Tag Archives: accounting

Financial Statement – Who Needs It?

The Financial Statement for your business is probably the single most referred to report that your company will produce. It comprises several other documents including the Balance Sheet and the Profit and Loss statement and provides all of those looking for a complete financial picture of your business with a detailed account.

So, who actually uses the information in a financial statement? Which groups of people find such things essential and why?

Owners & Managers
First and foremost you will need the information yourself as the owner of the business without the information in a financial statement it would be very difficult to make any important business decision. Anyone that you may have put in charge of your company will also need to access the financial statement not only in order to run things on a day to day basis but to allow them to provide more detailed reports to shareholders.

Shareholders
If someone has a vested interest in the success or failure of your business they will often require seeing regular and up-to-date financial statements to check on their investment; if they need to withdraw funds the financial statement lets them know what if anything is available.

Lenders
Anybody who is considering extending finance to your business has to have access to your business’ financial statement; whether a high street bank or an independent investor, they will be looking to ensure that you are a safe bet to pay the money back with interest.

Investors
Before any potential investor makes a decision to put money into your venture, they will want to view your business’ financial health, the way that they will do this is by looking at your financial report; investors, like lenders, will want to judge your company sound, so that they can guarantee a return on their investment.

Staff
Employees may need to see the firm’s financial statement at one time or another, to work out anything from compensation, to their prospects for promotion.

Suppliers
Anyone selling anything to your business that may be looking to extend credit terms will want to assure themselves that you can pay and that you are not going to end up on their bad debtor list.

HMRC
The Government will need to see your business’ financial statement regularly, as assessing your tax requirements and checking that you are paying your dues is probably one of the most important reasons for the statement’s existence.

Media
Believe it or not there are many reasons why the media and/or the public at large may be interested in the financial statement your business produces, especially if you are a firm in the public eye or with whom they feel a special connection; also large employers in certain areas will be of interest as their success or failure is often tied in with that of the community as a whole.

Never has one business report meant so much to so many; it really is the ‘go to’ report for anyone who needs to make a decision based on the financial health of your company and as such is probably one of the most important things your business will ever have to say.

Visit Accountants Reading, a firm of accountants and business advisors specialising in small business. Find out how we can help your business grow. http://accountantsreading.org.uk/accounting/accounting-advice/

Article Source: http://EzineArticles.com/?expert=Leo_Thomas

Outsourced Bookkeeping Can Save Your Company From Financial Ruin

How much time and energy do you spend doing your own bookkeeping? What if there was a way to shift your focus from the computer to a more constructive area, such as managing your company or building better customer relationships? What if this method saved your company thousands of dollars, and allowed your staff to focus on the most pressing needs of the organization?

What we are presenting is not some get rich quick scheme, but rather a more common sense approach of allowing well qualified professionals to focus on what they do best. Certified Quickbooks Pro-Advisors outsource bookkeeping specialists manage your bookkeeping department, providing accurate financial data so that you can make better decisions to grow your own company.

Certainly every other department in your company is staffed by a qualified professional, so why have a spouse, friend or relative who is unskilled in accounting make critical classification decisions in a vacuum, with ramifications that could possibly bring down the firm in an audit. Are you really saving money in the long run? Disorganized financial records make it extremely difficult to obtain a loan or make any other type of decision regarding your business. Outsourced bookkeeping is a skill which is available at very affordable rates from certified Quickbooks Pro-Advisors.In some case it is cheaper to obtain bookkeeping services than it is to hire a cleaning service.

Certified Quickbooks Pro-Advisors can perform all of the data entry. They reconcile all of the accounts. In addition to mundane entries, financial statements are prepared allowing accounting firms to have access to vital information needed to prepare tax returns. The information you need will be right at your fingertips!

Some businesses may avoid using outsource bookkeepers fearing that they may be operating from another country and not be as familiar with U.S. financial regulations. While there are international outsource bookkeeping firms, many very talented Quickbooks Pro-Advisor outsource bookkeeping professionals may be found within the United States. These specialists are able to perform all accounting functions by using remote access or accounting software that generates an accurate picture of the companies solvency for very little money or investment.

