Real estate accounting is a shining armor for accounting industry</h1> <article> <h1>Real estate accounting is a shining armor for accounting industry</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:13 GMT</p> <p>Real estate accounting is becoming one of most powerful industries that requires efficient bookkeepers who can take the businesses a one step ahead. </p> <p>Accounting is an integral part of any organization; whether it is a regular industry or a specialist, all of them need good and knowledgeable bookkeepers. And real estate is no different from the other sectors; in fact, it is lately becoming one of the most powerful revenue getter for the government in the United States. Another reason why this sector needs efficient accountants is that it is vast and ever growing industry. </p> <p>Real estate accounting require professionals that are capable of handling accounting services professionally. However, one is very well aware of the fact keeping a track of accounts on every day basis is quite challenging for both the business owner as well as the financial department. In fact, accounting ledgers always grow; hence, need experts to take care of the transactions taking place regularly. It is only accounting and accountants that can make business a successful venture by keeping the accounting books intact. That is why real estate sector is constantly looking for proficient and professional people. Therefore, real estate follows accounting diligently for reasons like tax payment and for managing the business properly. </p> <p>However, when the question of handling real estate accounting arises, then it becomes all the more important to have an experienced staff to accomplish tasks properly. Real estate, as the world knows is a huge sector in itself, where there are several participants and demands perfect accounting services. In fact, real estate accounting is catching up a lot with them in recent years. One will be amazed to know that its accounting comprises a range of strategies and principals that are lifeline for the business along with accounts. Moreover, real estate accounting has helped in the growth process and development of profits and has also curbed losses to a great extent. Although, keeping real estate accounting intact is quite a tiresome and time consuming process, and demands lot of expertise on the part of an accountant. However, this sector follows a range of methods to track various details related to accounting services. The details that have to be taken care of by an accountant for real estate accounting include maintenance of accounting books with financial transactions receipts. It additionally keeps a track of ledger books, balance sheets and credited and debited transaction sheets. </p> <p>The real estate accounting also provides minute details on every transaction that has been made and recorded for any requirement of the accounting method. The other additional services provided for estate accounting helps the businesses to make more profits and assist in understanding the financial position of the business in the market. The various regular services required by realtors are maintenance, utilities, and management of various records. Real estate accounting also demands solutions for property taxes, capital costs, and insurance and depreciation charges referring to the cost of providing assets. It will not be a surprised to tell you the fact that the real estate industry has also turned tech-savvy and utilizes software for accounting purposes. Its accounting software covers distribution and payroll, budgeting and accounting. This software has proved to a helping hand for the user as it is easy to use and implement. </p> <p>Alvis Brazma gives advice to business owners about how to manage their business efficiently without any hassles.To know more about Accounting outsourcing,Accounting outsourcing services,Accounting help,Real estate accounting visit this leading internet source: <a href="http://www.impacctusa.com">http://www.impacctusa.com</a> </p> <p> </p> <p><a href="http://www.articles-hub.com/Article/184934.html">http://www.articles-hub.com/Article/184934.html</a></p> </article> <article> <h1>Disposing of Assets: Figuring the Gain or Loss</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p><span style="font-size:10pt;font-family:Arial;">A brief description of how to figure the gain or loss on the sale or discard of a fixed asset.<br /><br />The definition of Gain and Loss is as follows: <br /><br />Gain: When the sales price of a fixed asset exceeds the fixed asset's book value. <br /><br />Loss: When the sales price of a fixed asset is lower than the fixed asset's book value. <br /><br />How would you feel if you sold one of your fixed assets in your business for $2500, deposited that amount in your bank account, recorded it as revenue, paid taxes on the profit, and then, found out you only needed to report $500 not $2500? Kind of foolish maybe? It happens all the time, because people don't know how to figure the gain or loss from the disposition of their assets. <br /><br />Knowing how to write the proper adjusting journal entries that will record all the parts of a sale or trade of your fixed assets is a little complicated, especially when it comes to trades, and not possible to explain entirely in this article. The subject matter is thoroughly discussed my Real Life Accounting for Non-Accountants course. However, I can demonstrate some of the mechanics involved so that you will be aware that, when you sell or discard an asset, there is more to consider than meets the eye. <br /><br />For example, let's assume that you bought an office desk for $2500 and depreciated it using the Double-Declining method with a one-half year convention. In the U.S. this is called MACRS (pronounced "makers") or Modified Asset Cost Recovery System. The MACRS system requires a desk to be depreciated over seven years. Three years later, you decide the desk size is too small, so you sell it for $1800. The first step in determining the gain or loss on the sale is to figure out what the book value of the desk is. This is fairly easy to do if you have maintained a depreciation schedule for the desk. Set up a format such as this: <br /><br />Original Cost Desk: $2,500.00 <br /><br />Depreciation: <br /><br />Year 1) $357.25 <br /><br />Year 2) $612.25 <br /><br />Year 3) $218.63 <br /><br />Total Depreciation: <br /><br />Book Value of Desk: $1,316.87 <br /><br />Desk Sales Price:_ <br /><br />Gain on the Desk Sale:$483.13 <br /><br />Why is it a gain? Review the above definition. The sale price exceeds the book value. All this may seem like 2+2=4 to the experienced person, but for newbies it may be helpful to review the underlying concepts. In my course, I like to encourage students to think of these accounting events in terms of what actually took place physically. For instance, you bought a desk and used it for three years. You did not deduct the entire desk the first year you bought it. As a matter of fact, you only deducted an expense of $357.25. During the next two years you only deducted $830.88. Therefore, your fixed asset, called a desk, has a remaining cost basis of $1,316.87. Since you sold that asset for more than your cost basis, you incurred a gain. The Internal Revenue Service requires that that gain be reported as income and taxed accordingly. <br /><br />On the other hand, had the sales price been only $800, then you would have incurred a loss of $516.87. This makes sense, because your cost basis was $1,316.87 and you only received $800.00 when you sold it. Therefore, the money you lost on the sale is a cost of doing business, and according to U.S. tax law, a deductible item. <br /><br />So be careful when selling an asset. You don't want to report more income than is necessary, nor do you want to lose the benefit of a deduction. That is, unless you don't mind paying extra taxes to the government. <br /><br /><br /><strong>About the Author</strong><br />John W. Day, MBA is the author of Real Life Accounting for Non-Accountants, an online course in accounting basics. He has written 3 e-Books pertaining to small business accounting and writes a monthly newsletter on accounting issues.</span></p> <p class="MsoNormal"><span style="font-size:10pt;font-family:Arial;">Article Source: www.businesshighlight.org</span></p> <p class="MsoNormal"><span style="font-size:10pt;font-family:Arial;"> </span></p> </article> <article> <h1>Organizing Your Business Accounting System</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p class="MsoNormal" style="margin: 0in 0in 0pt; line-height: 12.75pt; mso-outline-level: 2; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto;"><span style="font-size: 10pt; color: black; font-family: Arial;">Many small business owners wonder if accounting is a necessary evil. Those who run the accounting system speak a language of credits and debits. Most business owners feel they can not speak this language. An efficient accounting system contributes to overall profitability.<br /><br />An accounting system is for communication. The system produces information that tells specific things about the company. An accounting system provides the information to run the company, at the owners fingertips. The system includes accounts receivable, accounts payable, order entry, inventory control, cost accounting, payroll and fixed assets accounting.<br /><br />The general ledger shows transactions in four different categories. These categories include the account assets, liabilities, income and expenses. Entries are posted to each and summarized. The summary is then sent to the general ledger for posting.<br /><br />It is best to organize your business accounting system by function. From an internal control, it is best not to have one person do all the functions. Fraud and embezzlement are possible if too few people are doing all the accounting. An internal control structure helps mitigate risks through mechanics and procedures.<br /><br />The type of information needed from an accounting system should be accurate, fulfill managements needs and be easy to use. As well as accuracy, relevancy and simplicity an accounting system should be set up so that it does not require an inordinate amount of time to maintain. The accounting system should be easy enough to understand so that a CPA is not required to operate it or interpret its output. <br /><br />Some automated accounting systems require knowledge about computers and accounting. If you are thinking about one of these systems, make sure that the people running it have the ability to install and operate it. It is best to get a package that works well with your firms capabilities. Also, the automated package needs to be able to work on the computer equipment you currently have or will be purchasing in the near future.<br /><br />A business cycle is a flow of transactions needed to complete a sale and collect the proceeds. In setting up an accounting system you need to know what types of accounting transactions are involved and what entries are to be made along the way. Most company cycles follow these steps, purchase raw materials, enter them into the inventory, begin the manufacturing process, enter goods in the process inventory, pay suppliers and employees, complete the manufacturing process, enter goods into the finished goods inventory, sell the inventory and collect payments.