Most people probably think of bookkeeping and accounting as the same thing, but bookkeeping is really one function of accounting, while accounting encompasses many functions involved in managing the financial affairs of a business. Accountants prepare reports based, in part, on the work of bookkeepers.
Bookkeepers perform all manner of record-keeping tasks.
Some of them include the following:
1. They prepare what are referred to as source documents for all the operations of a business - the buying, selling, transferring, paying and collecting. The documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.
2. Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.
3. Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they're as error-free as possible.
4. The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.
5. The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized.
The Bean Counters Bookkeeping team provides all of these services PLUS
Examples of Other Services include:
Just the thought of taxes can scare people out of their minds. You have to keep all your records and documents in order to be able to file easier at the end of the year. Home business owners have their own set of allowable deductions that differ from other businesses. You have a chance to save a lot of money by knowing how to take advantage of you home business situation.
Know what your deductions are.
There are several deductibles that the home-based business owner is entitled to. There are auto/vehicle deductions that can help with mileage, gas, insurance, and/or other related expenses. You can write off your business cards and stationary, plus any business meals and entertainment. All business traveling expenses, education, and even the interest on your business credit card can be counted in your favor. Your Internet service and web page related expenses could be deducted as well. Office furniture, supplies, your phone and other communication devices are also necessities that have deductions. Any postage or delivery of goods charges is also considered a business expense. The home-based owner can also get deductions on rent and utilities that keep the business running. Deductions that you will want to use are:
* Half of your self-employment tax amount, which can offer you a huge savings.
* As much as 100% of your medical insurance costs for you and your family.
If you make more than $600 per year in self-employment you must file your taxes. You may qualify for the C-EZ form if you have had a bad year or just got started. Your total business expenses will have to be less than $5000 for that year; you have no inventory, or have to file a 4562 form (depreciation and amortization form). Make sure first and foremost that your expenses are less than $5000 and that you have taken all the deductions you are entitled to.
A large decision is who will be doing your taxes. You need to decide if you plan to do them yourself or if you want someone else to do them for you. There are several advantages in using a tax professional. They can save you much time and unneeded frustration. They can spot deductions you might miss or not know about. It also saves you from being responsible for any errors that were made in the preparation, which could end up saving you thousands. No matter how you decide to prepare your taxes be sure to claim all possible deductions to save you money in the long run. A business has many breaks for the taxpayer for a reason and you should make sure you know what you qualify for and how to save.
Home Office Tax Expenses
America is a country built on small businesses. Yes, the big companies are the darlings of the media, but the guts of our economy are the little guys pursuing the American Dream from the extra bedroom. Fortunately, the tax code contains deductions tailored to help cut your tax bill.
When claiming home office tax expenses, it is important to keep a receipt for each and every amount you are claiming. When dealing with the IRS, receipts are your ammo. Keep them at all costs.
When maintaining a home office, taxpayers often wonder how they differentiate a business expense from a simply home expense. The key is the square footage. Simply divide the square footage of your office by the total square footage of the home. This number is typically represented by a percentage such as 20 percent. Put another way, the home office represents 20 percent of the square footage of the house. Once you have the above answer, you can multiply it by the total yearly amounts paid for rent or mortgage interest, insurance, maintenance, utilities, taxes, depreciation of the home and repairs. Each of these home office tax expenses figures can then be deducted.
In addition to the above, you can also deduct expenses completely related to the business. For instance, the purchase of a desk for the office is entirely attributable to the office and can be deducted in full.
Words of Caution
There are some limitations to home office tax expenses. If you are reimbursed by an employer for various home office expenses, you cannot also claim those expenses as a tax deduction. Sorry, no double dipping.
For some time, there has been an urban myth that the Internal Revenue Service keeps a close eye on home-based businesses. This may have been true ten years ago, but is clearly not the case today. To this end, the IRS has actually come out and issued clear statements to the contrary. Do not fail to claim home office tax expenses because of a fear of an audit. It is simply not a rational fear!
Running a small business can be both stressful and incredibly gratifying. Make sure you claim home office tax expenses to help your cash flow.
The Bean Counters Bookkeeping team would love to help you sort out your books, loans, credit cards, and taxes. Book a free consultation today and let's get you compliant this year.
This is that time of year when we all start getting those emails that want to scam us into revealing our secret codes and passwords.
You know the ones that have subject lines like: “Your Account Is About To Be Closed,” “There’s A Block On Your Account,” “Could You Help Me Claim My Funds,” or my all-time favorite “Congratulations – You’ve Won The Giveaway.”
