The root of accounting actually is bookkeeping – no real surprise there, though many people don’t think about it much. What a bookkeeper does is track all of the money that the business handles, both incoming and outgoing. A bookkeeper ensures that the ‘books’ are balanced properly, and the records are clear and in order. A bookkeeper also handles information regarding payroll, bank statements, ledgers, and even information regarding real estate and investments the company itself has.

Another aspect of accounting is auditing, which protects the employees, owners, and investors of a company from any sort of accounting fraud or ‘mistake’. An audit is usually performed by an outside company to maintain a lack of bias. What an accountant does during an audit is go through all of the financial records of the company, including the ledgers, to figure out an accurate financial picture of the company. If the ledgers the company holds don’t match the bank statements, then the accountant realizes that there’s something wrong – and it’s their job to figure out what. Sometimes this means discovering that someone has been helping themselves to company funds, but other times can just be correcting a harmless error.

Yet another part of being an accountant is compiling and analyzing the company’s financial situation, and creating reports based on this to be distributed throughout the company. With these statements, along with personal dealings, the accountant can give recommendations on investments, if the company can afford the direction it desires to go in, and more. Part of this also includes reporting to various government agencies.

So, how many accountants does one company have? It depends on the company, no surprise there. Most of the time, the main accountants are certified public accountants, who have to pass a test given to them by the state in order to work as an accountant. A business will often also employee bookkeepers, and the accountants can oversee accounting training. Most of the time, a single accountant will oversee the entire department – and this role is vital to the company, as this is usually the person that meets with investors as well as the companies head, and is responsible if anything goes wrong.

Technorati Tags: Accounting, Bookkeeping

Well, reconciling is a pretty basic accounting procedure where the accountant’s records are compared with the bank statement of the company to see if everything ‘checks out’. Sometimes, a discrepancy is apparent, but it’s only because of the time difference – something hasn’t been recorded yet, or things have been recorded on one but not the other – that there’s an issue.

Sometimes if an outside accounting is reconciling, they won’t realize that the business is using a system different from GAAP, or the generally accepted accounting principles. The majority of businesses do follow GAAP (There are books upon books about the GAAP system), so much so that it’s presumed unless stated otherwise. If these principles aren’t used, it can be very easy for the person reading the documents to not understand what they’re looking at, or worse – presume they know and report something incorrect to the company.

Think of GAAP as the standard of standards. No one really uses anything else – and not disclosing that it does makes the company legally liable for any misunderstandings associated with it. After all, it’s not like someone just tossed together the rules of GAAP in a night and said ‘I guess this works’!

But it’s not all cut and dry. The G in GAAP does stand for general, and you have to realize that these guidelines can be open to interpretation. Sometimes this can lead to creative accounting, which I’m sure you’ve heard of before.

Creative accounting, or massaging the numbers, is when a business pushes the numbers a little to make the company appear more profitable on paper then it is in reality. It’s never right, but this isn’t always a serious issue. Not unless it gets out of hand. Because this sort of behavior can lead to accounting fraud, or cooking the books (A little salt, some basil…).

The end result of accounting fraud isn’t good for anyone. Just look at the news – what happened to Enron was accounting fraud, and you need to consider that massaging the numbers a little could be the first step to something worse.

The two more popular programs, QuickBooks and Simply Accounting, have numerous different features. They’re both very similar, but we’re not looking at their similarities, but the differences that make these programs different from one another. That’s the best way that you can figure out what’s right for your company.

In this article, we’re going to be talking about the Pro versions of these softwares.

Multi-Currency

If you’re going to be doing dealings with other countries, or if you’re an international company, being able to keep records in more then one currency is the optimal choice. A software that isn’t may actually be useless.

The Pro version of Simply Accounting comes with two currencies already in it, and versions other then the First Stage version have unlimited currency capabilities (The First Stage version only offers one base currency, nothing more).

QuickBooks Pro only offers one base currency when purchased both in store and online, and you can’t expand on it. If you need two currencies, you have to contact the company directly and purchase QuickBooks Multi Currency Premium, the only Quickbooks software that offers more then one currency. A major disadvantage of this is that it’s much more expensive then the Pro version Quickbooks, but it’s the only Multi Currency software they offer. The upside? Premier comes with a 3-user license.

Upgrades

With Simply Accounting, upgrading from an older version to a current version really is quite easy. Even with the multi currency versions, you shouldn’t have any problems upgrading Simply Accounting – only the First Stage program will give you any trouble. However, if you’re running an older version of Windows Office, you may have to upgrade to be able to use the upgraded software.