<br /><br />When purchasing an accounting system you need to figure who is going to do what in the system. It is best to assign the person who is most familiar with the system to be in charge of it. If you are just starting a business you will need to know the background of your new employees. At least one of them should be able to run the system. You might want to consider having them interview with an accounting expert, check their references from past jobs and ask them accounting questions. It is your company and you need to do everything possible to protect it. </span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt; line-height: 12.75pt; mso-outline-level: 2; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto;"><span style="font-size: 10pt; color: black; font-family: Arial;"></span></p> <p class="MsoNormal" style="margin: 1.5pt 0in 7.5pt 7.5pt; line-height: 12.75pt;"><strong><span style="font-size: 10pt; color: black; font-family: Arial;">About The Author--</span></strong><span style="font-size: 10pt; color: black; font-family: Arial;"> <strong>Obinna Heche. Los Angeles - California</strong> Delivering the best home based business ideas and opportunities so you can work at home successfully.. <a href="http://www.home-incomeportal.com/">http://www.home-incomeportal.com</a> </span></p> <p class="MsoNormal" style="margin: 1.5pt 0in 7.5pt 7.5pt; line-height: 12.75pt;"><span style="font-size: 10pt; color: black; font-family: Arial;">Article Source: <a href="http://www.articlesisland.com/profile/obinna-heche-1068.html"><strong>Articles island - Free article submission and free reprint articles</strong></a></span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;"> </span></p> </article> <article> <h1>Selling Your Business - A Tool to Reduce the Tax Bite</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p>"I would rather expire at my desk than to sell my business and pay Uncle Sam one dime in taxes." How many owners that have paid their fair share of taxes for twenty years of building their business feel this way? The tax bite is the single biggest factor in an owner's reluctance to sell his/her company. I have previously written articles discussing various aspects of transaction structures to minimize taxes. As a result, I am often contacted by a panicked seller that is a week from closing his business sale as he looks in disbelief at his accountant's spreadsheet detailing the tax burden of his impending sale.</p> <p><br />Recently, the seller of a Sub Chapter S Corporation with an $8 million transaction value contacted me. The tax basis was below $200,000 and $4 million of the transaction value was the assumption of debt. When the dust settled, he was looking at a capital gains tax liability of a staggering $965,000 while only receiving the remainder of proceeds after the assumption of debt. The assumption of debt is considered as part of the capital gain for tax purposes.<br /><br />The owner sent his accountant's spreadsheet to me and since I am not a tax accountant, I sent it to my tax wizard at BDO Seidman. He found a few small tweaks, but said that there was not much that could be done from an accounting standpoint for this owner. When I reported this back to the seller I could feel his disappointment and frustration.<br /><br />So I began my quest for a better solution. After several dozen phone calls to my professional network, I was directed to a little known vehicle called a Private Annuity Trust. This vehicle has passed the scrutiny of the IRS and the Tax Court. It is not a way to avoid the payment of taxes, rather a method of deferring them with substantial economic benefit to the owner's beneficiaries. Below is a simplified description of the process. As the owner contemplates the sale of his business (or any highly appreciated asset for that matter) he "sells" it to a trust PRIOR to its ultimate sale. This trust purchases the asset at FMV and exchanges an annuity payment stream complete with IRS life expectancy tables and interest rates. The trust then sells the company to the buyer to fund the annuity. The transaction is accompanied by a gift to the trust in the amount of 7% of the face value of the annuity. This is so it qualifies as a trust by creating an entity with economic value. Remember, the private annuity is viewed as having zero economic value because the asset minus the obligation theoretically equals zero.<br /><br />The trust is in the name of the owner's beneficiaries and all aspects of the trust are controlled by the trustees/beneficiaries and not by the owner. The trust for the benefit of the heirs owns the assets and owns the annuity payment obligation. The trust can be structured to defer the annuity payments for a period of time to coincide with the owner's need to receive these payments, lets say, for example, ten years. During those ten years the trust's investments or a commercial annuity grow without incurring a tax bite for the business sale. When the annuity payments start, the owner is taxed at his then current tax rate for the portion of the annuity payment attributable to the capital gains, his basis (no tax), and depreciation recapture from the sale, and the income produced from the annuity. The annuity pays the owner and spouse this annuity payment until last to die or until the annuity investments run out. If the owner and spouse die, any remaining assets are transferred to the beneficiaries outside of estate tax liability.<br /><br />If your investments perform at the rate used in the annuity calculation and the last to die lives to their exact life expectancy, theoretically the trust value will be whatever the gift portion (7% of the selling price) has grown to. However, if the investments do very well and you outlive the life expectancy tables, you could receive payments well in excess of the original annuity face value. Those excess payments would be taxed at your then current income tax rate. If the investments do well and the value grows above the required annuity reserve amount, the excess can be distributed to the beneficiaries as income.<br /><br />In the simplest of views, this acts like an IRA. You are not currently taxed on the amount you put in, it grows tax deferred and you pay taxes upon distribution, hopefully at a far more favorable tax rate. In the case of the frustrated seller from above, what if he deferred all payments by ten years on the full sale price and the $965,000 in capital gain taxes owed? He had a life expectancy of 20 years beyond the start of the distributions. The $965,000 that he did not pay in taxes grows at 7% to $1,939,323 by the time distributions start. Every annuity payment contains a portion of the capital gain or 1/20th of the total capital gain annually. Therefore, the bulk of the resulting investment value of the capital gains tax deferral provides huge returns for years to come.<br /><br />If it seems too good to be true, remember it is tax deferral and not tax avoidance. The owner has sold his business first to the trust in return for an annuity payment stream. The owner cannot control the trust. To the extent that the owner wants immediate access to some of the sales proceeds, he would pay all taxes in proportion to the amount he is receiving. In cases like the one above, this tax deferral tool can have a dramatic impact on the financial status of the owner and his heirs by allowing the tax deferred funds to compound for many years before their ultimate distribution and the payment of any tax. <br /><br />David Kauppi is business broker with Mid Market Capital, Inc. MMC is a merger and acquisition firm specializing in providing intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. The firm counsels clients in the areas of merger and acquisition, divestitures, succession planning, valuations, and exit planning. Dave is a Certified Business Intermediary (CBI), a licensed business broker, a Certified Estate Advisor (CEA), and a member of IBBA (International Business Brokers Association) and the MBBI (Midwest Business Brokers and Intermediaries). Contact Dave Kauppi at (630) 325-0123, email davekauppi@midmarkcap.com or visit our Web page www.midmarkcap.com</p> <p class="MsoNormal">Dave Kauppi is a Merger and Acquisition Advisor with Mid Market Capital, Inc. MMC is a business broker firm specializing in middle market corporate clients. We provide M&A and divestiture, succession planning, and valuations. Dave is a Certified Business Intermediary (CBI), a licensed business broker, a Certified Estate Advisor (CEA), and a member of IBBA and the MBBI. Contact (630) 325-0123, davekauppi@midmarkcap.com or www.midmarkcap.com.</p> <p class="MsoNormal">Article Source: www.businesshighlight.org</p> </article> <article> <h1>Deciding Between Bookkeeping Software and Bookkeeping Services</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p>Every small business is required to keep bookkeeping records to produce at the end of the financial year a set of accounts to show the sales income, business expenses and the net profit for tax purposes. Medium and larger businesses employ accounts clerks, bookkeepers and accountants to maintain the financial records and produce regular accounting information.<br /><br />Small businesses and in particular self employed business have a choice in how the financial accounts are prepared and produced. A small business may employ the services of a bookkeeper to produce the accounts while another similar business may keep a manual record of financial transactions while a third option is to use a bookkeeping software system.<br /><br />There are several advantages and disadvantages to whichever course of action a small business may take to produce the financial accounts and at the outset it is better to make a definite decision on which route to take. Financial accounts, financial control over the business activities and the knowledge of how well or badly the business is performing is crucial to success in the business environment.<br /><br />The underlying necessity is that if the small business does not take a decision on its financial accounting then at the very least it must accumulate documents of prime significance such as sales invoices, purchase invoices and possibly bank records during the financial year and assemble these into some sort of order after the end of the financial year for tax purposes. Failing to keep financial records often results in a succession of administrative burdens and often also leads to financial penalties if taxation deadlines are not met.<br /><br />If the small business owner chooses not to go down the route of using bookkeeping software or outsourcing the financial function to a bookkeeper or accountant then manual financial records must be kept. Producing an income and expenditure account for the business using the prime financial documents of business is not rocket science and most businessmen capable of running and managing a business have the skills required to producing the bookkeeping records.<br /><br />The major disadvantage of a small business keeping manual records is that documents get lost which may result in profits and taxes being over declared, fines and penalties through inaccuracies and often when accounting is produced in this way it is done at the end of the financial year purely for tax purposes rather than as an essential tool of the business and that reduces financial control within the business during the financial year to a minimum and often zero.<br /><br />If a manual bookkeeping system is adopted then disciplined recording of the financial information on a regular basis should be enforced and regarded as an essential function and not an administrative burden. The main purpose of regular accounts being to both see and understand the financial position of the business and take positive action as required at the earliest opportunity to achieve a satisfactory financial result.<br /><br />Other alternatives include utilising bookkeeping software which is effectively often a manual system in itself but within definite parameters to produce the essential information. A bookkeeper might be employed whether a manual system is used or bookkeeping software adopted.<br /><br />Using bookkeeping software has many advantages. First of all any small business that has purchased bookkeeping software is more likely to keep regular up to date accounts than one that has not. And secondly the bookkeeping software is likely to provide a fixed set of disciplines and produce the type of records a small business requires for both the preparation of regular financial statements and the end of year tax returns.