Computerizing Your Accounting System

One of the most important tasks facing a small business is keeping watch over the money flowing into its coffers and out to its vendors, employees and advisors. Fortunately, today's full-featured-yet inexpensive-accounting programs allow business owners to track and manage every aspect their companies' finances. And by automating income and expense information, a business can reduce its accounting expenses and save its accounting firm time and effort.

"The key to managing a business is knowing how it's doing by keeping accurate income and expenses records," says Eugene A. Schnyder, a CPA and emerging enterprise consultant in Shushan, New York. Even a moderately successful emerging business, however, soon outgrows cash-drawer/checkbook recordkeeping. The cash balance at the end of the day doesn't tell how well a business is doing, nor does it help in making business decisions. In the past, accounting records were maintained by hand, in columnar ledgers, which involved tallying transaction totals at the end of each week or month. A computerized accounting system can track and analyze considerably more information than a manual record system-and with less effort.

John Eason owns and operates Southeastern Sales & Specialties Inc. and Advanced Distribution Technologies Inc., software development and distribution companies in Carrollton, Georgia. "A typical start-up company tends to rely on its owner's ability to 'keep the figures' in his or her head," Eason says. "As the company grows, the owner's time is diverted from his or her area of expertise and to the areas he or she is usually less capable or experienced in-accounting, collections, determining costs and so on. The single most important factor for most businesses is cash flow and the ability to manage it properly.
Most small-business owners don't know their true costs of doing business because they don't accurately track or monitor all the costs. They tend to discount their time and profits because of this. Small companies do the same things and need the same information as large companies. Selecting the proper accounting software can save most of the accounting costs incurred by a company and will give its banker confidence in the company's ability to provide proper, timely and accurate financial information."

LEARNING THE TERMS
To choose the right accounting software for your business, you should understand these basic accounting terms:
Asset-A tangible or intangible object of value to its owner.
Liability-An obligation to another party.
Income-Money received for goods or services produced or as a return on investment.
Expense-Money spent for goods or services.
General Ledger-The main records of the assets, liabilities, income and expenses of an organization.
Accounts Payable-A company liability; amounts due to suppliers of goods or services.
Accounts Receivable-A company asset; amounts owed for goods or services that have been supplied.
Capital-The net worth of the company; the assets less the liabilities.
Double-entry accounting-A system in which the total of all left-side entries is offset by an equal total of right-side entries. Left-side entries are known as debits, and right-side entries are known as credits. A debit or a credit can be applied to any general ledger account, whether it's an asset, a liability, capital, income or an expense.

FINDING THE SOFTWARE THAT FITS YOUR NEEDS
The best way to select an accounting program is to match your company's needs against popular accounting programs. A typical program will contain modules, or sections of a program, that cover particular accounts, such as accounts payable, accounts receivable, invoicing, inventory, payroll, banking and so on. The best software includes modules you can use to track your contacts and your schedule, to maintain a list of tasks and reminders and to perform mail-merges for form letters and labels.

Schnyder offers the following suggestions for choosing a suitable accounting software program:
Purchase an off-the-shelf commercial or shareware package rather than a custom program, because most of the bugs have already been removed. Most off-the-shelf programs also provide a good user's manual, a strong help system and support services.
Get a recommendation from your CPA. Also check with members of local business organizations and other small-business owners.

Look for software that's easy to set up. Some programs ask questions about your business and use the answers to create the first records and to enable features suitable for your business. A program should be easy to customize so you can select features appropriate for your business and remove features you don't need.

Consider software created specifically for your type of business. If you run a pet store, for example, look for a program that provides features for retailers or even specifically for pet stores. Shareware is the best source for business-specific accounting programs. For names and addresses of Web sites from which you can download share-ware programs, see the June 1997 "Computer Ease" column.
Schnyder also recommends asking yourself the following questions:
Does the software provide all the functions you need? For example, if your company maintains an inventory of supplies or goods produced, the program should include an adequate inventory-management system.

What monthly reports and journals does the program produce? Can you customize them for your business? Can you create new reports without too much effort?
As your business grows, can you easily move from your current software to a more advanced version?
You don't want to have to enter data more than once, so your accounting program should be able to share data with other programs on your computer. For example, look for a program that can import data from and export data to your spreadsheet program. Or if you want to insert financial reports into documents such as proposals or business plans, make sure your accounting program can export data to your word processor.
Can the accounts receivable, accounts payable, payroll, inventory and other modules communicate with each other and easily pass information back and forth?

"Accounting software should be completely integrated," Eason says. "Too many companies purchase an accounting package and try to 'marry it' to another program to make it complete. An accounting program should be true double-entry, interfaced with other modules (such as inventory, purchasing, sales order/invoicing and so on). A business needs to be able to keep track of all the operations it uses to perform its work as the work is being performed. I searched for an accounting package that contained most of the features and capabilities of the accounting systems I used when I worked for large companies."

USING THE INTERNET TO SEND AND RECEIVE FINANCIAL DATA

More and more clients and accountants send and receive data using the Web. Some accounting programs provide built-in Internet access, and accounting firms use client write-up programs to send and receive financial information to and from clients, banks and government agencies. "I believe the Internet and programs that utilize the latest technology are going to dramatically change the way accountants deliver service to small businesses," says Myron Joy, a CPA who operates Joy & Associates CPAs, PC, in Phoenix. "Using Internet connections, businesses will send financial information from their accounting programs to their accountants' offices for completion of traditional accounting functions. Then the accountants will arrange tax deposits and payments and download bank account information-all online. The completed financial reports and accounting data will be sent to the client via the Internet to his Web site or e-mail address. The efficiency of this type of delivery system will lower the clients' overall costs. Joy & Associates has developed ClientLink Write-Up, a program that gives the accountant the features to implement such a service." Other developers of write-up programs for accountants include Creative Solutions (http://www.csisolutions.com/),
Drake Software (http://www.drake-software.com)
UniLink (http://www.unilink-inc.com/).

BENEFITS OF A COMPUTERIZED ACCOUNTING SYSTEM
Computerized accounting systems are well worth the investment. Schnyder sums it up: "The initial entry of records into a computer accounting system is just as time-consuming as it is in a manual system. A byproduct of computer record-keeping, however, is the capability for analysis, accuracy and quick retrieval of searched-for records."
Contact Sources
Advanced Distribution Technologies Inc.,
http://www.the-information-age.com/business/adt
Joy & Associates CPAs PC, (602) 468-1284, http://www.joycpa.com/
Southeastern Sales & Specialties Inc.,
http://www.the-information-age.com/business/sss

Ref : http://www.entrepreneur.com/article/23098

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You Should Review Your Accountant !

Is your accountant helping your business or upping your tax bill? Take a close look.
With the tax-filing season in full swing, it makes sense to take a good, hard look at your accountant and the work he or she has done for you over the past year. Is your accountant helping you save money? Is your business better off as a result of your accountant's recommendations? Don't let an old, familiar relationship lull you into a false sense of security.