QuickBooks is also painless to upgrade, unless you’re using the Multi Currency version – then you could run into serious problems. There isn’t an automatic upgrade to a single currency QuickBooks addition, and if you choose to force the upgrade, you can end up losing details and transactions of any currency that’s not marked as the base currency.

Payroll

Both Simply Accounting and Quickbooks offer payroll services, and the ability to print off payroll checks. However, this isn’t included in the base software – instead, it run on a subscription for both, and these rates change. For the best price estimate, check with the companies themselves.

Reports

Probably one of the easiest things to do in Quickbooks is to send invoices, sales, estimates, and other reports. All you have to do is press the ‘email’ button, and a .pdf file is created. Outlook is started, and it’s all ready to be sent off.

Simply Accounting uses the system Crystal Reports to make any sort of report. It’s not sold with the Simply Accounting software, but is free to use for all Simply Accounting customers – all you have to do is call the company, and they’ll send you a copy of the Crystal Reports CD. You do have to pay shipping.

The main problem with Crystal Reports isn’t that it doesn’t work. It’s that it’s not user friendly at all, and it’s hard to get used to. If you’re looking for an easy way to make reports, this isn’t it – you can take a class or get a book to help you, though.

Technorati Tags: Accounting, My Simple Accounting

Having the basic understanding of bookkeeping and financial management ensures that the books are always reliable, and being able to generate financial reports and analyze those statements, will give you a deeper understanding of how you’re doing on many different levels.

The financial management you’re going to be getting into with a nonprofit organization is basically like any other companies. Preparations for a third party audit, basic methods of internal controls, a firm grasp of a solid accounting system, budget cycles and annual filings… this is all indispensable to your board of directors, and audit committee, not to mention the overall financial well-being of the organization.

Because each organization is different in the financial issues they fast and the fund-raising methods they have, every organization will be treating their reporting and statement creation a little bit differently. Different situations calls for different analysis of different elements – not being able to create the reports needed because of a lack of accounting structure can be very bad. These reports show if the organization itself is financially stable, what financial obligations it’s facing, how much it’s spending on staff, as well as recent financial changes the organization has experienced.

What sort of reports would be needed by a nonprofit organization?

What’s Common Monthly:
- Balance sheet, or statement of position
- Income verses expenses sheet, showing actual, up to date information
- Strong report showing tax and financial highlights, including grants received and short term loans. This report is essential for managing cash flow

What’s Common Quarterly:
- Detailed fund-raising reports. These should include status reports of foundation proposals and actual vs. projection regarding donations
- Cash flow projection
- Fee for service report, which details fee-paying clients and revenue
- Payroll tax report

What’s Common Annually:
- Federal forms, which include state reports, schedule A, and 990
- Statement of activities
- Statement of position
- Income statement for each and every program
- Draft of financial statements for the year
- Audited financial statements for the entire organization
- Management letter from the auditor
 

Technorati Tags: Bookkeeping, Tax Return

Don’t be daunted, or afraid. Bookkeeping isn’t scary – it’s just keeping track of all of your expenses, as well as your profits, as well as making sure everything is in the right place, and that it’s all organized.

Bookkeeping doesn’t have to be scary. Here are the basics of bookkeeping to help you get your foot in the door if you’re thinking of tackling your business’s records.

Always have the Proof

This is something many people forget, but it’s so obvious – you always have to make sure that you get receipts for any business related expense. If you don’t have the receipt, then the government won’t allow the expense! Anything not backed up on paper is automatically a personal expense, and taxable to you. It doesn’t matter if it’s small or large, every single expense needs a receipt.

To keep track of your expenses, you need to make sure that they’re entered properly in your bookkeeping system. Don’t have a system? It really can be anything – you can use a computer program specifically for bookkeeping, like Quicken or Simply Accounting, or if you know what you’re doing, just using a simple Excel spreadsheet can work.

If you’re just starting out, using software is the best option, as it streamlines the process a lot. Remember that it also depends on the size of your business – if you have $1 million in sales, you’re probably too big for a simple spreadsheet. And you don’t need $1,000 software if it’s just you!

Keep it Balanced

Making sure everything is balanced is vital to your entire business. Your bank balance entries in your bookkeeping system must match your bank account statements. This is how you know if you’ve somehow missed entering something in – if it doesn’t match, something isn’t right.

