What ties all businesses together, no matter what they deal with? Accounting, of course – it’s literally the backbone of every business. Solid, professional accounting gives a business a clear image of where it is at this moment, and lets the financial managers make informed choices on the future of the business. Accounting is also a profession that dates back literally thousands of years. Evidence of accounting procedures even date back as far as the days of the Pharaohs and Ancient Egypt.
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.
As a small business, you’re going to experiment with a lot of different software. For accounting, money management, business development, and more.
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.
Unlike some fields, there are specific concepts, and rules, that rule the field of accounting. Called the basic accounting principles and guidelines, they form the foundation of accounting rules that accountants must follow to stay in practice. The FASB, or Financial Accounting Standards Board, uses not only the basic account principles and guidelines, but builds upon them with their own standards.
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.
Everyone knows that they have to pay taxes – but some people don’t even know what a tax is. Collected by the state and the federal government, taxes are required charges that are collected against every working adult. In some form or another, taxes have always been charged against people – even in family, taxes were collected in the form of gold, produce, or even labor. They’re a way that we give back to the community we live in.
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!
Ever notice that annoying little deduction out of your paycheck? There should be more then one, but I’m talking about the federal income tax specifically. Taken out of every employee wage, including bonuses and commissions (Even tips for waitresses!), it’s a way of life for the working US citizen.
The employer must provide a W-4, because this is how you determine how much is withheld from each paycheck you receive. You need to also make sure you let your employer know if you’re married or single, and the number of exemptions you’ll be claiming. This changes how much you have to pay in taxes.
From the IRS you can receive Publication 919, or ‘Getting the Right Amount of Tax Withheld’. As an employee, you have the right to request additional funds to be withheld. This publication can help you figure out what amount of tax withholding is right for you, your family, and your employer.
There are a lot of different factors that play into the amount of federal income tax is withheld each year, including if you have then one job or if you’re married. This is why it’s vital to let your employer know all of these things at the beginning of your employment, and alert them as soon as it changes. Sometimes, depending on the number of exemptions, filing status, and earned income levels, employees will qualify for Advance EIC Payments. This is basically a refund of federal income tax, and they’re to be made each pay period, if it’s requested.
When an employee contributes to a 401(k), or another, similar program, it will also affect how much is withheld. Most of the time, contributions to a program like this benefit the employee at the end of the tax year, because these contributions provide a tax break as well as reduce what’s due to the federal government.
Child tax credits, education credits, nonwage income – these all affect your liability as well. Don’t think that smudging information on your employer’s sheets doesn’t make a difference, because it does.
At the end of the tax year, you should be given a W-2. Your W-2 basically contains everything you were paid, and every deduction that was taken from your pay since the beginning of the last tax year. You are required to receive a W-2 by January 31st of the next tax year – if you haven’t, you need to contact your employer.
Bottom line? As an employee, you need to go over your filing status, and your W-4, to make sure everything is correct, and the right amount of taxes are being withheld. It’s vital, because discovering a mistake after filing taxes can result in fee’s, penalties, and more.
1. Due Date Reminders – This is something a lot of business owners don’t do, but really need to – having a payroll tax due date reminder can save you a lot of time and energy. No matter if you have a payroll service preparing your payroll tax returns, of if you’re doing them yourself, a check off list of all the reports, as well as a due date reminder customized to your business’s specific needs, can save you a lot. Consider including things like: Due date, Report number, Time period, Government agency.
2. Audit Trail – This sounds complicated, but trust me, it’s not – basically, an audit trail is a record of every invoice and check in numeric order. Making sure that you never skip a number can really mean the difference between a good paper trail and one that’s missing a vital part. Record every voided check with the others, just make sure to make note that it’s ‘voided’!
3. Purchase a Deposit Ticket Book – If you’re not using a deposit ticket book, you’re probably having problems handling your bank deposits – or, you’re doing it in a way that’s harder then it needs to be. Most of the books comes with 50 top copy’s and 50 bottom copy’s – the white top copy is the original that you give to your bank, and the bottom yellow copy is what you keep for your records. Nothing gets lost, and a small order of 200 deposit tickets could easily last you 2 years or more, depending on how often you make deposits.
4. Consistency is Key – This should be a no brainer, but many people like to switch things up and try something new. With this, you lose money by wasting time. When you’re keeping your books, make sure to use the same headings and columns throughout the year – don’t get the brilliant idea to start labeling something differently halfway through. You’re going to give yourself, and your accountant, a headache in the long run if you do, and end up paying him for more time spent on your books!
5. Bank Statements – Requesting a statement with a month-end cut off date when you first open your business checking account can save you a lot of time, frustration, and headaches.