<br /><br />Another major advantage of bookkeeping software is that records tend to be less likely to be lost or mislaid; the packages can be backed up as required but essential financial performance can be improved by greater financial control. All businesses work towards producing a satisfactory bottom line and only by producing regular financial statements can the business obtain the earliest information to achieve that satisfactory performance.<br /><br />Bookkeeping software comes in many different formats from simple spreadsheets to more complex data based accounting software. For a small business the bookkeeping software of choice is often a simple system requiring limited accounting knowledge but must also be a package that produces the desired end result.<br /><br />The worst bookkeeping software is a complex program requiring prior accounting knowledge that the small business either does not fully understand, cannot be bothered or does not have the time to learn and having tried the system then abandons it. Such a process just causes frustration and time to start again with a different solution.<br /><br />Bookkeeping software in effect automates the manual keeping of financial records. To get the most benefit from a bookkeeping software package each small business should prepare regular financial records to enhance and improve financial control, take financial decisions and achieve the desired bottom line result.<br /><br />Bookkeeping can be outsourced to an accountant or bookkeeper and there advantages in doing so. The financial records are generally maintained in good order and regular financial reports produced. If the small business has a volume of paperwork that becomes a burden to process and keep on top of then a bookkeeper may be the best solution.<br /><br />Employing a bookkeeper becomes essential when the paperwork burden reaches a stage when it distracts the small business owner from getting on with the main task of operating the business. A bookkeeper has to be paid and that cost should be viewed as the cost not of producing the financial records but as the amount to be paid to release the time of the small business owner and also to produce the financial statements on which action can be taken to improve profitability.<br /><br />A major disadvantage in using a bookkeeper is that the small business owner may remove themselves from the detailed records. By producing the accounts themselves the small business owner sees every financial transaction at least twice, once when the transaction is carried out and again when it is entered into the financial records.<br /><br />This second view of the accounts can be important, errors in management judgement can be noted, mistakes and bad practises become more apparent. Missed documents are much more likely to be noticed if the small business owner produces his own bookkeeping records than if the task is carried out by a third party such as an accountant or bookkeeper. Nobody knows the business as well as the small business owner knows his own business.<br /><br />The conclusion and decision each small business should take is doing something. A manual bookkeeping system may suffice but the business may be better served using bookkeeping software to increase financial control and performance. If the administrative burden of maintaining the paperwork detracts the small business from its main operations then an accountant or outsourced bookkeeping services is a logical solution.</p> <p class="articletext2"><strong>About The Author--</strong> Terry Cartwright a qualified accountant at DIY Accounting in the UK designs <a href="http://www.diyaccounting.co.uk/">Accounting Software</a> on excel spreadsheets providing complete <a href="http://www.diyaccounting.co.uk/selfemployed.htm">Small Business Accounting Software</a> solutions with single and double entry <a href="http://www.diyaccounting.co.uk/bookkeeping.htm">Bookkeeping Software</a> for both limited companies and self employed business</p> <p class="articletext">Article Source: <a href="http://www.articlesisland.com/profile/terry-cartwright-3299.html">Articles island - Free article submission and free reprint articles</a></p> <p class="MsoNormal"> </p> </article> <article> <h1>Crisis of the Bookkeepers - Interview with David Jones</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The Interview was conducted in August 2002.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">On May 31, 2005, the US Supreme Court overturned the conviction of accounting firm Arthur Anderson on charges related to its handling of the books of the now defunct energy concern, Enron. It was only the latest scene in a drama which unfolded at the height of the wave of corporate malfeasance in the USA.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">David C. Jones is a part-time research fellow at the Center for Urban Development Studies of the Graduate School of Design, Harvard University. He has been associated with the University since 1987 when he retired from the World Bank, where he served as financial adviser for water supply and urban development.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">He had joined the World Bank, as a senior financial analyst, in 1970, after working as a technical assistance advisor for the British Government in East Africa. He began his career in British local government. He is a Chartered Public Finance Accountant and a Chartered Certified Accountant (UK). He is the author of "Municipal Accounting for Developing Countries" originally published by the World Bank and the Chartered Institute of Public Finance and Accountancy (UK) in 1982.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Accounting scandals seem to form the core of corporate malfeasance in the USA. Is there something wrong with the GAAP - or with American accountants?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: Accounting is based on some fundamental principles. As I say at the beginning of my textbook, the accountant "records and interprets variations in financial position ... during any period of time, at the end of which he can balance net results (of past operations) against net resources (available for future operations)".</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Accountancy includes the designing of financial records, the recording of financial information based on actual financial transactions (i.e., bookkeeping), the production of financial statements from the recorded information, giving advice on financial matters, and interpreting and using financial data to assist in making the best management decisions.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Simple as these principles may sound, they are, in practice, rather complicated to implement, to interpret and to practice. About 80% of the transactions require only about 20% of the effort because they are straightforward and obvious to a book-keeper, once the rules are learned.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">But - and it is a big but - the other 20% or so of transactions require 80% of the intellectual effort. These transactions are most likely to have major impacts on the profit and loss account and the balance sheet.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">My colleagues and I, all qualified accountants, have heated discussion over something as simple as the definition of a debit or a credit. Debits can be records of either expenses or assets. The former counts against income in the statement of profit and loss. The latter is treated as a continuing resource in a balance sheet. It is sometimes gradually allocated (expensed) against income in subsequent years, sometimes not.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A fundamental problem with the financial reporting of WorldCom, for example, was that huge quantities of expenses were misallocated in the accounts as assets. Thus, by reducing expenditures, profit appeared to be increased. The effect of this on stock values and, thereby, on executive rewards are secondary and tertiary outcomes not caused directly by the accountancy.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Another example concerns interest on loans that may have been raised to finance capital investment, while a large asset is under construction, often for several years.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Some argue that the interest should be accounted for as part of the capital cost until the asset is operational. Others claim that because the interest is an expense, it should be charged against that year's profits. Yet, the current year's income includes none of the income generated by the new asset, so profit is under-stated. And what if a hydro-electric power station starts to operate three of its ten turbines while still under construction? How does one allocate what costs, as expenses or assets, in such cases?</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Interestingly, the Generally Accepted Accounting Principles (GAAP) require that "interest during construction" be capitalized, that is included in the cost of the asset. The International Accounting Standards (IAS) prefer expensing but allow capitalization. From an economic viewpoint, both are wrong - or only partially right!</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The accountancy profession should get together to establish common practices for comparing companies, limiting the scope for judgment. Accountants used to make the rules in the USA and elsewhere until the business community demanded input from other professionals, to provide a more "balanced" view.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">This led to the establishment of the Financial Accounting Standards Board (FASB), with non-accountants as members. The GAAP has been tempered by political and business lobbying. Moreover, accounting rules for taxation purposes and applied to companies quoted on stock exchanges are not always consistent with the GAAP.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Accountants who do not follow the rules are disciplined. American accountants are among the best educated and best-trained in the world. Those who wish to be recognized as auditors of significant enterprises must be CPAs. Thus, they must have obtained at least a finance-related bachelor's degree and then have passed a five-part examination that is commonly set, nation-wide, by the American Institute of Certified Public Accountants (AICPA). To practice publicly, they must be licensed by the state in which they live or practice. To remain a CPA, each must abide by the standards of conduct and ethics of the AICPA, including a requirement for continuing professional education.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Most other countries have comparable rules. Probably the closest comparisons to the USA are found in the UK and its former colonies.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Can you briefly compare the advantages and disadvantages of the GAAP and the IAS?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: It is asserted that the GAAP tend to be "rule-based" and the IAS are "principle-based." GAAP, because they are founded on the business environment of the USA are closely aligned to its laws and regulations. The IAS seek to prescribe how credible accounting practices can operate within a country's existing legal structure and prevailing business practices.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Alas, sometimes the IAS and the GAAP are in disagreement. The two rule-making bodies - FASB and IASB - are trying to cooperate to eliminate such differences.