Time, money, energy and effort are all saved by having an expert provide accounting services. At the end of the year, 1099s are prepared, and money is saved on compliance issues, wages, benefits, payroll taxes and vacation pay. Whatever reasons may have been holding you back from using an outsource bookkeeper, think again! During these challenging financial times, your company needs every edge possible to stay on top! Quickbooks Pro-Advisor outsource bookkeeping can save your business, offering you the advantage you need to not only stay in the game, but prosper in the long-term.

About the author:
Matthew Beck is the owner of M.Beck and Associates located at the Omni Park Office Plaza in Euclid Oh http://www.outsourcedbooks.org/

M.Beck and Associates provides bookkeeping services on a nationwide basis.

Article Source: http://EzineArticles.com/?expert=Matthew_Bec

To What Degree Should Your Accountant Be Involved in Your Business?

Ok, for those small business owners out there who think you do not need an accountant because you have the latest version of Quicken or financial software, think again. For those few select business owners that actually are proficient in accounting and book keeping and are happy with your business the way it is… you can stop reading now. But for the rest of business owners who hire accountants to do their books and prepare quarterly statements and tax returns, there is so much more your accountant can do. The question is, to what degree should you involve your accountant in your business?

Most book keeping is done with computers now, and most business owners use computers to keep track of there purchases, expenditures, and cash flow. An accountant is the person that makes sure all this data is filed correctly and will submit that later for tax purposes. Doing your own taxes is simple for an individual, but for a former business owner, I tried one year to do that, and it was a nightmare. So I hired a CPA to help me with that. It was expensive, and I thought twice about it next year. (But I still made use of their services). This one on for a few years, until I got out of the business. The problem was, I never developed a good relationship with my CPA, and now I know how much more she had to offer.

So, besides basic bookkeeping tasks, a CPA can offer the following services, and can really help increase productivity of your business if used to their fullest potential. Here are some agendas you could involve your CPA with your business:

Involve your CPA on the ground level with taxes in mind. By not just submitting your books to them for tax purposes. Instead, meet with them early in the year, perhaps they can advise you of ways to say legally on your taxes. A CPA can provide you with solid business advice too, as probably many of their clients are in the same business as you, they have seem common mistakes and common successes. Its important for you to listen to their advice. Work with them on book keeping software. Ask their opinion of what kind to install, and let them train you with that. It will help proficiency. Accountants can help you prepare a loan application, should you need cash to purchase equipment, or expand your business. Bankers like in depth loan applications and data… and a CPA can help you produce this. If you are in a restaurant business, an accountant can help you file for all necessary licenses and permits, etc. Also, a CPA can help you predict cash flow, eliminate waste, and tighten your budget thereby producing most cash in pocket. Something we all hope to have as business owners.

So remember this, “Ask not what your accountant can do for you…ask what you can do for…well no, actually you should ask what your accountant can do for you!

Financial and Managerial Accounting Are Not One and the Same

As a business owner, you’re constantly jugging a host of decisions. Is it time to move your business to a new location? Do you need to expand your staff? Is it time to increase your advertising budget? Is it time to add a new product or service to your business’ offerings? These are not easy decisions. Fortunately, business owners can rely on financial and managerial accounting to help make them.

These two accounting methods are quite different. When you hire an accountant to perform managerial accounting tasks, that accountant will report directly to you and the other managers in your business. The goal here, is for accountants to study your business’ financial health and prepare a report that summarizes the findings in language that is easy to understand. You can then study this report to help decide if moving to a new location will boost your company’s bottom line or place undue financial stress on it.

Financial accounting is a different entity, but one that is just as important. This time, you’ll hire a certified public accountant to again study your business’ finances. This time, though, the accountant will make sure that you are correctly filing your taxes, are properly balancing your books and have a cash-flow projection that is accurate and realistic.

In short, managerial accounting helps you make the big decisions for your business. Financial accounting helps you make sure that your small business is operating in a fiscally sound way on a day-to-day basis.

The difference may sound minor, but it’s actually not. Financial and managerial accountants have vastly different jobs to perform. The end result of their reports, too, is extremely different.

If you’re debating whether it’s time to expand your business, you might consider hiring an accountant to perform some managerial accounting for you. If you’re just hoping that your books are balanced and that your expenses are totaled correctly, you’ll be fine hiring an accountant to concentrate on financial accounting instead.