The key with this really is to remember to review it every single month, not just toss it unread into a filing cabinet. Go over everything closely, before your bookkeeper or accountant, and make sure there are no unauthorized checks or suspicious spending. You may trust these people you work with, but knowing for sure can save you a lot of time.
Resist the urge to go paperless and keep information only stored online. Having it in paper is solid, unchangeable, and makes a world of difference.
6. Keep Good Records – Duh! This one is the most obvious on the list, but constantly needs to be repeated! Keeping good records of your businesses financial dealings does make a difference. Bookkeeping should be a top priority for you, no matter if you’re afraid of what the numbers are telling you or not. Solid bookkeeping is like the glue that holds your business together. You just won’t get very far without it!
I’m going to be honest. When compared to other accounting tasks, bookkeeping probably ranks as one of the most boring to do. Who really wants to sit and compile information that’s already there of various transactions into one certain format, and then spend the time going over and ensuring everything is recorded, and the sheets total up right? It’s a headache, even if you’re 100% sure what you’re doing. A solution many business owners have found to be a favorable one is hiring the services of a bookkeeper.
It’s a solid fact that the survival of your business greatly depends on the accountants, and with that known fact, you need to realize that bookkeeping is a firm step towards increasing your profits. Without sound bookkeeping, you’re lost when it comes to your company’s true financial situation, and the bottom line with your business should be your finances. If you cannot keep clear and detailed records for any reason, looking into bookkeeping help is something you should consider.
There are numerous firms all over that offer bookkeeping help in several different forms. These firms are usually highly efficient and surprisingly cheap – much cheaper then you might think, and when you figure out the time you’re spending on your books, it often is cheaper for you to hire someone to help.
There are so many different advantages to getting bookkeeping help. Hiring from a firm means that you don’t have to pay them like you would pay an employee, and you don’t have to worry about any of the bonuses a full time employee would ask for. As far as professionalism goes, most will be even more professional than if they were employed directly by you, because they realize that they’re working with someone else. You really can get top quality service.
Another benefit of hiring from a firm is, you don’t have to worry about choosing someone. Many companies find it difficult to keep a full time employee happy, when their job is to just go over records all day long. There is very little creative thinking that goes with this, so productivity is often low.
Considering hiring help? Take into consideration some very important things before you do!
You trust a company with your finances. This means that they need to have what it takes to handle the responsibility. Before you hire a firm, look closely at their profile, work experience, and past clients. Don’t just base your choice on fees, because there might be a reason a certain company is charging a little less then another.
This isn’t something you can just toss around, so compare services provided before choosing, and see if you can’t get a personal recommendation or two from other business owners before you pick someone. If you can’t, do your research and rely on the BBB (Better Business Bureau) to help guide you.
Don’t be surprised to discover that accounting’s roots dates back to the very earliest days of human civilization. Oh yes, I’m talking about Ancient Egypt, and the Sumerians in Mesopotamia – the very beginning! Far back, scientists have discovered surprisingly detailed and accurate records of the values and quantities of products being bought and sold. Even modern Christian bible mentions basic accounting (The book of Matthew, in the Parable of the Talents), and in the Islamic Quran.
The book Hisba, written in the 12th century by Ibn Taymiyyah, detailed systems of accounting that were practiced by Muslims in as early as the mid seventh century A.D.. (Actually, Hisba literally translates into ‘calculation’, or ‘verification’) It’s interesting to note that these practices weren’t invented by the Muslims, but were heavily influenced by the countries that they interacted with most – particularly, the Persian and the Roman civilizations.
The author provides us with a great amount of detail into the extremely complex government accounting system, the Divan of Umar. You can actually find information about the Divan of Umar that’s recorded by a number of historians – it was used in the Middle East until the fall of the Ottamon Empire.
Never really thought about accounting going back this far, did you? As mathematics developed during the Renaissance, so did accounting. As you may remember from high school history, mathematics had a period of rapid development in the late 15th century, and it provide to the Hindu-Arabic numerals becoming much more widely used. That, and the introduction of algebra, gave accounting a huge boost in many different ways.
Birth of Accounting
Have you ever heard of Luca Pacioli, who is also known as Friar Luca dal Borgo? Many people haven’t, but he’s widely credited as the father of accounting. Why? In 1494, Pacioli wrote a text book that, very literally, took everything about then-modern accounting and put it in one place. A compilation of everything he knew, it was the very first printed description of the accounting system the Venetian merchants used, which a very similar accounting cycle as one has used today. A double-entry system, it also described different styles of ledgers, as well as the sections of assets, liabilities, income, capital, and expenses. All this in 1494 – and this entire still found on your modern accounting balance sheet.