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The Inter-American Development Bank, having reviewed the situation in Latin America, concluded that most of the countries in that region - as well as Canada and the EU aspirants - are IAS-orientated. Still, the USA is by far the largest economy in the world, with significant political influence. It also has the world's most important financial markets.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Can accounting cope with derivatives, off-shore entities, stock options - or is there a problem in the very effort to capture dynamics and uncertainties in terms of a static, numerical representation?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: Most, if not all, of these matters can be handled by proper application of accounting principles and practices. Much has been made of expensing employee stock options, for instance. But an FASB proposal in the early nineties was watered down at the insistence of US company lobbyists and legislators.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">How to value stock options and when to recognize them is not clear. A paper on the topic identified sixteen different valuation parameters. But accountants are accustomed to dealing with such practical matters.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Can you describe the state of the art (i.e., recent trends) of municipal finance in the USA, Europe, Latin America (mainly Argentina and Brazil), and in emerging economies (e.g., central and eastern Europe)?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: There are no standard practices for governmental accounting - whether national, federal, state, or local. The International Federation of Accountants (IFAC) urged accountants to follow various practices. It subsequently settled mainly on accrual accounting standards.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Some countries - the UK, for local government, New Zealand for both central and local government - use full accrual at current value, which is beyond many private sector practices. This is being reviewed in the UK. The central government there is introducing "resource-based" accounting, approximating full accrual at current value.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The US Governmental Accounting Standards Board has recently recommended that US local governments produce dual financial reports, combining "commercially-based" practices with those emanating from the truly unique US "fund accounting" system.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">In my book I recognized that fixed assets are being funded less and less entirely by debt, private sector accounting practices increasingly intrude into the public sector, and costs of services must be much more carefully assessed.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Are we likely to witness municipal Enrons and World.com's?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: We already have! Remember the financial downfall and restructuring of New York City in the seventies. Other state and local governments have had serious defaults in USA and elsewhere. Shortcomings of their accounting, politicians choosing to ignore predictive budgeting, borrowing used to cover operating expenditures - similar to WorldCom. In the case of the New York City debacle, operating expenditures were treated as capital expenditures to balance the operating budget.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">More recently, I testified to the US Congress about Washington DC, where the City Council ran up a huge accumulated operating deficit, of c. $700 million. It then sought Congressional approval to cover this deficit by borrowing.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Even more recently, the State of Virginia decided to abolish the property tax on domestic vehicles. This left a huge gap in the following year's current budget. The governor proposed to use a deceptive accounting device and to set up a separate - and, thus not subject to a referendum - "revenue" bond-issuing entity (shades of Enron's "Special Purpose Entities"). The bonds were then to be serviced by expected annual receipts from the negotiated tobacco settlement, at that time not even finalized. This crazy and illegal plan was abandoned.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The fact that both accounting and financial reporting for local governments are very often in slightly modified cash-based formats adds to the confusion. But these formats could be built on. Indeed, in the very tight budgetary situations facing virtually every local government, it is essential that cash management on a day-to-day basis be given high priority.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Still, the system can be misleading. It produces extremely scant information on costs - the use of resources - compared with expenditures (i.e., cash-flows). More seriously, cash accounting allows indiscriminate allocation of funds between capital and recurrent purposes, thus permitting no useful assessment of annual or other periodic financial performance.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A cash-based system cannot engender a credible balance sheet. It produces meaningless and incoherent information on assets and liabilities and the ownership, or trusteeship, of separate (or separable) funds. It is not a sound system of budgetary control. When year-end unpaid invoices are held over, it creates a false impression of operating within approved budgetary limits. Thus, local government units can run serious budgetary deficits that are hidden from public view merely by not paying their bills on time and in full! A cash accounting system will not reveal this.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Still, moving to an accrual system should be done slowly and cautiously. Private sector experience, in former Soviet countries, of changing to accrual accounting was administratively traumatic. Their public sector systems may not easily survive any major tinkering, let alone an - eventually inevitable - full overhaul. Skills, tools, and access to proper professional knowledge are required before this is attempted.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Can you compare municipal and corporate accounting and financing practices as far as governance and control are concerned?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: In corporate accounting practice, the notional owners and managers are the shareholders. In practice, through the use of proxies and other devices, the real control is normally in the hands of a board of directors. Actual day to day control reverts to the company chairmen, president, chief executive or chief operating officer. The chief financial officer is often - though not necessarily - an accountant and he or she oversees qualified accountants.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The company's accountants must produce the annual and other financial statements. It is not the responsibility of the auditors whose obligation is to report to the shareholders on the credibility and legality of the financial statements. The shareholders may appoint an audit committee to review the audit reports on their behalf. The audit is carried out by Certified Public Accountants with recognized accounting credentials. Both the qualified accountants in the audit firm and those in the corporation are subject to professional discipline of their accounting institutions and of the law.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">In local government accounting practice, the public trustees and managers are normally a locally elected council. Often, the detailed control over financial management is in the hands of a finance committee or finance commission, usually comprised only of elected members.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Traditionally, only the elected council may take major financial decisions, such as approving a budget, levying taxes and borrowing. Actual day to day control of a local government may be by an executive mayor, or by an elected or appointed chief executive. There normally is a chief financial officer, often - though not necessarily - an accountant in charge of other qualified accountants.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">It is the responsibility of the accountants of the local government to produce the annual and other financial statements. It is not the responsibility of the auditors whose obligation is to report to the local elected council on the credibility and legality of the financial statements. The council may appoint an audit committee to review the audit reports on their behalf, or they may ask the finance committee to do this.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">However, it is quite common, in many countries, for local government financial statements to be audited by properly authorized public officials. Auditors should be qualified, independent, experienced, and competent. Audits should be regular and comprehensive. It is unclear whether or not public official auditors always fulfill these conditions.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">In the United Kingdom, for example, there is a Local Government Audit Commission which employs qualified accountants either on its own staff or from hired accountancy firms. Thus, it clearly follows high standards.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: How did the worldwide trend of devolution affect municipal finance?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: Outside of the former Soviet Union and Eastern Europe, municipal finance was not significantly affected by devolution, though there has been a tendency for decentralization. Central governments hold the purse-strings and almost all local governments operate under legislation engendered by the national, or - in federal systems - state, governments. Local governments rarely have separate constitutional authority, although there are varying degrees of local autonomy.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">In the former Soviet Empire, changes of systems and of attitudes were much more dramatic. Local government units, unlike under the former Soviet system, are not branches of the general government. They are separate corporate bodies, or legal persons. But in Russia, and in other former socialist countries, they have often been granted "de jure" (legal) independence but not full "de facto" (practical) autonomy.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">There seems to be an unwillingness to accept that the two systems are intended to operate quite differently. What is good for a central government is not necessarily equally good for a local government unit. For example, the main purpose of local government is to provide public services, with only enough authority to perform them effectively. It is almost always the responsibility of a central or state government to enact and enforce the criminal and civil law. Local by-laws or ordinances are usually concerned only with minor matters and are subject to an enabling legislation. Moreover, they may prove to be "ultra vires" (beyond their powers) and, therefore, unconstitutional, or at least unenforceable.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">It may be appropriate, under certain circumstances, for a central government to run budgetary deficits, whether caused by current or capital transactions. In local government units, there is almost always a necessity to distinguish between such transactions. Moreover, in most countries, local government units are required by law to have balanced budgets, without resort to borrowing to cover current deficits.