James enjoys helping new accountants make decisions about their careers. He believes that managerial accounting provides accountants with a rewarding career where they get to use some of the skills that not ordinarily associated with accountants. Management accountants get to offer consulting advice and be involved in the strategic decisions of a company.

Article Source: http://EzineArticles.com/?expert=James_Wallace

Profit or Cash Flow 2

A previous article, showed the differences between profit and cash flow. Many business people understand the difference, but my previous article highlighted the importance of CASH MANAGEMENT! I will attempt to provide more detail, with regard to cash management, in this latest offering.

The thrust of my articles, attempt to explain the difference between profit and cash. The cash building strategy outlined below, will reflect differently in the books of account of a business. In fact, these reserves will nor reflect on the Profit and Loss/ Income Statement accounts, and yet, it is the most crucial aspect of the finances!

People are tempted to always spend more money than they make. We see the constant pursuit of higher earnings from working and business people alike. But after earning that increase in income, people remain deeper in debt than before. Expenses chase income, and wins the race most of the time. We remain trapped in the illusion, that more money, is the only way out of the mess.

Look at families taking extra jobs, employees who receive the promotions with the salary increases, businesses who secure additional contract, but they remain short of cash, or more in debt. When people earn more, they spend more. Simple as that. The strategy is to save cash before it is spent. The excuse that there is not money to save, is not valid. The sooner its implemented, the better.Discipline and dedication is required. It can work.

Bank Savings Accounts:

Open three different accounts, at three different banks, in three different areas. Reason? it limits the temptation to withdraw cash from these accounts. The account type does not matter(preferably interest bearing), but designate as described in previous article.

1. A building/ expansion fund

2.Tax fund

3.Emergency Fund

Commit to savings by signing a monthly transfer of say;

1.Building fund@ 2% of Average Monthly cash deposits

2.Tax fund@1% of Average Monthly deposits

3. Emergency fund@ 1% of Average Monthly deposits

Let it run, for three months, and gradually start to up the percentage by 0,5% a month.
See savings as an additional expense, and factor the savings into your monthly budget.Credit Card/s:

Credit cards are controversial and problematic, but you can make this device work, for YOU and YOUR business, instead of the other way around.

Don’t destroy your card, but put it out of reach. If repayments on a card is say $500.00, commit yourself to pay an additional $250.00, on the card.Dont make any arrangements with the bank, just pay the card direct.No bank fees on cash deposits made in a credit card.
What happens, is that the bank draws their arranged amount, and it is augmented by an additional payment, resulting a a rapid reduction of debt on the card over a six month period.
After twelve months, the credit card could swing into a positive balance.The interest on cards with a positive balance vary, but is higher than some savings accounts.

If you committed to the savings program outlined above, the percentages and transfer arrangements for your savings accounts and credit card, you will detect a notable increase in cash, and reduction of expenses. You not compelled to save more, and can spend available cash as you please, if all your bills are paid.

If the cash in reserves grow, you can utilise it as follows,( preferably after twelves months)

1. Tax Fund, to pay any unexpected taxes

2. Emergency Fund, any expenses not covered by normal insurance, staff incentives. Vacation.

3. Building fund, should be accessed after two years, but can be used to purchase capital equipment.

Use the credit card for purchasing additional equipment, when the need is there.And start replenishing the card balance at your soonest.Be careful, don’t go on a spending spree. Put the card away, as soon as it is utilised for emergency funding, don’t leave it in your wallet.

Create a separate spreadsheet, for your accounting for Cash In, Reserves, Cash out. Don’t use conventional accounting software(will just confuse the process). Maintain stats on a monthly basis, and start forecasting your cash flow.

Don’t wait until sales improve, start saving now, even if it is just 1% of cash. Look at savings after a year. Maybe you can indeed go on that dream vacation after three years!

 

Profit Or Cashflow

The word in business is profit. The word is simple to understand. Companies are considered a success, if they generate profits. For small business, however, profits do not necessarily equate to healthy cash flow or even success.

The accounting definition of profit is sales(including credit sales), less expenses. The oversight of the important aspects of “profitability”, leads to numerous problems for business owners.The problem with accounting is that assets purchased cash, will reside on the balance sheet, and inflate the profits, artificially,by the very same amount, that the asset was purchased for.