With cash transactions, remember that they should be entered into a separate ‘Cash’ account, just like it would be treated at the bank. Always keep the receipts for your cash transactions as well, because it’s just another part of keeping track of everything.

You should always have a separate business and personal account as well. The IRS has rules against mingling accounts, and it makes everything so much easier when it’s separate!

Debits and Credits

If you don ‘t know the debits and credits system, it’s going to take a lot more room then what I have to explain it all to you. The concept is so confusing, even the pro’s get confused now and again.

Basically, what I mean with this point is to just understand the concept of costs and revenues. Any cost is something you’re paying for, and any revenue is something that is coming into your company. All of this is without taxes, because they should be tracked separately.

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About Taxes Already Paid

In Canada, Australia, the United Kingdom and the United States, a tax credit is their recognition of a partial payment that has already been made of taxes due. A similar concept is also present in the French tax system. This normally happens when the ‘standard’ taxes have been deducted (Like out of your paycheck, ‘Withholding tax’), but you are still subject to more taxation and a different, often higher, rate.

In the UK, tax credit actually refers to taxes that are treated as deducted at the source, but haven’t actually been paid. The “R&D tax credit” (Research and Development) is a payable tach relief scheme that refers to the cash surrendered loss on eligible research and development work. The credit is worth up to 24.5% of the spending, and was introduced in 2000, with an extension made so it’s available to large companies in 2002. It’s still unclear, though, whether this has lead to an increase in research and development in the UK. Experts don’t expect to see clear results for at least 10 years.

What About the Other Tax Credit?

A tax credit is also a coupon that a company uses to lower the actual amount of state income taxes it owes, and has to pay. Kind of like using a coupon at the grocery store. Let’s say Company Alpha owes $1,000 in taxes towards the state. The more credits it has, the less it has to pay – so the larger it’s bottom line is.

Tax credits aren’t always useful. Let’s say Company Beta has a huge warehouse, but it’s used solely for storage and distribution. It has a lot of business dealings going on there, and pays taxes, but it doesn’t actually sell anything on the premises. Without that sale, it doesn’t generate taxable income, and shouldn’t have any state income tax liability. Why would Company Beta need a compute to reduce taxes that it doesn’t even owe?

In some situations, tax credits can be very useful – but clearly, in others, a tax credit would do a company no good at all!

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If you are indeed starting out, the idea of even hiring a bookkeeper seems expensive. Think of this article as a to-do list as a bookkeeper. Why hire one when you can do it yourself until you really get your business moving?

The Very Basics

Like most people who are starting a business, you probably have one thousand and three things going on inside your head of how to run your business best. You have so much to do that you just don’t want to deal with the little things, like keeping records of exactly what was spent where, and when. You want to get on it now, and really start to make money.

Slow down a few steps – this isn’t a race, and in the business world, there is no finish line. If you don’t plan your bookkeeping, and figure out exactly what financial aspects of the business you want, and need, to keep track of, you’re going to find yourself in six months not knowing if your business is wonderfully successful, or if it’s failing miserably!

When properly completed, bookkeeping can and will give you an exact measure of how well you’re doing in your business. It provides all sorts of valuable information so you can see your financial success, and make corrections to improve any short coming the business might be having.v

Basically, bookkeeping is your best friend for managing the financial aspect, so don’t think for a second you can put just a few minutes into it and be done. The best thing, if you’re going to be your own bookkeeper, is to set up a system with your accountant before you ever open your business doors or make your first sale.

What Accounting Method is best?

There are two basic account methods that you’re going to have to choose from when you decide on your bookkeeping system – cash based, or accrual. The main difference in these two is when you record your purchases and your sales. With accrual accounting, you make your records when it’s completed, no matter if cash is exchanged or not. However, with a cash based accounting, you only make your records when money changes hands.

Let’s try a simple example. You purchase software, but you don’t actually have to pay for it for a month. If you were using cash based system, you wouldn’t record this transaction until you paid that company in a month. However, with accrual accounting, you make your records when the transaction happens, and you also record the future debt.

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The magic number here is four. There are four basic accounting principles that make up the generally accepted accounting principles (Also known as GAAP, in the US). These are coupled with four accounting theories The GAAP rules dictate how businesses record and report their losses and earnings for that period, and the rules are enforced by the FASB (In conjunction with other government agencies).

Now, don’t get us wrong – when you get down to it, accountants aren’t actually required to follow these rules. However, sticking closely with them means that you are sticking with standards that ensure good, ethical business practices, as well as an understanding and respect for the law. Besides, having a set of guidelines to follow just makes sense.