Scrutinize all the services your accountant provides. Are you getting your money's worth? Perhaps your company has grown significantly from its start-up days and you now need a larger accounting firm that can provide more services than a one-or two-person shop.

When you're first starting a business, you typically need financial guidance with your daily operations. Once established, however, a business needs a tax professional who can perform a wider range of services, such as offering assistance in locating financing or upgrading your software programs.

To determine how your accountant stacks up, ask yourself these questions:

1. Can you easily reach your accountant when you need to speak with him or her?
You should get quick responses to your calls, says Paul Thrasher, a CPA with the Alexandria, Virginia, accounting firm Halt, Thrasher & Buzas. If you have to wait several days to speak with your accountant, he or she is in danger of getting a failing grade.

2. Has your accountant given you guidance on which tax records to keep and how to organize them?
Accountants with their clients' best interests in mind take the time to provide effective ways to organize your business records. In some cases, he or she may ask you to save tax-related information on a computer disk; that information can be downloaded into the accountant's tax return software. Maintaining organized tax records also means you'll save money you would have had to pay your accountant for organizing the confusion.
"A good tax professional should be able to [tell you] how you can automate your record-keeping so you can very seamlessly get your records into his or her system," says Susan Jacksack, a small-business analyst with CCH Inc., a provider of legal, tax and business information in Riverwoods, Illinois.

3. Are you satisfied with your accountant's ability to stay up-to-date on tax changes?
You want to be sure your tax professional has a thorough understanding of all the latest tax law changes and their impact on your business. If your accountant provides you with a newsletter and offers periodic seminars on tax law changes, this is a good indication he or she is on top of things, says Thrasher.

4. Is your accountant doing everything possible within the law to lower your tax bill and offer you money-saving tax strategies?
A good accountant continually volunteers possible strategies, especially with all the changes taking effect as a result of the Taxpayer Relief Act of 1997. "You shouldn't have to pull possible strategies out of him," says Jacksack.
For example, under the new law, there are a lot of tax breaks that depend on your income level and involve some shifting of income from one year to the next so you're eligible to take certain deductions. Your accountant should be offering you advice right now on how to take advantage of these tax breaks.

5. When your accountant offers advice and tax strategies, do you feel comfortable with them?
Your accountant's philosophy should match your own. For example, is he or she always suggesting aggressive strategies to minimize the tax burden, even if it means being peppered with questions from the IRS? Conversely, you may feel your accountant is not aggressive enough and is ignoring deductions you may be able to take. If you find you're knocking heads too often, your accountant is failing the test.

6. Have you requested the results of your accounting firm's peer review report, which is supposed to be done every three years by an outside accounting firm?
When firms are willing to share the results of this audit with you, they usually don't have anything to hide, says Thrasher. On the other hand, he adds, "a lot of hemming and hawing may indicate a problem."

7. If you use a large accounting firm, do you know where it ranks on the local business journal's most recent list of the top 100 accounting firms in your area?
While these rankings are done according to the size of the firm, if yours is on the list, it indicates you are dealing with a quality firm, says Thrasher.

8. Do you feel the accounting fees you pay are what they should be?
Take a close look at what you're paying for accounting services and whether you're getting your money's worth. Of particular concern are accounting fees that go up every year, without fail. If this is happening to you, ask yourself whether the additional fees you pay every year are worth it.

9. Does your accounting firm assign you a new staff accountant fairly frequently?
If that's the case, watch out. This kind of revolving door means trouble for your business because it takes a fair amount of time to get a new CPA acclimated to the way you do things. In addition, it may mean your accounting firm is not being managed properly.

10. Is your accountant familiar enough with your type and size of business?
Your accountant should be working with a fair percentage of businesses the same size as yours, says Jacksack. "The more clients they have like yours, the more helpful they'll be to you because they can tell you how your business is doing vis-a-vis the other ones they deal with," she says.

While industry knowledge is important, don't make more of it than is necessary, advises Thrasher. Raw ability often outweighs factors such as knowing a specific industry, he says. There are exceptions, however. Thrasher points out that if your business involves government contracting, you need an accountant who knows those particular accounting requirements. In addition, Jacksack notes that retailers need accountants who are familiar with the tax rules and requirements concerning inventory.

If, after answering these questions, you decide your accountant doesn't measure up, discuss your concerns with him or her. Give your accountant some time to work on areas that need improvement and keep the lines of communication open. In today's highly competitive marketplace, accounting firms, like most businesses, are making every effort to keep clients. Let this work to your advantage and make sure you get the most for your money.

Ref: http://www.entrepreneur.com/article/15448#ixzz2gAOv3O6t

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Add an Accountant to Your Business

If you think you only need an accountant during tax time, you may want to think again. Good business accounting is not just about balance sheets and tax returns. With the help of a competent accountant, you can track your business's finances and make sure it's running at the optimum level.
And to take it even one step further, your accountant is a great resource to tap into for business valuation and business consulting purposes.

Whether you need to get your financial statements in order or an audit to present to potential investors, exploring the spectrum of services your accountant offers could help you turn that once-a-year, tax-time meeting into an invaluable year-round resource.
Luckily, there are quite a few effective options available that won't take a nasty toll on your budget.

What isaccounting?
Accounting refers to the practice of tracking a business's income and expenses and using those figures to evaluate its financial status.
One of the most basic accounting services is bookkeeping, which involves keeping a record of all financial transactions and then preparing financial statements such as balance sheets and income statements. Accountants can then take this information and roll it into tax services, another basic accounting service.
But the business of accountants goes beyond just basic number-crunching. Accountants include a number of other services in their repertoire: auditing services, tax planning, business consulting, business valuation, and financial planning, just to name a few.

Bookkeeping
In bookkeeping, an accountant keeps a comprehensive record of how much your business owes creditors and how much is owed to you. The records of these transactions also indicate how much you have invested in equipment and inventory.
Typically, accountants handling the books take care of accounts receivable and accounts payable, put together financial statements (such as balance sheets, income statements, and cash flow statements) and take care of bank reconciliation.
The cost climbs as the volume of work expands. The more transactions and the more statements you expect your accountant to prepare, not to mention how often you want these financial statements whether they be monthly or yearly, the more you'll pay.

Tax services
Taxes are one of those areas that can easily be underestimated. When tax time rolls around, a good accountant, in preparing your return, can help ensure that the necessary steps have been taken to minimize filing errors that can trigger an audit.
But if you're just in and out of your accountant's office when it comes time to do your taxes, you could be missing out on a major money-saver.
A knowledgeable tax accountant can suggest ways your business can save thousands of dollars through tax planning and tax-saving strategies. In tackling these issues, you and your accountant can also look for ways to add value to your business.
Of course, the more complex the tax planning and the more ongoing the tax services are, the higher your bill. But in the long term, the tax dollars saved makes this extra expense worth every penny.