Invoiced credit sales are recorded in sales journals, and a corresponding debit(debtor), is raised for those credit sales. Value Added Tax or general sales tax is charged on that invoice as it is processed.

One major shortcoming in small business, is the lack of credit control. Many business owners lack the skills to collect outstanding debts. Where VAT or GST has been charged, it become payable, regardless of whether the debtors invoice was paid or not. Businesses also pay tax on profits.

Business owners(on the advice of their accountants) are profit driven, and not cashflow driven. This leads to certain interpretations of their finances. If assets exceed liabilities(solvency),current assets, exceed current liabilities(liquidity), they happy. Business owners consider the available amount on their overdraft or business credit card facility as CASH AVAILABLE! Its not available cash, but debt!

Solvency or liquidity should be measured by the amount available cash(bank and cash on hand), exceeding liabilities. All other assets should be be excluded. The reason is that assets ,could be sold far below their market value, if the business had to be liquidated. Cash is the only asset that can be used, without incurring a cost or loss, on conversion.

What about the cash flow statement? The cash flow statement is not compulsory for small businesses, but is viewed is an important tool, for analyzing the business’s cash flow. Many tax authorities accept only the income and expenses account. But even the cash flow statement has its flaws. Loans advanced will reflect as “cash from financing activities”, thus creating the illusion that the “healthy Bank Balance”, means the business is healthy. In an environment of high interest rates, the loan can be risky, and that aspect has to be factored into the reporting. A note on the financial statements, is not sufficient.

Many accountants might not agree, with the above. But its my firm belief that thorough cash management is lacking in most small businesses. Accounting financial statements should only be used for tax or statutory purposes.

A cash flow driven business would operate as follows:* Collect outstanding debtors as soon as possible(The most difficult and problematic, I agree)

* Take substantial cash deposits from customers, before commencing a project

* Bank cash promptly, since cash gets lost or spent very quickly

* Stall creditors, as long as possible

* Start investing 5 to 10% of cash received in a particular month, in different bank savings accounts

* These banking accounts also known as reserves, can be called:

a) A Building Fund(For future expansion)

b) A Tax fund and lastly an Emergency fund (Any emergencies that may occur).The reserves can also be augmented by additional sales, the value of credit card payments, that have been paid up. (Would not hurt, since you used to those monthly credit card payments)

* Before spending cash on any expense, apart from salaries, funds should be set aside for the “reserve accounts”

* The benefits of the reserve accounts are two fold, 1) It creates a buffer, between income and expenses(will exert pressure on overheads/spend less), and 2) The business will gradually build capital in reserves, that the business would have had to source somewhere else, if the need arose.The reserves would grow rapidly, if it remain untouched, for say ,twelve months. This exercise requires discipline, for it to work.

Focus on the cash balance and savings, will ensure a rapid (almost magical) growth of cash! The business will also become less reliant on loans, credit and capital from outsiders.

 

Tax Planning for the Small Builder or Contractor

The failure to plan for tax prior to a business being formed leads to inevitable tax problems that could so easily have been avoided, have the contractor considered reading widely.

 

The legal structure for the building business is crucial. Many builders (and other types of businesses) are oblivious of the impact taxes have on the type of legal entity considered. There are three popular types of legal entities. I.e., the close corporation, the PTY (Ltd), or the sole proprietor. More on how taxes affect these entities later.

 

a)      Compulsory Taxes and registrations.

 

On establishment of the business, there are some compulsory taxes and statutory matters the business will have to register for.

 

 

  • If a CC, Income Tax. Or the Income tax number of the individual(s), for a sole 

      proprietorship or partnership.

 

  • Value added tax (VAT), but only if the business generates more than R1million per month turnover (R84 000) per month. Or voluntary registration if a minimum of R50 000 per annum can be proven.

 

  • Whether the business employs people or not, Pay-as-You-Earn (PAYE), tax remains compulsory. So if you the sole owner/director, you remain liable for tax.

 

  • The PAYE returns are submitted monthly, and VAT bi-monthly.

 

  • Register any employees at Department of Labour for Unemployment Insurance.