Most of us have spent more than usual recently, and the last thing we need is for our bank or credit cards account to be hindered. That is exactly what these “phisher” are counting on, and unfortunately some of us are tempted to follow the instructions sent to investigate.
First and foremost, DON’T FOLLOW THE INSTRUCTIONS IN THE EMAIL! If you think there might be a problem, access the account in question as you normally do on your PC and not with the link supplied in the phony email.
There are some very authentic looking email supposedly from banks, that even go so far as to copy the colors of the bank logo and stationery style. But, don’t fall for the scam. In fact, don’t even open the email, because many are just set to loose a virus program on your computer by being opened. Simply forward the suspicious email to the “spoof email” address supplied by your bank, or credit card company.
Nearly 10 million Americans fell prey to identity theft last year, costing businesses and individuals billions of dollars. Here are some other tips to help you:
This may all seem like a lot of unnecessary work, but if you’re ever the victim of identity theft – even just once – you’ll realize that it’s well worth the effort.
Many of us forget that were it not for what we carry in our wallets or in our purses, we’re all John and Jane Doe’s if we can’t speak due to injury or are unaccompanied by someone who knows us. How much less stressful is it to know that in a bank box, no matter where you are, there are items that can verify your identity. Better to be safe, than sorry!
Of course profit and cost of goods sold expense are the two most critical components of an income statement, or at least they're what people will look at first. But an income statement is truly the sum of its parts, and they all need to be considered carefully, consistently and accurately.
In reporting depreciation expense, a business can use a short-life method and load most of the expense over the first few years, or a longer-life method and spread the expense evenly over the years. Depreciation is a big expense for some businesses and the method of reporting is especially critical for them.
One of the more complex elements of a an income statement is the line reporting employee pensions and post-retirement benefits. The GAAP rule on this expense is complex and several key estimates must be made by the business, such as the expected rate of return on the portfolio of funds set aside for these future obligations. This and other estimates affect the amount of expense recorded.
Many products are sold with expressed or implied warranties and guarantees. The business should estimate the cost of these future obligations and record this amount as an expense in the same period that the goods are sold, along with the cost of goods expense. It can't really wait until customers actually return products for repair or replacement, should be forecast as a percent of the total products sold.
Other operating expenses that are reported in an income statement may also have timing or estimating considerations. Some expenses are also discretionary in nature, which means that how much is spent during the year depends on the discretion of management.
Earnings before interest and tax (EBIT) measures the sales revenue less all the expenses above this line. It depends on all the decisions made for recording sales revenue and expenses and how the accounting methods are implemented.
While some lines of an income statement depend on estimates or forecasts, the interest expense line is a basic equation. When accounting for income tax expense, however, a business can use different accounting methods for some of its expenses than it uses for calculating its taxable income. The hypothetical amount of taxable income, if the accounting methods used were used in the tax return is calculated. Then the income tax based on this hypothetical taxable income is featured.
This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.
Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.
It's incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company's financial reports on many occasions. It's therefore critical that any officer or manager in a company be thoroughly familiar with how the company's financial statements are prepared. Accounting methods and how they're implemented vary from business to business. A company's methods can fall anywhere on a continuum that's either left or right of center of GAAP.
Need help with your bookkeeping? Each and every bookkeeper on The Bean Counters Bookkeeping team holds degrees in accounting. We provide basic through top-brass services to help your business realize bigger profits. Give us a call for a free consultation.
The first and most important part of an income statement is the line reporting sales revenue. Businesses need to be consistent from year to year regarding when they record sales.
For some business, the timing of recording sales revenue is a major problem, especially when the final acceptance by the customer depends on performance tests or other conditions that have to be satisfied.
For example, when does an ad agency report the sales revenue for a campaign it's prepared for its client? When the work is completed and sent to the client for approval? When the client approves it? When the ads appear in the media? Or when the billing is complete? These are issues a company must decide on for reporting sales revenue, and they must be consistent each year, and the timing of reporting should be noted on the financial statement.
The next line in an income statement is the cost of goods sold expense. There are three methods of reporting cost of goods sold expense. One is called "first in-first out" (FIFO); another is the "last in-last out" (LIFO) method and the last is the average cost method. Cost of goods sold expense is a huge item in an income statement and how it's reported can make a substantial impact on the reported bottom line.
Other items in an income statement include inventory write-downs. A business should regularly inspect its inventory carefully to determine any losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method. Bad debts are also an important component of the income statement. Bad debts are those owed to a business by customers who bought on credit (accounts receivable) but are not going to be paid. Again the timing of when bad debts are reported is crucial. Do you report it before or after any collection efforts are exhausted?