Audits
Audits are mandatory for public companies; private companies don't have to conduct audits unless a bank or an outside investor requests one.
Accountants might handle an audit for a private company, for example, that is looking for funding from investors who want to have an independent opinion on the fairness of the company's books, financial statements, and financial position.
Most audits can be divided into two phases: the accounting work done to prepare for the audit, and the audit itself.
Make sure it's clear in the beginning what you're paying for. While some accountants will give you cost estimates for these two aspects of the audit, others will simply give you one estimate for the audit and add-on costs at the end for the preparation.
Here are a few things to consider when trying to hold down the cost of an audit, one of accountants' more expensive services because of the detail and time that is usually involved:

• Do some of it yourself. Have your in-house staff prepare the necessary documents for the audit. This cuts down the preparation time that your accountant would have otherwise spent just getting things in order for the audit - time that you would have been billed for.
• Hand over clean books. The cleaner and clearer the books, the less time it takes for your accountant to get through all the paperwork.

Other services
There are also a few other more specialized services accountants can provide.

Reviews
Reviews are less detailed than audits. For a review, your accountant will determine whether the financial statements fairly represent the company's financial status.
Reviews, which are smaller in scope than an audit and therefore less expensive, are usually done on a quarterly basis for public companies since it is not required that public companies have quarterly figures audited.
Unlike the more critical evaluation of an audit, however, that actually tests the details documented, reviews simply touch upon the reasonability of the statements and offer a limited opinion.

Compilations
Compilations are even less detailed than reviews, and they don't involve any opinion on the part of the accountant. For a compilation, your accountant will simply take the financial general ledger and create financial statements from it.

Business consulting
Business consulting is one of the more specialized services, so the rate or fee may reflect that.
If you're exploring a specific aspect of your business, for example looking to cut costs and improve your profit and loss statement, it's a good idea to look for an accountant who not only has experience in business consulting but one who is also familiar with your industry and market.

Business valuation
Business valuation is also a specialized kind of service, so as with consulting, you can expect the costs to go up.
Business owners might want a business valuation if they are looking to sell the company or if they want to do some estate planning. Business valuations are also useful when applying for a loan.
In any case, you'll want to find an accountant who has experience dealing with companies in your industry and market. An accountant with this kind of background will have more insight into your particular situation than one who is just stepping in with no frame of reference to draw from.

Financial planning
Financial planning has really taken off in the past five to 10 years for accountants. This service turns the focus from the business to the business owner. The need for financial planning becomes more pressing when a business owner starts to look at long-term care insurance, wills and trusts, and estate planning.
For instance, if one wants to pass the business on to his or her family, an accountant could suggest ways of doing so without having the family hit by a huge tax burden.

Pricing
While the costs can run the gamut depending on your company's specific needs, accountants usually charge a flat rate per month for basic bookkeeping services.
Rates can vary depending on your geographic area, the size of the firm, and the experience and seniority of your accountant. But even for the most basic of bookkeeping services, you can expect to pay $1,400 to $1,500 per month.
Sometimes in the beginning, accountants will charge an hourly rate until they get a feel for your business and how much time is involved in the work you want done. A few months into it, you can usually negotiate a flat fee for your long-term needs.
For more in-depth and complex services, such as financial planning, accountants typically charge an hourly rate.
Focus groups are helpful because the participants can be probed for the reasoning behind their opinions, and conversations can be generated around a particular topic - giving you what's known as "rich data" as opposed to, for example, the finite answers you get from survey questions.

Cutting costs
While costs will vary depending on your individual business and the accountant you've hired, here are a few tips that can help you keep your costs down.

• Keep records as automated as possible. This makes it easier for the accountant to access the information.
• Keep records as clean and clear as possible. If it is difficult for the accountant to decipher ledgers, it just means more time for them and more money out of your pocket.
• Do your homework. Do what you can as you can to get all of the simple paperwork out of the way on your own, especially in the case of an audit, which can be costly.
• Hire temps. If you need someone to only take care of running the books, you may want to consider hiring temporary help. This is cheaper than going to a CPA for basic bookkeeping.

Ref: http://www.entrepreneur.com/article/51810#ixzz2gALVgfNN

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How Long Should Keep Financial Records?

This isn't another sermon on the importance of financial record-keeping. Just the opposite: It's about discarding unnecessary records to free space in your overstuffed file cabinets. But which records should you keep and which can you trash?

Tax returns and supporting data should be kept for at least seven years. Beyond that term, CPAs suggest keeping returns forever (particularly if you have tax-deferred retirement accounts); you may toss the backup materials.

Things like audit reports, financial statements, general ledgers and journals should be stored through eternity, along with legal correspondence, contracts, documents related to real estate transactions (including capital improvements) and all corporate records (from articles of incorporation to any paperwork relating to shareholders).

Six years is about the limit for keeping bank statements, deposit slips, sales records, journals and any materials relating to employee income or expenses.

Items that can be discarded after three years include canceled checks, paid invoices, payroll records, depreciation schedules, paperwork relating to expenses, donation receipts, real estate tax bills and inventory records.
You can trash the rest--if you dare.

Ref: http://www.entrepreneur.com/article/22816#ixzz2gAIi4cVY

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Why You Need an Accountant ? Sholud to Know!

Should I hire an accountant? Also, how can I make the most of this business relationship? One aspect of running a small business that few people give a lot of thought to is the way they deal with professional vendors such as bankers, lawyers, accountants and so on.

Most entrepreneurs just dive right into their businesses without giving a second thought to how these professionals should be treated, what they can do for you and what they in turn look for in clients. With a little thought and effort, you can ensure that you get the most from these relationships.

The main thing to remember is that you need a personal relationship with each of these people. They have the ability-sometimes direct, sometimes indirect-to drastically influence the success of your business. Your goal should be to develop a long-term, personal relationship with each of them. If you do that, when you hit a bump in the road, they'll be there to help you get over it.

As you become more experienced, you'll find that your accountant and attorney will overlap a bit in their services and expertise. I've found that mine often work together to achieve what I'm trying to do. That being said, here are a few examples of services your accountant should provide:

• Help you decide what type of entity (such as S-Corp or LLC) and ownership structure to have when you first get started; your accountant should work with your attorney on this.
• Design and set up your accounting system so that year-end financial reporting will be easier.
• Ensure that you pay the correct types of taxes in the correct amounts.
• Ensure that you send out W2 and 1099 forms to the proper people at the proper times, and also make sure that if you send out 1099s, the IRS will agree with you that those individuals are independent contractors and not employees. This is a common mistake that can cost you a lot of money and stress.
• Advise you on deductions and how to separate your personal and business expenses.
• Advise and guide you through an audit if you ever have one.
• Advise you on specific transactions, such as whether it's better to lease or buy.
• Compile your financial records for the past period.
• Help you understand your financial statements. You should use your accountant's expertise to help you analyze your financial statements so you can understand what he or she is telling you. If you neglect to do this, you won't know as much as you should about how your company is doing.

You will also need an accountant if you have questions about what kinds of business expenses are deductible. Most of these rules and regulations are moving targets-they change frequently and often vary from state to state. A good accountant will always be on top of the changing laws and regulations and, more importantly, will know what applies to you.

