a possibility that the transactions are recorded in your records but haven't been recorded by, or cleared by the bank.

The bank account reconciliation process involves looking carefully at both factors. For example here first you need to look for and then record any transactions that you have missed or didn't realize prior receiving the bank statement such as: monthly service charges, interest amount, forgotten checks, and cash machine transactions.

Clarifying Difference between Your Records and that of Bank's

Next step is to identify the total number of transactions that you have recorded but that haven't yet been recorded by the bank records, like outstanding checks or check not encashed as well as deposits in transit. The sum total of these transactions needs to clarify the difference in your recorded balance and the bank's balance appearing on the bank statement.

Bank Account Reconciliation of Limited Liability Company and Corporation

While reconciling a bank account for a smaller business people other than owner and his family member, you should add an additional step to the basic account reconciliation software. Here you should be considering the possibility of forgery as well as embezzlement and finding evidences of crime as you reconcile.

Accounting and Budget Deficit

coolmind — Tue, 28 Dec 2010 14:11:30 GMT

Budget is not just a book-keeping exercise for recording government receipts and expenditure. It is a significant instrument of economic management and has important basic functions of stabilisation, allocation, distribution and resolution of conflict.

The way funds are raised and spent has far-reaching implications for the economy and the society at large. From that angle, budget should be very transparent so that all stakeholders may be able to understand and respond rationally to the proposed measures.

It has been customary for the finance minister, to sum up, while presenting the annual budget, the financial impact of the proposed measures. This vital information is conspicuously missing in the Federal Budget for 2010-11 with the result that the size of the budget deficit-- a crucial element for fiscal and economic management-, cannot be determined by an outsider.

The fiscal deficit-GDP ratio has assumed added importance because of the conditionalities of the current standby arrangement with the IMF. Compliance with this condition has been a sticky issue. In the past, all sorts of devices to show compliance on the due date were used such as advancing receipts, and postponement of payments. If this did not do, there was no hesitation in resorting to figure fudging even at the risk of being detected and fined.

In this connection, it must be remembered that the US is a major shareholder of international financial institutions including the IMF. In case a borrowing country is on the right side of the US, the Fund, like its other sister institutions, will be very soft and more than willing to grant waiver after waiver. For this, the attitude of the US authorities needs to be watched very carefully. This has been the experience of Pakistan, which is being repeated in case of the current standby facility.

The concept of GDP embraces goods and services produced in a year. There is no problem with budget deficit-GDP ratio, if the goods and services acquired by the public sector are paid off during the same year. If not, the relationship will be distorted to the extent these are not paid or those acquired in the previous year are paid.

In Pakistan, budget accounting is on "cash basis” and only payments during the year are taken into account regardless of the date of transaction. As a result, there are huge arrears because of slack financial discipline, to say the least, and also deliberate efforts to show a better fiscal position for reasons mentioned above. Recently huge arrears of electricity charges due from the federal government departments, including the Presidency have appeared in the press.

The massive circular debt, which is primarily responsible for energy crisis is a glaring demonstration of the phenomenon. The same should be the case regarding other charges and that can be an endless story. The total amount involved could be staggering. To that extent, the ratio understates the expansionary impact, and its contribution to inflation, of fiscal policy. As a matter of fact, no one in government knows the total outstanding liabilities of the public sector.

A very low tax-GDP ratio is bemoaned and there is demand to increase it to a reasonable level commensurate with other similar developing countries. One effective step in this direction, which is also a condition of the IMF standby, is the imposition of value added tax (VAT). How the matter is proceeding makes an interesting case study. In any shape, VAT or revised GST is going to be an indirect tax adding to the already very heavy burden on the common man who also ultimately bears the cost of rampant corruption.

The real problem is not low tax-GDP ratio but the nominal direct tax-GDP ratio. Direct tax revenue at the federal level is shown as 36.4 of tax revenue and 4.2 per cent of GDP. Even this is artificial as some indirect taxes are, without any justification, included in Income Tax and treated as direct taxes. Budget documents do not give any details about income tax.

The State Bank in its Annual Report FY 2009 gives this detail for the first time, which is quite revealing. The components of income tax collections during FY09 were Call on demand- Rs77 billion, Voluntary- Rs142 billion, Withholding- Rs2 41 billion, adding to Gross Income Tax- Rs460 billion. Withholding tax collections were more than half of income tax and consisted of imports- Rs30 billion, salaries- Rs27 billion, dividends-Rs7 billion, bank interest- Rs12 billion, contracts-Rs83 billion, exports-Rs14 billion, cash withdrawals- Rs12 billion, electricity bills- Rs13 billion, telephones- Rs22 billion, Others- Rs23 billion, adding to Gross- Rs241 billion.

The basic distinction between direct and indirect tax is that the former is imposed on income and wealth while the latter is on goods and services. By this definition, of withholding tax only salaries, dividends, and bank interest qualify as direct tax and they accounted for Rs64 billion. If this is adjusted, income tax collections (net) fall to Rs244 billion and direct tax revenue to Rs363 billion. The ratio of direct taxes to GDP would come down from 4.2 to meagre 2.8 per cent-- one of the lowest in the world.

As pointed out, information in budget documents has to serve several analytical purposes and this makes the accounting classification of crucial importance. The first basic revision of the classification was made in mid-1970s when functional-cum-economic classification was adopted. Even prior to that special effort was made to prepare an economic analysis of budget, and this was released with other budget document at the time of presentation of the federal budget.

The new classification facilitated that task but was discontinued after some time. Now another functional-cum-object classification has been introduced. However, that leaves much to be desired. For instance, the legislature, the judiciary and the executive are important state functions and their individual fiscal position should be given.

Functional classification 011 reads, "Executive and Legislative Organs, Financial and Fiscal Affairs, External Affairs.” Budget-in-Brief is of common interest but does not contain functional classification. Budget in Brief needs to be improved to serve its basic purpose of educating the ordinary citizen. Economic analysis of budget should be resumed as this will also serve the economic managers.

Economic managers need to realise that devious ways can at best help them gain some time but can never alter the harsh economic realities. Honesty has been and will ever remain the best policy. For a proper grip on public finance, the "accrual basis” of accounting should be adopted like in many other countries.