Below is a list of four basic principles in accounting, and a brief run down on each.

-  Accrual Principle
Known as the accrual basis accounting, the principle of this isn’t to show what it to be done in the future, but what has been completed as of now. Every business is required to report, as well as record, all of its income when it is earned and acknowledged by the business itself.

-  Cost Principle

Basically, as businesses are legally obligated to report the actual cost of an asset they received or purchased, not the free market value of the asset itself. This is basically to avoid bias when reporting the amounts, and to ensure that the amount reported is actually the amount the company ‘is out’.

-  Disclosure Principle

This is a very easy one to guess by the title – the accounting records, all of the records, must be able to be disclosed so that judgment on the company about their financial status can be made without hassle. The only exception to this would be if disclosure would cause the business excessive expenses.

- Matching Principle

This principle is basically so that you can do a real time analysis of the expenses, and income, of the business. This shows where the business is right now, how is it doing financially, and how effective the business practices are at the current moment.
 

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In the past, taxes have been used to do things like finance wars – but today mostly our tax money goes towards things like maintaining the public education system, the upkeep of our laws, build new infrastructure, maintain and build new roads, our defense, and so much more.

In 1913 the Federal Income Tax was instituted by President Woodrow Wilson. Between 1% and 7% of a person’s income is deducted for this tax, depending on various factors. And since then, more taxes have been added in order to keep our government running. After World War I, the American Tax Code has become four times larger.

In America, we have a system that lets the government know how much you’ve earned, and if you’ve paid the correct amount of taxes. The tax returns run by the Internal Revenue Service (IRS), and it’s something that everyone who makes over a certain amount each year has to go through.

Basically, what happens is you fill out a single form that everyone has to complete, and then supplementary forms. There is also a instruction booklet that can make the process easier, provided by the IRS. You give them information regarding your expenses, and income, for that year, and they calculate the taxes you have to pay.

Even if you’re self employed, you are expected to file a tax return. If you’re receiving any sort of taxable income, you must file – very few people over the age of 18 are exempt from filing.

Many people get penalized every year for failing to file their taxes, or for filing incorrectly. Even if you do not receive a tax return from the IRS, you should file your taxes to ensure that everything is in order.

Your tax returns need to be send by April 15 after the end of the tax year.

Tax returns aren’t something that can be forgotten about, or put off – and taxes certainly aren’t something you can get out of paying!

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1. Keep Your Business and your Personal Separate

If you haven’t done this already, then you need to set up a separate checking and savings accounts specifically for your business. Many new business owners don’t realize how important this really is, and how much of a difference it’s going to make.

If you’re doing your own book keeping, as your interest in this suggests, you probably think that the entire idea of keeping your personal records separate from your business records is just going to give you one big headache. But trust me, it’s going to save you time – when you go to gather all of your information at the end of the year for tax purposes, having everything separate right from the start will make the entire process run smoother.

Signing up for online banking, as well as getting a paper statement every month, can save you time. It’s very safe to check and bank online, and you can do things like pay bills and look over statements with a few clicks. While you should always have paper information, too, going online makes the processes of banking more efficient

As a personal recommendation, having your personal accounts in a completely different bank then your business accounts can be easier. You always know what statement you’re looking at, and you don’t have to worry about confusing things. While this is obviously your choice, it can make things easier.

2. Find a Good Software

Do your really want to spend all the time it takes to manually write out your bookkeeping? Most people don’t – using a computer software program specifically for bookkeeping can make your life a lot easier.

There are a lot of great programs out there, but for your business, there are a few that I can tell you from personal experience that won’t help – MS Money being one of them. While it’s a great program for personal finances, it doesn’t do well with handling a business.

One mistake some businesses make is going with Quicken, which is oversimplified. While it’s an alright program if you’re doing your personal finances, or if you’re keeping things small, as you grow, it won’t be a good program to grow with you.

3. EIN is your Friend

Getting a federal tax identification number, or an Employer Identification number, is a great safety precaution, and something most small businesses don’t think about. It doesn’t matter if you have an employee, or plan on hiring one anytime soon.

If you don’t have one, you have to use your personal SSN  for all of your business matters – and having that number just laying around isn’t a good thing at all. An EIN number protects you and your family.

Applying is easy. The fastest way is to go online and apply through the IRS. It’s easy, won’t take you very much time, and can save you a fortune.

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