 

  • And importantly for the building industry, Registration for Occupational injuries (WCA), also remain important.

 

The tax rate for companies is currently 28% of profits. But SME Contractors can qualify as Small Business Corporations, which entitles them to a reduced rate of 15%!

 

 

b)      Legal Tax savings

  How to maximize taxes.

 

  • Building contractors can use capital allowance on the equipment that they own.

Example:

Company A generated a profit of R40 000, and did not use allowances, so it was compelled to pay (R40 000 X 15%)=R6000.00 tax.

Company B, also generated a profit of R40 000, but valued all their assets/tools and arrived at a value of R80 000. The allowance wear and tear is about 25%. Plus they took advantage of s12B allowances, which entitles them to a 50%, write off on equipment. Calculation (R80 000X25%) =R20 000+(R80 000X50%)=R40 000, Total R60 000.

 

All taxable profits (R40 000-R60 000), were wiped out, and the business owes zero tax!

 

 

  • Vat input on all equipment purchased once off, is also claimable.

 

 

If you cannot be guaranteed regular income, it would be advisable to remain a sole proprietor. There are advantages to this. A company will be taxed separately from its owners. So even if the company benefits from tax savings the owners still have to pay tax. If you a sole proprietor however, you can benefit from tax savings in your business, since these savings will be off set against your personal income.

 

 

a)      Tax Clearance and compliance certificates.

 

It is important for contractors that consider doing business with the state, to have a tax clearance. A tax clearance is obtained from SARS, and basically states that your business taxes are up to date.

 

For workers employed by your business, a certificate from the Department of Labour for Occupational Injuries, also have to be obtained.

 

In Some cases, businesses also have to be registered at the Building Council.

 

 

b)      Conclusion

       To comply with all of the above, a proper administration should be in place. Or 

        the contractor should opt for a skilled accountant or tax practitioner!

 

 

Sean Goss

Tax Advisor

www.sgafc.co.za

 

 

 

Double Check Your Annual Payroll Figures and Tax

Payroll administration is a specialized section of accounting. Payroll software lightens the burden on many employers significantly. If used properly, a payroll system can add value to the business.

The biggest source of revenues for tax authorities is employee tax. Tax regimes are mindful of this, so regular audits and inspections are conducted on the payrolls of businesses.

A common discrepancy is the variance in total salaries for a year, in the income statement of the business, and the actual salaries paid. When business tax returns are furnished, the salaries amount may differ from payroll salaries declared for tax. The relevant tax office could identify this anomaly, and demand an audit. Stiff penalties could be levied.

Since software makes life easy, many users may be unfamiliar with the double entry that should integrate with the accounting system, which in turn is relevant for tax returns. A manual process of double-checking payroll totals and how it relates to the accounting system should be performed.

Please note that cash or bank payments to employees do not constitute total salaries. This is a common mistake and leads to numerous problems later on. I will expound by way of this example below,

Salaries and wages DR Taxes and other deductions CR Bank/cash (difference between the two above) CR

Taxes and deductions DR Bank/cash CR

Analyze payroll schedules carefully, and determine if it conforms to the above sequence. If it does not, than that explains why your payroll does not balance with your ledgers and/or salaries expense.

For a large payroll, the help of a payroll accountant will be needed. The software supplier should ensure that the payroll software interfaces with the accounting software, or alternatively, produces accurate reports that enables bookkeeper to post the transactions to the accounting books.

A majority of audits on small to medium sized businesses targets tax, salaries and special perk discrepancies. Annual reviews of payroll figures will go a long way in addressing the above-mentioned shortcomings.

 

 

 

 

 

Contact the Author
Sean Goss
sgafc@mweb.co.za

Analyzing your Bank Statement On a Daily Basis

How many business owners take out the time to review and analyze their bank statements, daily? When we perform accounting tasks we basically record data from the bank statement and perform reconciliation to our cashbook or ledgers.

Evaluating transactions on a bank statement is a completely different exercise from accounting for the respective items. Businesses lose thousands, due to failure to review the transactions on their bank statements, regularly.