Keep an eye out next week for Parts of an Income Statement Part 2.
Inventory is usually the largest current asset of a business that sells products. If the inventory account is greater at the end of the period than at the start of the reporting period, the amount the business actually paid in cash for that inventory is more than what the business recorded as its cost of good sold expense.
When that occurs, the accountant deducts the inventory increase from net income for determining cash flow from profit.
The prepaid expenses asset account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in prepaid expenses are usually much smaller than changes in those other two asset accounts.
The beginning balance of prepaid expenses is charged to expense in the current year, but the cash was actually paid out last year. this period, the business pays cash for next period's prepaid expenses, which affects this period's cash flow, but doesn't affect net income until the next period.
As a business grows, it needs to increase its prepaid expenses for such things as fire insurance premiums, which have to be paid in advance of the insurance coverage, and its stocks of office supplies.
Increases in accounts receivable, inventory and prepaid expenses are the cash flow price a business has to pay for growth. Rarely do you find a business that can increase its sales revenue without increasing these assets.
The lagging behind effect of cash flow is the price of business growth. Managers and investors need to understand that increasing sales without increasing accounts receivable isn't a realistic scenario for growth. In the real business world, you generally can't enjoy growth in revenue without incurring additional expenses.
Need help figuring out the confusing world of accounting? If you're planning on growing your business in the new year, we'd love to help! Contact us for a free consultation.
The best way to keep your business going long term and to experience more success is to continue to grow and expand. If you’re not growing and expanding, you’re stagnating. There are many ways in which you can experience continuous growth and expansion in your business and your life.
Start a Joint Venture Partnership
Get out of your comfort zone and work on a project with someone you might normally see as a competitor. If you know someone who promotes complementary products and/or services to yours, get on board with them to promote something jointly. The more often you participate in JVs, the more you’ll expand awareness of your business and offerings.
Create More Products or Services
Diversifying your offerings can help you expand and grow, too. For example, if you currently offer groups or online courses on how to do something, you can expand to offering one-on-one coaching services to delve even deeper than your current offering does. Plus, you can charge more money.
A fast way to grow and expand is to simply get more clients. Of course, you’re only one person so you might need to outsource more work to others to ensure that you can accommodate more customers and clients.
Teach What You Know to Others
If you have a skill that you can share with others to teach them to become successful like you, don’t keep it to yourself. Share it. You won’t create more competition even if you think that will happen. Instead, you’ll not only get more customers, but you’ll also be seen as more of an expert.
Write a Book
If you’re already an expert in something, the way to expand your expertise is to write a book on the topic. Then, use the book to promote your other products and services. You’ll earn from the book and from the added promotional opportunities the book provides.
Get on the Speaking Circuit
Once you have a book, a course, and a coaching program, you can easily get on a speaking circuit. Through paid speaking engagements you can get the word out about your business to a lot of people and finally solidify your expertise.
Be Consistent and Persistent
If your business is already growing and expanding, keep doing what you’re doing. At the end of the day, consistency and persistence pay off for every business model.
Network More Efficiently
Take a look at how you go about networking, and who you’re networking with. You want to network strategically with potential joint venture partners, potential customers, as well as colleagues.
Enlist the Help of Professional Bookkeeping and Accounting Services
Many businesses fail to grow because they do not keep accurate records for every aspect of their business. Without accurate bookkeeping and accounting, your business will suffer and eventually fail as it will have no records or projections to help it progress. Our entire team hold degrees and are fully qualified to help you fill the need for proper accountancy in your business. Please contact us for a free consultation.
Growing and expanding requires self-awareness of what you are doing and what you’re not doing to move forward. Occasionally assess your goals to ensure that you are on track to be where you envisioned you would be at a specific time. If you’re succeeding, keep on doing what you’re doing. If you’re behind, it’s okay; you just need to adjust.
One way to make collecting on invoices easier is to set up an automated invoicing system. Or, you can use invoicing systems that work with email and PayPal. Thankfully, today there are so many systems that you can surely find the right one for you.
In the “old days” you had to wait for a check to arrive in the mail; today you can use many different payment processors like PayPal, ACH, Stripe.com, and more.
Problems with Invoicing
Some of the most difficult aspects of invoicing are:
* Getting accurate invoices out on time – A real key to invoicing is to make accurate invoices that include all the work done up to the point of the invoice. Without a good system, you could forget work that you’ve done.