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A corporate body (legal person), whether a private or a public sector entity, has a separate legal identity from the central government and from the members, shareholders, or electorate who own and manage it. It has its own corporate name. Typically, its formal decisions are by resolution of its managing body (board or council). Written documents are authenticated by its common seal. It may contract, sue and be sued in its own name. Indeed, unless specifically prevented by law, it may even sue the central government! It may also have legal relationships with its own individual members or with its staff. It is often said to have perpetual succession, meaning that it lives on, even though the individual members may die, resign or otherwise cease their membership.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">While a corporation owes its existence to legislation, a local government unit is established, typically, under something like a "Local Government Organic Law". Corporate status differs fundamentally from that of (say) government departments in a system of de-concentration. Permanent closure or abolition of a municipal council, or indeed any change in its powers and duties, would almost always require formal legal action, typically national parliamentary legislation.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A local government unit makes its own policy decisions, some of which, especially the financial ones, often require approval by a central government authority. Still, the central government rarely runs, or manages, a local government unit on a daily basis. The relationship is at arms length and not hands on. A local government unit usually is empowered to own land and real estate. Sometimes, public assets - such as with roads or drainage systems - are deemed to be "vested in" the local authority because they cannot be owned in the same way as buildings are.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: Local authorities issue bonds, partake in joint ventures, lend to SME's - in short, encroach on turf previously exclusively occupied by banks, the capital markets, and business. Is this a good or a bad thing?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: Local governments are established to provide services and perform activities required or allowed by law! Normally, they won't seek or be permitted to engage in commercial activities, best left to the private sector. However, there have always been natural monopolies (such as water supply), coping with negative economic externalities (such as sewerage and solid waste management), the provision of whole or partial public goods (such as street lighting, or roads) and merit goods (such as education, health, and welfare), and services that the community, for economic or social reasons, seeks to subsidize (such as urban transport). Left to the private marketplace, these services would be absent, or under-supplied, or over-charged for.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Such services are wholly or partially financed by local taxation, either imposed by local governments, or by central (or state) taxation, through a grant or revenue-sharing system. What has changed in recent years is that local governments have been encouraged and empowered to outsource these services to the private sector, or to "public-private" partnerships.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Charges for services, and revenues from taxation cover current operating expenditures with a small operating surplus used to partly fund capital expenditure or to service long, or medium term debt, such as bond issues secured against future revenues. Commercial banks, because of their tendency to lend only for relatively short periods of time, usually have a relatively minor role in such funding, except perhaps as fiscal agents or bond issue managers.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Other funding is obtained via direct - and dependence-forming - capital grants from the central or state government. Alternatively, the central government can establish a quasi-autonomous local government loans authority, which it may wholly or partially fund. The authority may also seek to raise additional funds from commercial sources and make loans on reasonable terms to the local governments.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Third, the central government may lend directly to local governments, or guarantee their borrowing. Finally, local governments are left to their own devices to raise loans as and when they can, on whatever terms are available. This usually leaves them in a precarious position, because the market for this kind of long and medium term credit is thin and costly.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Commercial banks make short term loans to local governments to cover temporary shortages of working capital. If not properly controlled, such short-term loans are rolled over and accumulate unsustainably. That is what happed in New York City, in the seventies.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span><b style="mso-bidi-font-weight:normal;"><span style="font-size:10pt;font-family:Arial;">Q: In the age of the Internet and the car, isn't the added layer of municipal bureaucracy superfluous or even counterproductive? Can't the center - at least in smallish countries - administer things at least as well?</span></b></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A: I am quite sure that they can. There are many glaring examples of mismatches of sizes, shapes and responsibilities of local government units. For example, New York, Moscow and Bombay are each single local government units. Yet, they each have much bigger populations than many countries, such as New Zealand, the republics of former Yugoslavia, and the Baltic states.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">On the other hand, the Greater Washington Metropolitan Area comprises a federal district, four counties and several small cities. The local government systems are under the jurisdictions of two states and the federal government. Each of the two states has a completely different traditions and systems of local governance, emanating from pre-independence times. Accordingly, the local government systems north and east of the Potomac River (which flows through the Washington area) are substantially different from those to the south and west. Finally, the Boston area, a cradle of U.S. democracy, is governed by a conglomerate of over 40 local government jurisdictions. Even its most famous college, Harvard, is in Cambridge and not in Boston itself. Many of the jurisdictions are so small (Boston is not very big by U.S. standards) that common services are run by agencies of the State of Massachusetts.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">The problem of centralizing financial records would, indeed, be relatively simple to solve. If credit card companies can maintain linkages world-wide, there is no practical reason why local government accounts for (say) a city in Macedonia could not be kept in China. The issue here is quite different. It revolves around democracy, tradition, living in community, service delivery at a local level, civil society, and the common wealth. It really has very little to do with accountancy, which is just one tool of management, albeit an important one.</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He served as a columnist for Central Europe Review, PopMatters, and eBookWeb , a United Press International (UPI) Senior Business Correspondent, and editor of mental health and Central East Europe categories in The Open Directory Bellaonline, and Suite101. Until recently, he served as the Economic Advisor to the Government of Macedonia. </span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Visit Sam's Web site at http://samvak.tripod.com</span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span></p> <p class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Article Source: www.businesshighlight.org</span></p> </article> <article> <h1>Understanding Bank Reconciliation</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p>Bookkeeping is fundamental in running your business in an informed way. It is important that you have an organized, transparent and updated bookkeeping system in place. One of the ways to keep track of your company's books is bank reconciliation.</p> <p class="ArticleText2"><br /> What is bank reconciliation?<br /> The procedure of comparing the account balance given by the bank with that of the company's book of accounts and explaining any discrepancy is bank reconciliation. The discrepancy in the balances may be due to the different timing of registering the data in the bank's books and in your company's books. This discrepancy is normal and is rectified automatically within small time. However, sometimes the discrepancy is due to an error, which has to be rectified manually and to catch this error you need bank reconciliation. Companies generally do bank reconciliation at the end of each month.<br /> <br /> Reasons for maintaining bank reconciliation<br /> Regular monthly bank reconciliation keeps your company's financial records clear and updated. You never build up an erroneous backlog. Also, you can understand your accounting status all the time. It is important that you have a prompt and reliable communication system with the bank so that you keep your records accurate.<br /> <br /> Bank Reconciliation Statement<br /> It is better to prepare a bank reconciliation statement by yourself so that you are able to figure out the causes of discrepancy.<br /> <br /> Structure: The statement is divided into two sections. The right section reflects your bookkeeping for bank transactions and the left side reflects the bank's records for your account with them. <br /> <br /> Heading: The heading of the statement will have the bank's complete name with the date of reconciliation.<br /> <br /> Items: The first item of the statement is your opening balance just before the reconciliation. Check each item of the statement further for the following. If the transaction is missing from you our company's account and it is on the bank's record then you need to enter it in your books. If the bank section has missed it then enter it under their section. If the missing transaction belongs to the bank such as any fees deductions or interest credits, then it is an error at the bank's end and it will rectify the error.<br /> <br /> Adjustments: Once the reasons for the discrepancy have been figured out then you should include the missing information in journal entries.<br /> <br /> Items of Bank's Statement<br /> Credit: Banks may credit some interest periodically into your account as applicable on the account balance.<br /> <br /> Debit: These will be any of the bank charges on your account as applicable.<br /> <br /> Erroneous credit: Any incorrectly placed credit in your account is booked under this head. Sometimes, the bank makes a deposit in the wrong account. <br /> <br /> Items on Your Account Books<br /> Unpresented check: Your Company's books should record any checks issue immediately at the time of issue. The bank will, however, record it when the check is presented to it. <br /> <br /> Software for bank reconciliation<br /> There is a lot of bank reconciliation software readily available in the market. This software is compatible with all the latest accounting packages. The data is automatically imported, checked and reported through the software making your job easier.