It's also important to ask your accountant's advice before you take action. It's almost always easier (and cheaper) to structure things properly upfront, as opposed to trying to fix something later.
I've noted in previous columns concerning your banker and attorney how important it is to develop close relationships with them, make sure they completely understand your business and your goals for it, and trust them to help you attain those goals. This advice applies to your accountant as well-if you take that advice, he or she will be a valuable long-term partner.

Ref: http://www.entrepreneur.com/article/52324#ixzz2gADZQXgE

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11 Expectations You Should Establish For Your Bookkeeper

You may be a successful business owner with a multitude of skills, but if bookkeeping is one of your weakest links, you should probably hire a bookkeeper to help you out. But before you bring someone on board, you need to make sure they know what to do, and you'll want to set expectations for them in order to get what you need.

Here are 11 expectations to Set for Your Bookkeeper and ensure that they're going to provide the service your business needs:

1. Your bookkeeper must have a basic understanding of bookkeeping/accounting terms.
They should have a basic understanding of the difference between the five basic types of accounts (assets, liabilities, equity, income and expenses).

2. They must be detail oriented.
You need someone who's going to be able to focus on the little things: This will enable the big things to take care of themselves. You don't have time to babysit them; they need to be able to take charge and take care of all the little things that need attention when it comes to your basic financial operations.

3. They must have an understanding of the big picture.
If you buy a piece of equipment, are they going to understand the concept of setting up the asset and liability accounts? Do they know how to allocate the payment to interest expense and liability principal reduction?

4. They must have a willingness to follow through.
You want someone who'll ensure that projects and questions are followed through to completion. They need to be responsible for the follow through because you're just too busy to be the one in charge of project completion. You're there to assist with questions, but the financial projects have to be something they're in charge of.

5. They must have monthly financial statements available by the 10th of the following month. The three basic financial statements include the balance sheet, the profit/loss statement and the cash flow statement.

6. They must understand how to do proper job costing.
It's important that they are tracking all the costs by item and job detail. Job costing is critical to the success of knowing how much your projects are truly cost. You have to be able to depend on their information to be reliable.

7. They must have a basic understanding of your industry.
While this is something that can be learned, you'll be miles ahead on the learning curve if the person you hire has a general understanding of your industry. And while bookkeeping for a retail store, hair salon, internet service business and many others have the same basic bookkeeping fundamentals, it's not exactly the same. Each industry has different terms and insider aspects that can only be learned on the job, so be sure to look for someone with experience in your industry.

8. They must have good communication skills.
If your bookkeeper doesn't understand something, they've got to be willing to ask for clarification or help. Communication is critical so that you'll have a good understanding of what's taking place in the office without you having to be the one doing the day-to-day work.

9. They must be computer literate.
The days of doing almost anything by hand are long gone. You must have a computerized bookkeeping system to be able to get quality reports. Your bookkeeper should not only know the basics of your bookkeeping software but should also be familiar with Word, Excel, e-mail and the internet.

10. They must be interested in continuing their education.
They should be committed to enhancing their skills with additional classes or self-study to ensure that they're staying up to date with the accounting skills your business demands.

11. They must be willing to make a strong commitment to your business.
 If you're hiring a part-time bookkeeper, it's essential that you find someone who will make your business a priority. Don't let your part-time bookkeeper "squeeze" their responsibilities to you into their personal life. This is one of the biggest issues I see with many small businesses. The owners allow their bookkeepers to do their work whenever they have time. But by doing this, you're enabling them to put your business at the bottom of their "priority" list. You need someone who's focused on ensuring things get done.
If you want your company to truly function in a profitable way, it's critical that you set expectations for your bookkeeper before you bring them on board. Good financial records are fundamental to the success of your business. If you can't rely on your books--or your bookkeeper--then how are you going to know where your business is headed? Set these expectations for your bookkeeper so they'll be a successful part of your team. You'll be setting your business up for success.

Ref: http://www.entrepreneur.com/article/159788#ixzz2gA6yUKoM

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1099 Requirements for B2B Transactions

I've got a bone to pick with our congressmen and congresswomen! You know how legislators sneak unrelated provisions into major bills? Yeah, well, they did it again. Section 9006 of the massive Patient Protection and Affordable Health Care Act will mean yet another huge paperwork burden for small business. It has to do with issuing 1099 forms; it has nothing to do with health care.

Beginning in 2012, all businesses will be required to prepare 1099s for all services and goods purchased from all vendors in excess of $600. Current law dictates that only services provided in excess of $600 must be reported via form 1099 and that corporations (with the exception of attorneys) are exempt from receiving 1099s.

Beginning in 2012, corporations will no longer be exempt, and purchases of goods must also be included. The passing of this legislation is an attempt by the government to close the $300 billion tax gap, which will help pay for health-care reform. So I guess it indirectly relates to the Patient Protection and Affordable Health Care Act in which it was included.

Depending on the industry, many businesses must collect, report and pay over a variety of excise taxes, as well. How much does all that cost your business in bookkeeping and payroll preparation fees? Now business owners must report all business-to-business transactions. So purchases your business makes from Staples, Office Depot and other vendors are included as reportable transactions. You must obtain every vendor's federal ID, track your purchases and prepare the form. This will involve many additional hours of bookkeeping time. It will be mandatory to get an accounting software upgrade because there will be a new form and new preferences to set within the software to track these numbers. It's great for all of the bean counters who can double, triple and maybe even quadruple their 1099 preparation fees. But at what cost to the small-business owner who is attempting to recover from this recession and keep her business going?

Speaking of 1099 reporting, the situation gets worse. Beginning in 2011, all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business on a new IRS form 1099-K.

I thought there would be overlap, but just as I fretted about this possibility, the IRS came up with a solution. So pay attention! If you pay for purchases with a credit or debit card, you are not required to issue a 1099. The credit card companies will do so. No overlap after all. You are only required to issue 1099s for payments made via check or cash. So I won't have to ask Office Depot for its federal ID after all. Because the format of form 1099 will change, we will all have to purchase the upgraded version of QuickBooks or whatever software is used for accounting and 1099 preparation.
It's still going to be a massive amount of paperwork.

Ref: http://www.entrepreneur.com/article/207404#ixzz2g9m3cAXU

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5 Bookkeeping Tips for Business Owners

Entrepreneurs keep a lot of the financial details of their business in their heads. Doing so has its advantages: No new software to learn, no danger of a system crash that loses all your data, and you can tweak your budget as often as you need without sitting down at a desk.

But when you don't have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork forgotten. Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and maybe improve your profits. It can also help you to stay out of trouble with the Internal Revenue Service.
Here are five bookkeeping tips for entrepreneurs.

1. Plan for major expenses.
Why it's helpful: You're less likely to miss business opportunities or have to scramble for a loan when the expenses become unavoidable.
What to do: Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead. Acknowledge the seasonal ups and downs, something many entrepreneurs are reluctant to do.
"This helps you to be honest about the fact that it's coming and plan for it," says James LeMay, a director with the accounting firm Daigle & Associates in Boston.
You'll avoid taking money out of the company during the flush periods only to find yourself short in the slower months, when costly projects like upgrading computers or replacing factory components usually happen.