Payments When payments are reconciled, we compare amounts in our books to transactions on the bank statement. The payments however have to be verified as well. A discrepancy will be identified immediately when our numbers differ from the statement amount, which is one objective of the bank reconciliation. But what if the amount agrees with the bank statement, but the check was never verified. A bookkeeper or admin person could have just slipped the check under your nose, and you could have inadvertently signed the check, without really authorizing it. This happens, especially for a range of small checks, (a huge amount will catch the signatories attention immediately) and where various people deal with preparing the check, and the owner only signs.

Standing orders and bank charges How many “deductions” on a bank statement go undetected? Anyone who gains access to your bank account details can draw on your account. The culprits range from legitimate companies to con artists. Big companies sometimes commence deducting amounts prior to the agreed date. On many occasions standing, debit or stop orders, are not even signed, but amounts are withdrawn. Experienced business owners will deal with such problems immediately, but others will overlook this sad state of affairs. Stop and reverse payments at your soonest. Scams are the other strategy employed by many crooks to extract cash out of your accounts. Fraudulent e-mails by people purporting to be from the bank, requesting a verification of your bank details and passwords, if you use Internet banking. If an account number (and password) is supplied, huge amounts can be withdrawn, and by the time, you identify the problem, it could be too late.

Bank charges If use Internet banking, a bank is not supposed to levy balance or statement enquiry fees. Banks tend to charge for the silliest of items. Loyal bank clients are entitled to a substantial reduction of bank charges. When you see those huge bank charges contact your banker. Also verify whether your bank is charging interest, when a loan or overdraft facility on your account is not in place..

Deposits A common scam worldwide is the “mistaken” deposit of huge amounts into innocent business account. The crooks than call to demand a refund of this amount, and their mistaken deposit will bounce, leaving the business cash strapped, if they refunded. A further problem, is that they also possess you bank details, and can withdraw amounts. Know your customers, and have proper arrangements for payment. Insist on referenced deposits only.

The only way, you will stay abreast of your cash is to review your bank statements daily. Preferably on an Internet site. Printouts at tellers could be a costly affair. Remain vigilant and you could save your business substantial sums.

 

 

 

 

 the Author
Sean Goss
sgafc@mweb.co.za

Accountants Cannot Be Unpaid Agents Of Authorities

Apart from the financial and accounting services that accountants provide, many people are oblivious to the fact that accountants are just serving a host of government departments with the work that they render. Tax, statistics and labor related issues are areas where accountants are compelled to comply.

It is believed that governments would collapse if accountants in practice were to stop submitting all the taxes on behalf of their business and individual clients. Hence, tax and legal subjects are compulsory for any accounting student.

Like all sectors of the economy, accountants play a vital role in developing society, and their services to their respective countries should be acknowledged. Their skills enable states and countries to prosper.

The statistics generated in tax forms, labor etc. is an important barometer of economic and employment growth. Accountants contribute to the formalization of businesses that would otherwise have been outside of the system. Their assistance, ensures that more businesses are established, bringing in more tax revenues for governments.

Where do we draw the line? Are accountants obliged to co-operate in every arena? The accountant carries a huge responsibility in complying with the law at all times. The laws of democratic dispensations, however, entitle the accountant to privacy. Accountants are NOT at liberty to divulge certain information that is regarded as confidential. In their haste to appease authorities, they loose sight of the importance of accountant-client privilege.

Authorities, in western countries, as well as other democracies, are passing numerous laws that effectively “coerce” accountants and financial advisors to report irregularities and “suspect” transactions in tax, share dealing and financial instrument trading. After Enron and WorldCom, authorities are keeping a close eye on financial advisors. These regulations are welcomed, but places advisors in a precarious position.

Honest mistakes can me misconstrued, as serious transgressions. Accountants lack the capacity to scrutinize every transaction in their client’s books. The hosts of laws being passed in many countries are turning advisors into bloodhounds, when they should be “watch dogs”.

A fine balance should be struck between the requirements of the law and the needs of business owners. Clients pay for the services, after all, and their opinion matters most. Of course, unethical or illegal behavior can never be countenanced.

It is advisable that recourse should be sought in those laws that demand court orders or search warrants before information is obtained illegally by authorities. Many “demands” circumvent basic, common law principles.

Accountants should act like attorneys, and defend their client’s interests, first and foremost.

 

 

 

 

 

Contact the Author
Sean Goss
sgafc@mweb.co.za