</p> <p class="ArticleText2"><strong>About The Author--</strong> David Gass is President of Business Credit Services, Inc. His company publishes a <a href="http://www.smallbusinessconsulting.com/">free weekly e-newsletter</a> on Small Business Consulting at their web site http://www.smallbusinessconsulting.com</p> <p class="ArticleText">Article Source: <a class="latestarticlesnavbar" href="http://www.articlesisland.com/profile/david-gass-1133.html">Articles island - Free article submission and free reprint articles</a></p> </article> <article> <h1>Applying for a Business Loan: Putting Your Best Foot Forward</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p><span style="font-size:10pt;font-family:Arial;">Remember the book called "Catch 22"? It is now commonplace to call a "Damned if you do, and damned if you don't" situation a "Catch 22". This is a predicament that many small business owners have found themselves in. Running short of cash, the owner goes to the bank to borrow money, only to find that they don't qualify for a loan because they don't have enough money. This is quite maddening to the business owner who laments, "If I had enough money, I wouldn't be asking for the blankety-blank loan!" <br /><br />Seems kind of stupid, but you have to understand what bankers are up against. Number one, they have to have some assurance that they are going to be repaid. They have to sell this loan to the "loan committee" of the bank, and they are not about to present a package that will make them look foolish. Furthermore, they have auditors who look very closely to make sure the loans were issued according to bank policies and procedures. If a loan officer has too many loans that "go south", then their track record starts to affect their career. <br /><br />This is why you find many loan officers who go strictly "by the book". These people refuse to look at any extenuating circumstances that might indicate that you would be a "good risk" regardless. Unless you fit into their narrow criteria of "risk" you might as well forget it. <br /><br />It is best to find a bank manager or loan officer who has plenty of self-confidence, is familiar with how small businesses operate, and is willing to look at the big picture. They can sense whether a loan applicant is solid or shaky. This is the point at which you, the applicant, will want to put your best foot forward. <br /><br />You may find that as long as you have substantial equity in a home, good credit, and adequate cash flow that you are a tasty morsel in the mouth of a loan officer. However, if you are short in any of these areas, you are going to have to overcome the banker's natural skepticism. <br /><br />First impressions are paramount. If you are not organized, you are dead meat. If you are asking to borrow money, then you must possess the skills necessary to pay the money back. These are skills, such as, the ability to think and plan ahead, and the discipline required to operate your business in a professional manner. This means having the know-how to gather information and organize it in such a way that you can make meaningful and timely decisions. <br /><br />Ask any banker and they will tell you of countless business customers that come in seeking a loan who don't even know what a financial statement is. There are many other business customers who seek loans that do have a financial statement but haven't a clue as to what it means. This does not bode well for first impressions. <br /><br />Compare the individual who comes to the bank, nicely dressed, well groomed and possesses not only a financial statement that he/she understands, but has a plan as to how he/she will pay the loan back. This phenomenon is so rare that a banker will usually sit up and take notice. <br /><br />If the reason you are short on cash and need a loan is because you are a poor manager who is in denial about your failing business, it will be obvious to the banker. Bankers are objective. They are not going to throw good money after bad. However, if you have a healthy business and you want to finance a new piece of equipment that will enhance your revenue earning capacity then your request will seem reasonable. Perhaps you need a line-of-credit to shore up your cash flow during less productive seasons, and you plan to pay back the line during productive seasons. These are the kind of stories that make good business sense to a banker. <br /><br />To back up your story, you will need a Balance Sheet and Profit & Loss Statement that reflects the history of your business activity. Included should be an analysis of your business trends using some key business ratios. If the numbers look good, then go for the loan. Remember though, you can't rely on the banker to recognize all the positive aspects of your business, therefore, you should provide a narrative of how your business works and why the requested funds for the business will help you make more money. <br /><br /></span><b><span style="font-size:10pt;font-family:Arial;">About the Author</span></b><span style="font-size:10pt;font-family:Arial;"><br />John W. Day, MBA is the author of Real Life Accounting for Non-Accountants, an online course in accounting basics. He has written 3 e-Books pertaining to small business accounting and writes a monthly newsletter on accounting issues.</span></p> <p class="MsoNormal"><span style="font-size:10pt;font-family:Arial;">Article Source: www.businesshighlight.org</span></p> </article> <article> <h1>Working with Accounts Receivable</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p><span style="font-size: 10pt; font-family: Arial;">A brief explanation of an Accounts Receivable system. It also includes suggestions how to prove balances.<br /> <br /> Deciding to extend credit to customers of your business means you need to be organized. This entails setting up an Accounts Receivable (A/R) system and consistently following all the policies and procedures established to make the system work. This is essential if you want to avoid the disappointing experience of making a sale only to find out later that you are not going receive compensation. For sure, there are going to be customers who flake out on their obligation to pay. However, equally certain is the fact that if you don't follow up in a timely manner with your outstanding A/R customers, you can expect to have many more uncollectible sales than you should have. <br /> <br /> Let's take a look at the A/R system. First, you need to understand the five-step A/R formula. <br /> <br /> Step 1) You start with last month's ending A/R balance as your current month's beginning balance; <br /> <br /> Step 2) Add any new credit sales; <br /> <br /> Step 3) Subtract cash receipts from credit customers; <br /> <br /> Step 4) Add or subtract any adjustments that are necessary for a particular customer; <br /> <br /> Step 5) Total the first four steps to arrive at your new ending A/R balance. <br /> <br /> The sequence of these five steps is what occurs in the A/R general ledger account each accounting period. The total A/R ending balance in step five is the figure that appears on the Accounts Receivable line of the Balance Sheet. The A/R general ledger account is called the "control account" and is a summary of all the A/R activity that occurred during the accounting period, such as, one month, quarter, or year. <br /> <br /> The totals in the A/R control account should mirror the total of the individual A/R customer detail ledgers because the same five-step formula is used for each individual customer. The A/R control total on the Balance Sheet should be compared to the customer detail ledger total as a proving step. If they are not the same, then you must find out why. <br /> <br /> Your A/R software program will compute all this for you when you enter Sales and Cash Receipts. However, "you" have to enter any "adjustments". This is the place where things can go astray. Some of these adjustments can become quite convoluted and, to be recorded properly, they must be carefully thought out. In addition, you must become familiar with how to enter debit and credit memos in the A/R software program you are using. Issuing refunds, correcting mistakes, recording write-offs for bad debts, etc., can be tricky, especially if you don't do it very often. You must prove your work each month and keep good notes, otherwise not only will your reports not match up, but your customers will get irritated when you try to collect a balance that is inaccurate. <br /> <br /> After all the adjustments are made at the end of the accounting period, a report called the Accounts Receivable Aged Invoice Report should be run. This report tells you, by customer, how much is owed and how old the outstanding balance is. The total of this report should be the same amount found in the A/R control account on the Balance Sheet and in the Customer Detail report. If you use all three reports to prove your ending balances, and you take the time to clean up any discrepancies "as they arise", your A/R system should always remain accurate. <br /> <br /> <br /> <strong>About the Author</strong><br /> John W. Day, MBA is the author of Real Life Accounting for Non-Accountants, an online course in accounting basics. He has written 3 e-Books pertaining to small business accounting and writes a monthly newsletter on accounting issues.</span></p> <p class="MsoNormal"><span style="font-size: 10pt; font-family: Arial;">Article Source: www.businesshighlight.org</span></p> </article> <article> <h1>Track Transactions with Accounting Code Guide Basics</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p> </p> <p class="articletext2"><span style="font-size:10pt;font-family:Arial;">If you plan on starting a business, a basic knowledge of the accounting code guide is necessary in order to keep track of your transactions. Even if you are not a bookkeeper and you decide to hire a professional, the basic accounting knowledge is always a plus in the success of your business.<br /> <br /> Accounting information is organized within the financial system of your company through the Chart of Accounts (COA). A list of all account names and numbers (cost elements) that appear in the company's General Ledger is included in this document. <br /> <br /> The COA is used to classify transactions as income, expenditure, assets, liabilities and equity. All financial transactions must be coded against an internal order (indicating ownership) and cost element (what the transaction represents), which provide the basis for budgeting, monitoring and reporting. The elements of the COA are:<br /> <br /> FUND<br /> This is a 6 character code which basically describes to source of funding in a transaction. Generally, the first 5 digits represent the office of the president fund number, while the final digit is used to establish sub-funds for further breakdown.<br /> <br /> ORGANIZATION<br /> It is also a 6 digit code, which represents the department of a company. <br /> <br /> ACCOUNT<br /> It is a six character code which represents the basic accounts classification. There are 7 different account types, and these are: assets, liability, system control, fund balance, revenue, expenditure and transfer. <br /> <br /> PROGRAM<br /> Yet another six character code, it represents the functions of the respective company.<br /> <br /> ACTIVITY<br /> This is designed for future use. <br /> <br /> LOCATION<br /> It is a six character code, and it is used for identifying assets from transactions. <br /> <br /> INDEX<br /> This one is a seven character code and it represents FOPAL (fund, organization, program, activity and location). The first three characters of the index are letters and they represent the name of the organization. The last four identify the FOPAL combinations. <br /> <br /> This is a simple and basic walkthrough in the world of the accounting code guide. A professional bookkeeper is much more than that though, and if you consider an accounting career, you should know that it's a work that requires a lot of patience, but it can pay off in the end.