2. Track expenses.
Why it's helpful: You otherwise might some miss tax write-offs and may lose out on others.
What to do: A credit card that you use solely for business can be a basic accounting system, says Raffaele Mari, an accountant in Newport Beach, Calif., who teaches a financial course for entrepreneurs at Pepperdine University.
Most card statements categorize expenses, so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you're less likely to pay cash at, say, Staples and lose the receipts, forfeiting tax-time write-offs. Pens and printer paper can add up.
Additionally, Mari says, routinely jot down business trips, lunches, coffee dates and other events with cash outlays in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your tax records in the event of an audit.
"Often on tax returns, those numbers are too round. No one drives exactly 5,000 miles for business in a year, so the IRS knows this is an estimate," Mari says. "In an audit, if you can't substantiate those numbers, the whole category [of write-offs] can get thrown out."
One of his clients provides a link to a Google map for each trip instead of trying to remember to note the mileage for every trip he takes on his odometer. That data, along with a day planner recording the trip, are usually enough record keeping to satisfy the IRS, Mari says.

3. Record deposits correctly.
Why it's helpful: You may be less likely to pay taxes on money that isn't income.
What to do: Adopt a system for keeping your financial activities straight, whether it's a notebook you use consistently, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. The trouble, Mari says, is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you've actually made.

4. Set aside money for paying taxes.
Why it’s helpful: The IRS can levy penalties and interest for not filing quarterly tax returns on time.
What to do: Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they're due.
Payroll taxes that go unpaid can be especially problematic, Mari says. He often sees cash-crunched entrepreneurs get through a down cycle by dipping into employee withholdings that they should have sent to the IRS.
"If you mess with [payroll taxes], you have a two-fold problem," Mari says. "You haven't paid taxes due and you've taken money that the IRS sees as belonging to your employees. They can be very unforgiving about that."

5. Keep a close eye on your invoices.
Why it's helpful: Late and unpaid bills hurt your cash flow.
What to do: Assign someone in your organizations to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines.
"You want to have a plan for what happens if they're 30, 60 or 90 days late," Mari says.
Some entrepreneurs believe that once they've sent out an invoice, they've taken care of billing. Not so, Mari says. "Every late payment is an interest-free loan and hurts your cash flow."

Ref: http://www.entrepreneur.com/article/219517#ixzz2g9hR37bt

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An Audited Financial Statement Can Help

Looking to Borrow? An Audited Financial Statement Can Help :  More than one-half of all small-business loan applications are being rejected by banks, according to the Biz2Credit Small Business Lending Index. In such a tough lending environment, companies in need of capital might find lenders more receptive if they invest in audited financial statements.

"We've had clients who needed these statements to even get the loan, and it can make a difference in the interest rate you get," says David G. Barbeito, a principal in the Miami office of Morrison, Brown, Argiz & Farra, a large independent accounting firm.

A study by Michael Minnis, assistant professor of accounting at the University of Chicago Booth School of Business, published in the Journal of Accounting Research found that companies with audited financial statements have interest rates that are nearly three-quarters of a percent lower than companies that do not. In general, large companies are more likely to require audits in order to receive loans; however, Minnis found that firms with annual revenue of $10 million were not always asked to supply such materials, while firms in the $500,000 range sometimes were.

Audited financial statements are expensive, in the ballpark of $15,000 to $20,000 for the smallest businesses and $50,000 to $75,000 for middle-market businesses, estimates Eric Martinez, CPA, an auditor with Jericho, N.Y.-based accounting firm Grassi & Co. So it's important to do the math before hiring an auditing firm to pore over your books. In some cases, a review by an auditing firm may be all that is necessary, yielding the same lending benefits at about half the cost.

"One of the first things you need to do is to talk to the banker and understand what they're looking for. A lot of times, we're able to achieve the bank's objectives with a reviewed statement," Martinez says. He recommends business owners make sure the bank is comfortable with the auditing firm in advance, as the bank may have standards of expertise that the auditor needs to meet.

Minnis agrees that a cost versus benefit evaluation is important before incurring the expense of audited financial statements, particularly if a loan approval is not at stake. Still, audited statements may have other benefits to business owners, such as helping them establish larger and more favorable lines of credit with suppliers or meeting the management review requirements to attract outside investors.

Ref: http://www.entrepreneur.com/article/222806#ixzz2g9a522Rb

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A Matchmaker For Accountants

When launching a new business, you need a trusted bean counter in your corner. Though finding a good accountant may not be as onerous as doing your own taxes, it's certainly no picnic. Firms spend plenty of time and resources in the search for solid financial advice. But rather than shuffling off to Google, there may be a better way to land some much-needed assistance before you're knee-deep in bills.

Teaspiller, launched in 2009 by former Travelocity vice president Amit Vemuri, is an online database and accounting platform that connects users with qualified professionals. The New York City-based startup can be used to comparison-shop from more than a million listings of accountants and tax-return preparers culled from the internet, public listings from CPA state boards and the IRS' official database of enrolled agents who are licensed to represent taxpayers before the agency.
"For a lot of small businesses and individuals, it's really hard to find a quality accountant," Vemuri says. "When you talk to people, a lot of them have found their accountants through trial and error, the Yellow Pages or a friend. But those search costs are pretty high."

What is it?
The name Teaspiller comes from a colonial-era newspaper editorial referring to the Boston Tea Party. The idea, Vemuri says, is to shake up the way the average small-business client relates to and works with their accountant by breaking the process into a few simple steps. The user searches for an accountant in Teaspiller's database, then books an appointment or requests a quote using an online form. If the accountant has an active Teaspiller account, not only can the meet-and-greet process be handled remotely, but the subsequent working relationship can be managed online through the secure Teaspiller platform, which allows for everything from scheduling phone calls and sharing tax documents to billing.

What does it do?
As an accountant search tool, it's hard to beat Teaspiller. Users search by geographical area as well as by the services they're looking for; a simple drop-down menu reveals a comprehensive list that includes everything from basic tax preparation to forensic accounting. Teaspiller then generates potential matches with a Yelp-like listing for each accountant; in many cases the listing includes a rating, the accountant's résumé, links to websites and social media accounts such as LinkedIn, and a breakdown of services offered.
It's all the more impressive when you realize that gathering the same kind of information for the same number of accountants on your own could take hours of web searching and sifting. It's easy to use Teaspiller to pull together at least a basic list of potential accountants so you can proceed to making phone calls or firing off e-mails asking for quotes.
For quick and dirty financial help, Teaspiller also has an Ask an Account-ant feature, which lets users submit questions to accountants in Teaspiller's database. Submitting a question is free, but to guarantee a response, you'll have to pay up: $10 for an answer within two business days; $15 to hear back within one business day.