* Following up when payment is overdue – Sometimes payments are late; sometimes it’s the client’s fault and sometimes it’s your fault due to the invoice not showing up. You can’t know if you’re not paying attention and following up.
* Tracking payment to the right invoice – If you do manual invoicing and manual data entry, you may accidentally credit the wrong payment to the wrong invoice. Ask clients to include the invoice number on the check, or switch to an automatic invoicing system where your clients can click to pay their invoice online.
Here are some software solutions that can help.
* FreshBooks – This is a terrific invoicing software solution that allows you to accept several different ways of collecting payment. You can even mail an invoice through snail mail, or send through email. It has time tracking, expense tracking and many other features that help create accurate invoices automatically.
* QuickBooks – A professional solution that works in many ways, from allowing you to set up recurring payments, to sending one-time invoices, to collecting payment via ACH automatic deposit to your business account.
* PayPal Invoicing – You’ll have to make each invoice individually as it doesn’t have any auto features, but it’s free and included with your PayPal business account. It’s also easy to use and looks professional with your business logo included on the invoice.
* Recurring/Subscription Payments – Seek software that enables you to invoice and collect payment on a recurring basis. This way you don’t have to do it manually each month, which will be a huge time saver.
Using these systems can go far in helping you eliminate busy work when it comes to getting invoices out on time, accurately, and in a professional manner that demands payment without being rude or intrusive.
Going lean - It's not just for automakers and industrialists anymore. Strategies for stream lining that have traditionally been the stuff of factory floors are now within reach of small businesses. And technology is helping small-business owners achieve it faster. Software developers suggest that by tying in some app-driven tools, going lean can be more powerful and effective than ever before.
Simplify processes and reduce repetition.
Apps are increasingly the go-to tools for the endless pile of invoices, accounting worksheets and reservation logs that plague small businesses. And it's not just about automation. For example, a work-request submission could automatically create a draft invoice, schedule a meeting, add a contact to the CRM, create a new item in a project-management app, add the customer to a newsletter, and send the consultant a text message summary. All of this stands to cut administrative costs, again putting more resources toward business growth.
Your frontline workers become your key problem solvers.
Just as your customers are the key bearers of information about your product or service experience, your frontline workers are your best-informed sources for resolving internal situations. Free them from low-level tasks (as outlined in step 1), and get them involved in process reconstruction. The builders of lean industry knew this: They created "kaizen workshops" where employees who worked on the frontline and were familiar with the day-to-day details were instructed to tackle some of the hardest problems top-level managers wanted to solve. As your predecessors at that scale discovered, deep familiarity breeds deep insight when it comes to problem solving.
Introduce an "andon" cord.
In the old school lean factory, there was a tool that helped reshape how challenges are met. The tool is the andon cord. Pull it and the line stops. The idea was that the individual could save a whole project with a quick-enough response. Think about how this applies to problem solving in a small business. The dishwasher discovers that a glass cup is broken—he shuts down the prep lines before any more food goes out (preventing a dining-room catastrophe). Your shipping manager discovers that a pallet of boots instead of sneakers left the dock; she stops the trucks before they move another mile (saving fuel and time). Give your employees the equivalent of the andon cord, and they can stop the system and introduce a new piece of information or a warning. This is both authorized and encouraged. Empower your team and cut the waste, and potential damage, out of chain-of-command slowdowns.
Promote just-in-time problem solving.
The next step is that problems should be prioritized by a just-in-time process. Like a pyramid, you consider the problem with the highest impact potential to be in the top 20 percent of the model, and everything below those are secondary or tertiary focuses until they emerge as significant pain points. Sometimes they never do, but you deal with each solution at the just-in-time level. Additionally, as the automation from step 1 takes root, more free time becomes available to your team. And with it, you can start working on the secondary problems.
Streamlining your business processes can save your business and employees time and money. Some of these solutions may not be directly related to your business model, but finding ways to apply these concepts can be a huge help for your business.
If you don't keep track of how much money your business is making, you have no idea whether your business is successful or not. You can't tell how well your marketing is working. And I don't just mean you should know the amount of your total sales or gross revenue. You need to know what your net profit is. If you don't, there's no way you can know how to increase it.
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems.
Here are six steps you should take:
1. Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
2. Remember that lost profits can't be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month profits are too low is a month that is gone forever.
3. Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
4. Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
5. Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason - don't be one of them!
6. Don't try to figure it out on your own, rather, enlist the help of bookkeepers and accountants. You've got your business to grow and shouldn't be spending time on managing your bottom line. Rely on professionals who specialize in doing that so you can focus on what only you can do.