<br /> <br /> You should also consider purchasing accounting software (although you can also get it for free) if you are serious about your company. The choice is yours, and it really depends on the size of your organization also. Most of the business owners leave the accounting stuff to specialized people, who are able to process all the information correctly, people who have a good knowledge of the accounting code guide. </span></p> <p class="articletext2"><b><span style="font-size:10pt;font-family:Arial;">About The Author--</span></b><span style="font-size:10pt;font-family:Arial;"> benjamin:</span></p> <p class="articletext2"><span style="font-size:10pt;font-family:Arial;">Essential accounting code guide <br /> <a href="http://www.accountingcodeguide.com/">Accounting code guide.</a><br /> http://www.accountingcodeguide.com <br /> Great accounting software resource <br /> <a href="http://www.accountingsoftwarefaq.com/">Accounting software.</a><br /> http://www.accountingsoftwarefaq.com </span></p> <p class="articletext"><span style="font-size:10pt;font-family:Arial;">Article Source: <a href="http://www.articlesisland.com/profile/benjamin-661.html">Articles island - Free article submission and free reprint articles</a></span></p> </article> <article> <h1>Understanding Depreciation</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:20 GMT</p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Depreciation is defined as a portion of the cost that reflects the use of a fixed asset during an accounting period. A fixed asset is an item that has a useful life of over one year. An accounting period is usually a month, quarter, six months or one year. Let's say you bought a desk for your office on January 1, for $1000 and it was determined that the desk had a useful life of seven years. Using a one year accounting period and the "straight-line" method of depreciation, the portion of the cost to be depreciated would be one-seventh of $1000, or $142.86. </span></p> <p><span style="font-family:Arial;">Most non-accountants roll their eyes and shudder when the topic of "depreciation" comes up. This is where the line in the sand is drawn. Depreciation is far too complicated to try and figure out, or so it seems to many. But is it really? Surely the definition of depreciation mentioned above is not that difficult to comprehend. If you look closely you will see that there are five pieces of information you must have in order to determine the amount of depreciation you can deduct in one year. They are: </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-The nature of the item purchased (the desk). </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span><span style="font-family:Arial;">-The date the item was placed in service (Jan 1) </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-The cost of the item ($1000). </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-The useful life of the item (seven years). </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-The method of depreciation to be used (straight-line) </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"></span></p> <p><span style="font-family:Arial;">The first three are easy to figure out, the second two are also easy but require a little research. How do you figure out the useful life of an item? Let me regress for a moment. There is "book depreciation" which is based on the real useful life of an item, and there is the IRS version of what constitutes the useful life of an item. A business that is concerned with accurately allocating its costs so that it can get a true picture of net profit will use book depreciation on its financial statements. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">However, for tax purposes the business is required to use the IRS method. The IRS may have shorter or longer useful lives for fixed assets causing a higher or lower depreciation write-off. The higher the write-off, the less tax a business pays. The long and short of it is that you end up having to create a book financial statement and a tax financial statement. So, most small businesses that aren't concerned with a precise measurement of their net profit use the IRS method on their books. This means that all you have to do is look in IRS Publication 946 to find the useful life of a particular item. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">The last piece of information you need is found by determining the method of depreciation to use. Most often it will be one of two methods: the "straight-line" method or an accelerated method called the "double-declining balance" method. Let's briefly discuss these two methods: </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-Straight-line - This is the simple method mentioned in the definition above. Just take the cost of the item, divide it by the useful life and you've got the answer. Yes, you will have to adjust the depreciation for the first year you placed the item in service and for the last year when you removed the item from service. For instance, if your depreciation for one year was $150 and you placed the item in service on April 1 then divide $150 by 12 (months) and multiply $12.50 by 9 (months) to get $112.50. If you removed the item on February 28 then your deduction will only be $25.00 (2 x $12.50). </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">-Double-declining balance - The idea behind this method is that when an item is purchased new, you will use up more of it in the earlier years of its life, therefore, justifying a higher depreciation deduction in the earlier years. With this method, simply divide the cost of the item by the useful life years as in the straight-line method. Then, multiply that result by 2 (double) in the first year. The second year, take the cost of the item and subtract the accumulated depreciation. Next, divide that result by the useful life and multiply that result by 2, and so on for each remaining year. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">But, wait! You don't have to do this. The IRS provides tables that have the percentages worked out for each year of the two different methods. Not only that, they have set up special first year "conventions" that assume you purchased your depreciable fixed assets on June 30. This is called the one-half year convention. The idea behind this is that you may have bought some items earlier than June 30 and some after that date. So, to make it easy to figure out, they assume the higher and lower depreciation amounts will all average out. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Actually, the IRS doesn't even call it depreciation anymore. They call it "cost recovery". Let's face it. This is a political tool. Congress giveth and taketh away. They have been playing with this system for years. If they want to stimulate growth in business they will shorten the useful life of assets so businesses can attain a higher write-off. If they are not in the mood, they will extend the useful life of an item. A good example is the 39 years set for the useful life of commercial property. This means that if you lease a building for your business and make improvements, those improvements have to be depreciated over 39 years. The House has just approved a bill to drop that down to 15 years for leasehold improvements, but the Senate hasn't yet approved it. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Before December 31, 1986 we had ACRS or Accelerated Cost Recovery System. Currently, we have MACRS or Modified Accelerated Cost Recovery System. Every time congress tweaks the rules they give it a different name. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Keep in mind there are different schedules for different properties. For instance, residential real property is depreciated over twenty-seven and one-half years and non-residential real property is depreciated over thirty-nine years. In addition, if more than forty percent of your total fixed asset purchases occurred in the last quarter of the year, then, you must use a mid-quarter convention. This convention assumes that your purchases made in the last quarter of the year were made on November 15. This prevents you from buying a big expensive piece of equipment on December 31 and treating it as though it were purchased on June 30 and gaining a larger depreciation expense. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Understanding how basic depreciation works can be valuable to the small business owner because it helps to know the tax implications when planning for capital equipment purchases. </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><strong style="mso-bidi-font-weight:normal;"><span style="font-family:Arial;">About the Author</span></strong></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">John W. Day, MBA is the author of Real Life Accounting for Non-Accountants, an online course in accounting basics. He has written 3 e-Books pertaining to small business accounting and writes a monthly newsletter on accounting issues.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-family:Arial;">Article Source: www.businesshighlight.org</span></p> </article> <article> <h1>Accounting Outsourcing Nitty-Gritty that you need to Know</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:19 GMT</p> <h1 style="margin: auto 0in;"><span style="font-size: 10pt; font-family: Arial;">Accounting outsourcing is simply best for accounting firms and CPAs to deal with increasing customer demand during the peak tax season. Undertaking the entire thing in its proper way can actually spell success for a business and bring about greater monetary gains.</span></h1> <p><span style="font-size: 10pt; font-family: Arial;">Are you dreading about clearing the accounting and bookkeeping work which has piled up in your desk in view of the approaching tax season? Simply opt for accounting outsourcing to deal with the issue with ease and perfection. This is the simplest way for accounting firms and CPAs to deal with heavy workload to meet customer demand during the peak tax season. Simply undertaking accounting outsourcing will not serve your purpose, until you have proper knowledge about all the aspects of outsourcing. <br /><br />Imagine you are going to give out your entire business process to be handled by another organization. I am sure you will want to know all you can about this particular aspect. You will surely not want to be caught unaware; if goes wrong with the entire process. Research and more research is the answer for you to meet such eventualities. <br /><br />Choose the right outsourcing company to do your accounting outsourcing work. Numerous outsourcing come up with attractive and lucrative offers to do the work for accounting firms like yours. Find out carefully as many things as you can about the company before you actually let them do your work.<br /><br />The internet is a storehouse of information and utilizing it in the best possible manner is in your hands. Check out the services provided by the various companies. Also try to get testimonials from firms who have already done accounting outsourcing from the particular outsourcing company. <br /><br />Check out the various security measures put in place by the company to protect your company and customer data. This is an important aspect of with which you must take special care. In this internet age, people have become increasingly skeptical about giving out information about their financial details online. Security measures must be stringent enough to deal with this issue and to also bring back the faith of customers to the entire process of accounting outsourcing. <br /><br />Your work will be done very quickly and you will be able to meet customer deadlines with plenty of time to spare. Highly qualified professionals are always hired for doing outsourcing work. So this means that you serve your customer's with the best possible service that you can afford with in your budget. Accounting outsourcing work is done faultlessly by the professionals. <br /><br />Monetary wise accounting outsourcing works out just perfectly for your accounting firm. You do not need to undertake any additional financial investment for the process. In fact you can earn through accounting outsourcing. Imagine you do not spend an extra cent and yet end up earning profits. This is just incredible; you must not waste time pondering over pros and cons of accounting outsourcing.