What doesn't it do?
Teaspiller pulls a huge chunk of its database from the IRS' list of enrolled agents and sets up basic accountant profiles until individual accountants claim them and start filling in more details. Therefore it's quite possible that your search results will pull in accountants who aren't using Teaspiller's remote accounting functions (Vemuri says that's up to the accountant). That may not be a bad thing, because it's likely not every small-business owner will feel comfortable doing sensitive accounting work over the web, even though Teaspiller assures users that its sharing platform is secure.
There is also the ratings game. At this point in Teaspiller's development, most accountants don't have user ratings, and the ones who do only have a couple. Accountants are assigned a Teaspiller rating, which takes into account years of experience and professional licenses. But because Teaspiller vets the accountants it adds to its database, these ratings almost all range from very good to superb. Unfortunately, it just may be impossible to take trial and error completely out of the equation.

The bottom line
While it's not perfect, Teaspiller is a welcome resource for any startup. It's as good a place as any to seek out a qualified accountant or business tax pro.

Read more: http://www.entrepreneur.com/article/222969#ixzz2g0RX7TNC

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Separate Your Business and Personal Finances

Business owners intertwine business and personal finances all too often. After all, you are your business, but muddling up the two will mean a mess at tax time.
Even if you're just starting out, it's essential to split up these two parts of your money life. Treat your business, big or small, like a viable entity.

"That starts with tracking your business expenses separately from your personal, even though initially it may feel like they are one in the same if you are a one-man shop," says Cynthia Heil, a certified financial planner with Cascade Financial Management in Tampa, Fla.
Here's how you can peel your business away from your personal finances.

1. Maintain separate checking accounts
   Start with your bank. Open a business checking account.
   
   "If there's ever a question as to whether it's a hobby or a business, the IRS looks to see if you have a separate checking account," says Richard Salmen, a certified financial planner with GTRUST Financial Partners in Overland Park, Kan.
   
   If you use Quicken, Quickbooks or Microsoft Money, Salmen advises making sure you have two separate systems: one for personal and one for business.
   
   Not only is having two accounts tax-smart, it will also improve your organization.
   
   At the end of the year, all your income and expenses will be in one place, making record keeping and tax filing easier. If you try to separate all your records in March or April, you won't be able to accurately remember all the money moves from the prior tax year. Keeping good records year-long will give you proof of your business expenses if you do get audited.
2. Use a business credit card
   Lending requirements are quite strict for small businesses. Still, try to get a business credit card. Like the separate checking account, a credit card will help your record keeping and give you something to show the IRS if you're audited.
   
   The business credit card could give you an extra tax deduction too.
   
   "If you need to carry a balance on a business credit card, that's the only credit card interest that's deductible as a business expense," Salmen says.
3. Make it official
   Consider establishing a limited liability company (LLC) or an S Corp for your business.
   
   Sit down with your team of advisors--attorneys, CPAs, financial planners and insurance agents--and determine what entity makes the most sense, how this business will impact your taxes and financial plan and what insurance coverage you should consider, Heil says.
   
   These business entities will also give your personal finances a new level of liability protection, which could come in very handy of your business is ever sued.
4. When it's time to file
   Having a checking account, credit card and record keeping software earmarked exclusively for business use will give you most of what you need to file your taxes and to prove to the IRS that your business really is a business. But there are other considerations, too.
   
   If you use a home office, you're eligible for a deduction, but only if you do it right. Even then, you could be in for an audit.
   
   Salmen shared the story of one of his clients. The wife was a salaried employee and the husband ran money-losing photography business out of a home office. He was eligible for the home office deduction, but because his business lost money, Salmen warned it might be a red flag for an audit.
   It was.
   They took photos of the office, which was used solely for business, and after the audit, they were able to keep the home office deductions.
   
   "People are way too afraid to take the home office deduction because they don't want to be audited, but take it if it's legitimate," Salmen says. "The key is that it has to be used exclusively for business. You can't have a daybed in it for visitors."

Ref: http://www.entrepreneur.com/article/204862#ixzz2far6FfUn

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Read This, Before Hiring a Tax Accountant

When it's time to look for a tax accountant, you want one who not only can help save you money and avoid potential trouble with the IRS, but also can provide useful information for your business. "We tend to think of accountants as numbers people, but a good accountant does more than just figure the numbers," says Ed Lyon, co-founder of the American Institute for Certified Tax Coaches. "A good accountant will communicate what the numbers mean to us."

So shop around, interview accountants and figure out which one is the best fit for you and your business. Here are 10 key questions to help you make the decision before hiring a tax accountant:

1. What kinds of clients do you work with?
You want to make sure your accountant understands your type of business. A restaurant will have certain rules to follow for wages and tips, for instance, just as a construction business must deal with issues related to contract workers and a real estate development firm will have certain criteria about how income is reported. You need an accountant who has worked with other businesses like yours and knows the ins and outs of the industry.

2. Are you available year round?
Some accounting firms shut their doors after April 15 and only reopen for the following tax season. But when you're running a small business, you're going to need help all year, says Melissa Labant, director of taxation at the American Institute of CPAs in New York. "If something comes up, you don't want to wait until tax season in order to get your issue addressed."

3. What's your experience with the IRS?
Often people will tell you it's important to hire a certified public accountant rather than an EA, or enrolled agent, because CPAs have more comprehensive certification requirements. While CPAs are state-certified and have training in such areas as financial planning and bookkeeping, EAs are certified by the federal government specifically to handle taxes and are often former IRS agents with extensive experience dealing with audits. "They've been in the belly of the beast. They may have more inside knowledge of how the IRS really works," Lyon says. On the other hand, a CPA will likely have more experience with broader financial planning issues. Rather than focusing on certification, Lyon says, focus on how your accountant's experience is relevant to your business.

4. Who will be doing the work?
Accountants will often outsource work to a third party. This doesn't mean their services are bad, but you want to be sure they are forthright about who is doing the work, says Kerry Kerstetter, a Harrison, Ark., CPA. If you want to talk with someone familiar with your bookkeeping and that's a third party, it likely will be difficult to speak with him or her directly, Kerstetter says.


5. Are you a conservative or more aggressive accountant?
Some accountants want to write off everything they possibly can, while others take a more conservative approach. It's important to figure out where you fall on the spectrum and find an accountant who agrees with your philosophy, Lyon says. If accountants tell you they specialize in finding red flags that could trigger audits, they may be hesitant to maximize your deductions. For example, some accountants believe taking a home office deduction might be a red flag to the IRS, Lyon says.

6. How do you bill for your services?
Some accountants charge by the hour; others bill a flat rate. If you want to take a more hands-on approach to your bookkeeping, an hourly rate might be better because you won't have as much continuous work for an accountant, Kerstetter advises. Regardless of the billing approach, be sure to get an estimate of an accountant's likely fees. Provide a copy of your previous year's tax returns so the accountant can familiarize himself with your business before giving a quote, Labant says.

7. How do you handle working with multiple entities?
If you have more than one entity under your name, be sure the person you hire can manage them simultaneously--a skill not all accountants possess. If you own rental property as an LLC and a retail store registered as a C-corporation, for example, you'll need an accountant who can coordinate and track money moving between those entities, Kerstetter says.

8. What can you tell me about the medical expense reimbursement plan?
This question may seem technical, but not all accountants will know about this plan, which allows you to deduct your family's medical expenses on your return, Lyon says. If the accountant you're speaking with is unfamiliar with such plans, you should be wary because that might be a red flag that he or she isn't well versed in deductions that could save your business money.