Evolution into Modern Accounting
Businesses changed from something small and home owned to something larger, the capital markets grew with it. Now, success was subject to an accurate financial records and a good track record of financial responsibility. Such, the modern accounting was born.
A vital part of day to day business practices, the modern accounting is a vital part of our economy. The history of accounting has shaped their role to be truly amazing.
As an accountant, you’re going to come face-to-face with plenty of ethical issues. Deciding whether someone’s business practices and their actions are ethical is something that can be fairly difficult, but holding ethical standards is a vital part of your job. Many people in the accounting and banking industry often find it hard to recognize a serious ethical problem. It’s not that they’re unethical people, but frequently they’re simply aware that an ethical problem is presenting itself. Nearly everything that you do in your line of work has an ethical side of things.
You hold a very important role in each customer’s and company’s life – accountants play a key part in keeping the integrity and credibility of their clients. Accountant must be not only competent at his job like every other worker, but he must hold the knowledge and experience to keep his professionalism, even at the most difficult times.
Keeping your book keeping and accounting services client’s integrity means that you have to communicate deeply to avoid all problems, and make sure that everyone knows what’s going on with their own finances. Sometimes people forget that confidentiality is the strength of any professional accountant, and it can be hard. You must keep your clients information completely confidential unless the other party has a legal right to view it – and it can be uncomfortable to face that sort of pressure.
“I don’t think I’m going to face any ethical issues,” You might think. “I know what I would do if I were faced with a hard choice.” Think again – because as an accountant, you’re going to face countless issues that require you to be clear headed and of sound judgment. More people then you think attempt to take the unethical route, and lie to their company.
For example, going through the records of your firm, you stumble on a huge discovery – a coworker is withholding money from the firm, and has been for a while. How do you approach this situation? Do you talk with the firm? The coworker? This is obviously unethical, but how to proceed?
The most likely solution is to follow your own firm’s policy to resolve the issue. Every firm has some sort of ethical guidelines that state how to react and treat a situation like this. Maintaining a professional and ethical business practice should be the firms’ main priority.
If for some reason your firm does not have a policy that dictates how you should treat this situation, your responsibility is to go to your manager. If you feel that he is also part of the issue, then you need to go to the next level of management.
When trying to work with these ethical issues and resolve them, you as an accountant and an employee of a firm must understand your businesses strategies, and motivations. If you’re worried that you yourself may be at risk for some sort of ethical dilemma, then the best option is to call your personal attorney. He can assist you in looking at your options, and with your best interest guide you towards a good result.
If you feel that you cannot work with your firm anymore due to ethical conflicts, do not feel bad giving notice for that reason and leaving. If the situation is pressing, or if the concerns are high enough, this is a very valid response.
Remember that it is your duty as an accountant to withhold the integrity of not only your clients’ business practices, but your own. Many people are not as morally sound as idealists would like to believe, and where money is concerned, there will always be someone trying to outsmart you.
Wait, don’t get too excited. It’s simplified, not simple. Form 7004 isn’t the only type of extension form there is – tax payment deferral requires more documentation, as well as form 1138. And, when you’re dealing with employee retirement plan reporting, Form 5558 is needed for up to 2.5 months worth of an extension.
Depending on the type of business, a successfully filed 7004 will give you between 5 and 6 months of extension time. For the most part, trusts, estates, and partnerships only receive 5 months. Most other businesses receive a full 6 months.
Yes, when you’re just filing for an extension for the tax documentation, you only need to fill out and file Form 7004. You still need to pay the taxes due at the time of filing for the extension, unless you choose to file IRS form 1138 as well.
The Basic Steps of Filing an Extension
Filing your taxes as a business requires a lot of gathering, a lot of reports, an uncomfortable amount of information regarding your financial records, and a whole host of other tax deductible items. Sometimes there just isn’t a choice for a business but to file for an extension. Here is a quick step by step to file for an extension.
Note: If you find yourself behind, or confused about what you need to file, acquiring an accountant or tax specialist may be the best way to go. There’s no shame in not knowing where to begin, and really, what can you lose by getting some help?
1. Make sure you have all of your tax documents – financial statements, retirement plan contributions, and withholdings. Put all of this in a form, or a specific computer file, for later.
2. Identify the business structure. LLC, C-Corporation, etc.
3. The hard part; calculate up the probable tax due to the IRS for that tax year. This may require the help of an expert, if you’re not sure how to go about it.
4. Get Form 7004 and fill it out, using all of the information you have. No reason has to be given as to why you’re filing for an extension.
5. Submit form 7004 to the appropriate IRS center, along with payment – or deferral forms.
As said before, there are a lot of things to sort through when you file taxes, and there’s nothing wrong with having to file for an extension if you need to time to gather information. It happens – but make sure you don’t just let it slip by!