<br /><br />Check to see if the outsourcing firm provides any offers for free trails. You can actually take up this opportunity to see for yourself the quality of the work done by the firm. Based on this work done, you can decide whether you actually want to work any further with the company for accounting outsourcing work or not. <br /><br />Accounting outsourcing can turn out to be beneficial to you in many ways. All of these benefits are subject to your working with the right accounting outsourcing company. So try outsourcing your accounting and experience a faster and more efficient way of doing business today!</span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;">Michelle Barkley is a CPA working for IFRworld. She specializes in Accounting Outsourcing ,bookkeeping outsourcing and tax returns preparation outsourcing. To know more and to use the services visit <a href="http://www.ifrworld.com">http://www.ifrworld.com</a></span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;"></span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;">Article Source: www.businesshighlight.org</span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;"><a href="http://www.businesshighlight.org/business/accounting/accounting-outsourcing-nitty-gritty-that-you-need-to-know.html##"></a></span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: 10pt; font-family: Arial;"> </span></p> </article> <article> <h1>Accounting Principles & Standards: Avoid Them at Your Peril</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:19 GMT</p> <p><span style="font-size: 10pt; font-family: Arial;">The article is a brief overview of the difference between accounting principles and accounting standards<br /> <br /> Accounting principles are the basic assumptions, rules of operation, and essential characteristics that make up the framework for the construction of accounting financial statements. <br /> <br /> Long ago, I was perplexed to discover that there was no "set" of accounting principles that was presented in one form such as you might find in the Bill of Rights. This is not to say that the principles are incomplete or vague, it only means that the definitions of accounting principles can be presented in various formats, which may lead to confusion for some people, especially beginners. <br /> <br /> Be that as it may, accounting principles are absolutely necessary when preparing financial statements, just as the rules of a particular card game make the card game possible in the first place. Accounting principles are like the glue that holds the accounting process together. For example, financial statements have an overall objective, which is to provide the user of the statements a useful tool for making business decisions. <br /> <br /> In order to be useful, the accounting information must have certain characteristics, such as being dependable and practical. To be dependable, the accounting information must be unbiased, accurate, and verifiable. To be practical, accounting information must be predictable, prepared in a timely fashion, and be able to provide meaningful feedback. Additional characteristics are that the accounting information must be consistent, comparable, serve a utilitarian need (such as cost/benefit), and make a material difference. <br /> <br /> Besides characteristics, certain operational rules are established as to when revenue and expenses are reported; how expenses are matched to revenue; what to do when a choice can be made that might overstate or understate figures; and, what information should be disclosed so that the reader will fully understand the circumstances under which the information is being presented. <br /> <br /> There are also basic assumptions that the reader can count on, such as: the information is related to the business entity only and doesn't have any unrelated information mixed in; the business is a going concern and won't cease operations soon; the financial information presented is measured in specific time intervals such as a month, quarter or year; the financial information is using a certain unit of measure such as dollars, not board feet, etc.; the information is presented at historical cost, i.e., when received, paid, or incurred; and, the method of accounting being used is double-entry and not some other method. <br /> <br /> These are accounting principles as opposed to accounting standards. An accounting standard is an agreement as to how an accounting issue will be treated. For instance, a standard might state what type of inventory system is appropriate to use for a certain type of business; how capital leases should be recorded; how many years intangible assets should be amortized; what methods of depreciation should be used, and so on. There are literally thousands of accounting standards that have been issued over the years. These standards are constantly being revised or discarded as they become outdated. <br /> <br /> If you want to play the accounting "game of cards", you must become familiar with the "rules of the game", which are accounting principles and standards. If you choose to not play by the rules, you do so at your own peril, as we have seen recently in the U.S. corporate accounting scandals. <br /> <br /> <br /> <strong>About the Author</strong><br /> John W. Day, MBA is the author of Real Life Accounting for Non-Accountants, an online course in accounting basics. He has written 3 e-Books pertaining to small business accounting and writes a monthly newsletter on accounting issues.</span></p> <p class="MsoNormal"><span style="font-size: 10pt; font-family: Arial;">Article Source: www.businesshighlight.org</span></p> </article> <article> <h1>Tips for Finding a Good CPA</h1> <p>MySolutionSpot Editor — Sat, 12 Jul 2008 03:39:11 GMT</p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="> </p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"></span></p> <p><span style="font-size:10pt;font-family:Arial;">The manner in which the business is handled reflects on the growth and prospects of the company. It doesn’t depend on the size of the company. So the business man should hire the efficient CPAs who can handle the Complex Financial problem efficiently. The following are the Top 7 best tips to find your efficient CPAs:</span></p> <p> </p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>1. CPAs Qualifications</strong></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">CPAs are not number cruncher (Number cruncher are ones who can identify your companies profit and loss statement). They handle more important jobs like tax planning, business consulting and other legal formalities. What you need to do is to ensure that the professional you are hiring has the desired qualifications and has passed all the state governed tests and qualified for the recertification tests. This qualification shows that the CPA you are getting knows all the desired government rules and regulations.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>2. Referral by the Client</strong> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Firstly choose 4-5 CPA according to merit .Then speak to colleagues and other businesspeople who are the clients of the CPA or to get a referral from a trustworthy source. You may ask your financial planner, insurance agent or even your banker. Alternatively you can ask the CPAs for references of clients they are working with. Once you have collected information about them pick the best out of them.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>3. Analysis the Expectation of Yours from the CPAs</strong> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">A good CPA not only just file your tax returns but provide sound financial advice that may help for the success for your company. A good CPA is such a important person in small business that he can be left with total finance of the company and owner can focus on their core business. A CPA may also be able to assist in making simple but important decisions such as buying or leasing a car for the office and how it affects the tax for the company.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>4. Don't take your decision in a Hurry </strong></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">It take lot of time to select the CPAs .You should not hurry in it; it is not easy job to look for a another CPA if you are not satisfied with the present one. Your CPA must satisfy your demands, expectations and can give valuable financial guidelines that will save your money and time and helps in the productive gain of the company. Ideally you should interview about 4-5 CPAs before hiring the best one which will help to recognize their capabilities. You can also find out their fee structure like hourly and monthly rates.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>5. Accounting Outsourcing</strong></span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">By outsourcing accounting to a competent, strict professional CPA you can reduces the administrative hassles of hiring a full-time CPA. This will bring down the accounting cost without the sacrifice of the quality services. More and more businesses prefer to outsource their accounting.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>6. Prepare a set of Question for the Interview</strong> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Prepare a set of question before you go to ask the candidate. Questionnaires must contain questions about how to save money in your business, financial strategies that will ensure the long-term growth of the business. You could also ask the CPA about the advices and tips helps his or her current clients in saving money. You may ask CPAs to comment on your past accounting statements.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"><strong>7. Technological Expertise Check</strong> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Several small business accounting software are used by the business owners to mange their company’s accounts and financial information. CPA should uses the same accounting software you are currently using otherwise you will face a huge monetary problem for migrating your financial and accounting data from your current accounting software to a different accounting software used by your CPA. If you are not using any accounting software then you need to decide what accounting software is good for your business first before choosing your CPA.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Small businesses should do proper CPA so they can run their small business smoothly. These tips can help small business owners in choosing the right CPA for their company.</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><strong><span style="font-size:10pt;font-family:Arial;">About the Author: </span></strong><span style="font-size:10pt;font-family:Arial;">Debamalya Chowdhury is cofounder of Cybelink, a company specializes in small business financial and accounting outsourcing like Bookkeeping, Tax, Accounts Payable, Accounts Receivable, etc. For more info visit www.cybelink.com</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;">Article Source: http://EzineArticles.com/?expert=Debamalya_Chowdhury</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:small;font-family:Times New Roman;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><strong><span style="font-size:10pt;font-family:Arial;">Link</span></strong><span style="font-size:10pt;font-family:Arial;">: http:// www.cybelink.com</span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> <p style="margin:0in 0in 0pt;" class="MsoNormal" style="><span style="font-size:10pt;font-family:Arial;"> </span></p> </article> </main></body></html>