9. What tax program do you use?
You shouldn't choose accountants based on the tax program they use, but it's a good detail to ask about. QuickBooks is commonly used for small businesses, which means your information would likely be easily transferred between different accountants, Kerstetter says. Hiring an accountant who uses more obscure tax software won't affect the quality of the work, but it might make it tricky to switch accountants.

10. How often will we communicate about tax issues?
Every accountant will be different when it comes to frequency of communication for tax planning purposes. Ask about a prospective accountant's approach and be sure you're satisfied with the degree of communication, Labant says. "You want to feel comfortable calling them with issues relating to your taxes."

Ref: http://www.entrepreneur.com/article/225378#ixzz2fLhaHC5K

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Payroll : Elements Of The Accounting System

If you've got employees, you've got to get a handle on payroll, payroll accounting can be quite a challenge for the new business owner. There are many federal and state laws regulating what you have to track related to payroll. Failure to do so could result in heavy fines-or worse.

Many small-business owners use outside payroll services. These companies guarantee compliance with all applicable laws. This keeps the small-business owner out of trouble with the law and saves valuable time that can be devoted to something else in the business.

However, if you choose to do your own payroll, it is highly recommended that you purchase an automated payroll system. Even if the rest of your books are done manually, an automated payroll system will save valuable time and help considerably with compliance. There's not a lot of margin for error when dealing with the federal government!

Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press

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Inventory : Elements Of The Accounting System

Unless you are starting a service business, a good inventory-control feature will be an essential part of your bookkeeping system. If you are going to be manufacturing products, you will have to track raw materials, work-in-process and finished goods, and separate subledgers should be established for each of these inventory categories. Even if you are a wholesaler or retailer, you will be selling many different types of inventory and will need an effective system to track each inventory item offered for sale.

Another key reason to track inventory very closely is the direct relationship to cost of goods sold. Since nearly all businesses that stock inventory are required to use the accrual method for accounting, good inventory records are a must for accurately tracking the material cost associated with each item sold.

From a management standpoint, tracking inventory is also important. An effective and up-to-date inventory-control system will provide you with the following critical information:

• Which items sell well, and which items are slow moving
• When to order more raw materials or more items
• Where in the warehouse the inventory is stored when it comes time to ship it
• Number of days in the production process for each item
• The typical order of key customers
• Minimum inventory level needed to meet daily orders

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Fixed Assets : Elements Of The Accounting System

Fixed assets is a elements of the accounting system, fixed assets are items that are for long-term use, generally five years or more. They are not bought and sold in the normal course of business operation. Fixed assets include vehicles, land, buildings, leasehold improvements, machinery and equipment.

In an accrual system of accounting, fixed assets are not recorded when they are purchased, but rather they are expensed over a period of time that coincides with the useful life (the amount of time the asset is expected to last) of the item.
This process is known as depreciation. Most businesses that own fixed assets keep subledgers for each asset category as well as for each depreciation schedule.
In most cases, depreciation is easy to compute. The cost of the asset is divided by its useful life. For instance, a $60,000 piece of equipment with a five-year useful life would be depreciated at a rate of $12,000 per year. This is known as straight-line depreciation.

There are other more complicated methods of fixed-asset depreciation that allow for accelerated depreciation on the front end, which is advantageous from a tax standpoint. You should seek the advice of your CPA before setting up depreciation schedules for fixed-asset purchases.

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Elements Of The Accounting System : Accounts Payable & Accounts Receivable

ACCOUNT PAYABLE

Whom do you owe? Keep track with the accounts payable ledger, The accounts payable subledger is similar to that used to track accounts receivable. The difference is that accounts payable occur when you purchase inventory or other assets on credit from a supplier.
It is important to track accounts payable in a timely manner to ensure that you know how much you owe each supplier and when payment is due.

Many a good supplier relationship has been damaged due to a sloppy accounts payable system. Also, if your suppliers offer discounts for payment within 10 days of invoice, a good automated accounts payable system will alert you when to pay to maximize the discounts earned.

ACCOUNT RECEIVABLE

Who owes you? Keep track with an accounts receivable ledger, If you plan to sell goods or services on account in your business, you will need a method of tracking who owes you how much and when it is due. This is where the accounts receivable subledger comes in. If you will be selling to a number of different customers, then an automated system is a must.

A good bookkeeping software system will allow you to set up subledgers for each customer. So when a sale is made on account, you can track it specifically to the customer. This is essential to ensure that billing and collection are done in a timely manner.

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Chart Of Accounts : Elements Of The Accounting System

The first step in setting up an accounting system for your business is deciding what you want to track. A chart of accounts is simply a list of your accounts and is kept by every business to record and follow specific entries. Whether you decide to use a manual system or a software program, you can customize the chart of accounts to your business.

Account numbers are used as an easy account identification system. For most businesses, a three-number system will suffice; however, a four-number system is sometimes used for more complex ventures. The chart of accounts is the fuel for your accounting system. After the chart of accounts, you establish a general ledger system, which is the engine that actually runs your accounting system on a daily basis.

The chart of accounts is the foundation on which you will build your accounting system. Take care to set up your chart of accounts right the first time. Keep your account descriptions as concise as possible. And leave plenty of room in your numbering system to add accounts in the future.

Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press

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General Ledger - Elements Of The Accounting System

Whom do you owe? Keep track with the accounts payable ledger. every account that is on your chart of accounts will be included in your general ledger, which should be set up in the same order as the chart of accounts. While the general ledger does not include every single accounting entry in a given period, it does reflect a summary of all transactions made.

If your business is small and cash-based, you can set up much of your general ledger out of your checkbook. The checkbook includes several pieces of information vital to the general ledger-cumulative cash balance, date of the entry, amount of the entry and purpose of the entry. However, if you plan to sell and buy on account as most businesses do, a checkbook alone will not suffice as a log for general ledger transactions. And even for a cash-based business, a checkbook cannot be your sole source for establishing a balance sheet.

An important component of any general ledger is source documents. Two examples of source documents are copies of invoices to customers and from suppliers. Source documents are critical in that they provide an audit trail in case you or someone else has to go back and study financial transactions made in your business. For instance, a customer might claim that he never received an invoice from you. Your source document will prove otherwise. And your source documents are a required component for your accountant at tax time. Other examples of source documents include canceled checks, utility bills, payroll tax records and loan statements.

All general ledger entries are double entries. And that makes sense, because for every financial transaction in your business, the money (or commitment to pay) goes from one place to another. For instance, when you write your payroll checks, the money flows out of your payroll account (cash) into the hands of your employees (an expense). When you sell goods on account, you record a sale (income) but must have a journal entry to make sure you collect that account later (an account receivable).

The system used in recording entries on a general ledger is called a system of debits and credits. In fact, if you can gain even a basic understanding of debits and credits, you will be well on your way to understanding your entire accounting system.

As outlined above, for every debit, there should be an equal and offsetting credit. It is when the debits and credits are not equal or do not offset that your books don't balance. A key advantage of any automated bookkeeping system is that it will police your debit-and-credit entries as they are made, making it far more difficult not to balance. It won't take many 3 a.m. error-finding sessions in a manual system to persuade you to automate your bookkeeping system!

All debits and credits either increase or decrease an account balance. These basic relationships are summarized as follows:

Account Type

Debit

Credit

Assets	Increases	Decreases
Liability	Decreases	Increases
Stockholder's Equity	Decreases	Increases
Income	Decreases	Increases
Expense	Increases	Decreases

In a general ledger, debits always go on the left and credits always go on the right.
While many double entries are made directly to the general ledger, it is necessary to maintain subledgers for a number of accounts in which there is regular activity. The information is then taken in a summary format from the subledgers and transferred to the general ledger. Subledgers showing cash receipts and cash disbursements are pretty easy to follow. However, some subledgers, such as accounts receivable, inventory, fixed assets, accounts payable and payroll can prove to be a challenge in their daily maintenance.

Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press

Ref : http://www.entrepreneur.com/article/21912#ixzz2ePefRdWP

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Which Accounting Method is Best For Your Business ?

Based on Basic Accounting Principles Most businesses typically use one of two basic accounting methods in their bookkeeping systems: cash basis and accrual basis. While most businesses use the accrual basis, the most appropriate method for your company depends on your sales volume, whether or not you sell on credit, and your business structure.

The cash method is the most simple in that the books are kept based on the actual flow of cash in and out of the business. Income is recorded when it is received, and expenses are reported when they are actually paid. The cash method is used by many sole proprietors and businesses with no inventory.
From a tax standpoint, it is sometimes advantageous for a new business to use the cash method of accounting. That way, recording income can be put off until the next tax year, while expenses are counted right away.

With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the check is actually written. The downside of this method is that you pay income taxes on revenue before you've actually received it.

Should you use the cash or accrual method? The accrual method is required if your annual sales exceed $5 million and your venture is structured as a corporation. In addition, businesses with inventory must also use this method. It also is highly recommended for any business that sells on credit, as it more accurately matches income and expenses during a given time period.
The cash method may be appropriate for a small, cash-based business or a small service company. You should consult your accountant when deciding on an accounting method.

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3 Tips for Protecting Your Personal Finances

Starting a business affects your life in many ways outside of work, in particular the way you manage your personal finances. One of the biggest mistakes new entrepreneurs make is not keeping their personal and business finances separate.

"They move money back and forth and it is very important to keep their records separate," says Edward Wacks, a business financial advisor based in Plantation, Fla. This commingling of finances, Wacks says, can have some damaging implications for your business down the road.

For example, if you are paying business expenses with personal funds or vice versa, it becomes challenging from an accounting standpoint to know what your profits or revenues are for your business, says Wacks. That makes filing your business taxes a headache.

Also, without a clear division in your finances, your personal assets are less protected if your business is sued or you take out a business loan and can't pay it back.
"Many entrepreneurs are great salespeople, but they are not as good with the inside" of a business, the metaphorical financial guts of a company, says Wacks.

Here are three tips for protecting your personal finances as a business owner:

1. Keep separate bank accounts.
Taking this one step to separate business from personal will make the biggest difference, especially at tax time when you document your business' profits and losses. While this might seem obvious, Wacks says this is a common mistake he has seen startups make.

2. Think like you have business partners, even if you don't.
To prevent yourself from getting lax about keeping your finances separate, think as though you have business partners, says Wacks. You wouldn't expect your business partners to pay for your groceries or the recent fill-up at the gas station: that will have to come out of your personal piggy bank.

3. Don't mix credit card purchases.
When it comes time to pull out the plastic, keep one credit card strictly for business expenses and a separate one for personal purchases. Otherwise, trying to parse the business charges from personal ones on your monthly statement after the fact can get confusing.

Src: http://www.entrepreneur.com/blog/223856#ixzz2dtxD7qVl

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When to Hire a Accountant or Bookkeeper

With user-friendly software such as QuickBooks available, many business owners feel they should be able to do keep their records on their own, even as they wrestle with finding the time and wonder if they're doing things correctly.
 Do everything you can yourself and don't pay for anything new until you have absolutely have to. It's especially difficult to justify hiring financial help like a bookkeeper.

Deciding about "hiring a bookkeeper is something I struggle with all the time," says Randy Mitchelson, owner of National Web Leads, an Internet marketing company in Estero, Fla. While he finds basic accounting easy to do, it takes him away from working on his business. Meanwhile, his accounting and tax planning have become only more complicated in the six years since he founded his business.
Entrepreneurs who hire accounting help usually discover they weren't doing nearly as well on their own as they thought they were.

Zalmi Duchman, chief executive of The Fresh Diet, a meal-delivery company based in Miami, lasted five years without a bookkeeper then hired one three months ago. The new employee cleaned up records that incorrectly mingled expenses and assets, reviewed employee purchases for duplications, and took over the mundane but critical task of paying bills. Duchman estimates his company is saving $500 to $1,000 in late fees every quarter. "I definitely have been able to make better and more educated decisions," he says.
So what are a small-business owner's options for professional help with financial tasks? Here is a primer:

Do I Need a Bookkeeper or an Accountant?

His bookkeeper spends a few hours a week sorting it all out. As a result, Sylvan has a better idea about how his expenditures stack up against his budget. He knows he won't bill clients incorrectly or miss important payments.
"Knowledge is power," even when it comes to the small details, Sylvan says. "If you don't have a bookkeeper, you're probably not being as strategic as you could be in how you spend your money."

When to Bring in a Bookkeeper

In his running a half-dozen businesses the past 15 years, Sylvan has typically hired a bookkeeper for a few hours a week within a few months after starting a new venture. For the first six to nine months, he's usually too busy to focus much on recordkeeping, then "things begin to stabilize," he says. "Then you can see trends and you can start to think strategically about where your money is going and where you can save." And this is when a bookkeeper becomes valuable. Since Sylvan has fewer than a dozen employees at each new company, the bookkeeping takes about one day a month, he says.
The rates for hiring a bookkeeper on a part-time basis in the U.S. can range from $15 to $60 an hour, depending on location, the workload and whether work is done at the company's office or from home.
Sylvan typically sees his accountant once a year, at tax time. But business owners requiring capital or frequently negotiating credit with a bank are likely to contact their accountants more often.

When to Hire a Staff Accountant or Bookkeeper

Many small entrepreneurs can probably stick to outsourcing accounting or bookkeeping services for quite some time. The typical service business can often outsource its chief financial officer tasks and bookkeeping until its revenues rises well above the $1 million mark -- or until it has about 30 employees. Until then, most businesses usually don't have enough work to keep a full-timer busy every day.
It's time to hire full-time help, though, when you're calling your accountant often enough that you wish he or she were in the office all the time. Bring in a full-time bookkeeper when your part-timer is spending two or three full days in the office and still falling behind.
Most new business owners find a staffing solution somewhere along the continuum that ranges from trying to go it alone and paying for full-time help.

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