Accounting System 

Accounting rests on a set of concepts for identifying, recording, classifying, reporting, and interpreting transactions and other business events relating to enterprises. While a transaction involves a transfer or exchange between two or more entities, an event generally is the source or cause of changes in assets, liabilities, and equity. 

The process of recording, classifying, and summarizing financial transactions into a usable form that provides financial information about a business or an individual is known as bookkeeping

Accounting System is organized set of manual and computerized accounting methods, procedures, standards, and controls established in order to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for management decisions. Regulatory requirements may exist on how a particular accounting system is to be maintained. Read more "Accounting System"

Why Do Businesses Need An Accounting System? 

A reliable information system is a necessity for all companies. Companies must properly maintain accounts and detailed records or face unnecessary costs. A well-devised accounting information system, which ensures relevant and reliable information is reported in financial statements, benefits every type of company. 

Maintaining a set of accounting records is not optional, it's a law! The Internal Revenue Service (IRS) requires that businesses prepare and retain a set of records and documents that can be audited. Internal Revenue Code requires that business have the ability to compute taxable income by using some sort of common-sense accounting system that clearly reflects income. In addition, the federal legislation requires public companies to have a detail and accurate books, records, and accounts of transactions and dispositions of the assets.

If you decide to just blow off this requirement you might get away with your omission. But if the Internal Revenue Service examines your return and you’ve ignored the law, the IRS gets to do your accounting the way it wants. And the IRS way means that you pay more in taxes and that you also pay taxes earlier than you would have otherwise. Read more "Why Do Businesses Need An Accounting System? "

Accounting: A Communication Vehicle 

Managerial Accounting & Financial Accounting

Accounting is the systematic recording, classifying, reporting, and analyzing of financial transactions of a business. It is a vehicle for communicating financial information of a business entity to many different groups of people. The communication is generally in the form of financial statements.

Accounting that provides financial information to people inside the business entity, such as managers, owner and auditors, is called management accounting or managerial accounting. Management accounting allows interpretation and analysis on the financial performance of the business in order to mainly provide a basis for making management, financial, or operating decisions. Read more "Accounting: A Communication Vehicle"

Bookkeeping System

Bookkeeping is a process of recording, classifying, and summarizing of such day-to-day financial transactions as sales and purchases, into a usable form that provides financial information about a business or an individual. It's a part of overall account system.

Sound bookkeeping practice is a prerequisite to complete a full accounting cycle. Using the trial balance and ledgers prepared in the bookkeeping process, a bookkeeper or an accountant prepares financial statements, which are used to analyze the organization financial performance, as well as to file tax forms with government agencies. 

A bookkeeping system is a set of rules for recording financial information in an accounting system. There are two common methods of bookkeeping systems, which are the single-entry bookkeeping system and the double-entry bookkeeping system. A business owner must decide what bookkeeping system to be used. Read more "Bookkeeping System"

Accounting Methods 

Is cash or accrual accounting better for your business?

Bookkeeping methods: Accrual vs. Cash Accounting
The cash method and the accrual method (sometimes called cash basis and accrual basis) are the two principal methods of keeping track of a business's income and expenses. In most cases, you can choose which method to use.

These methods differ only in the timing of when transactions, including sales and purchases, are credited or debited to your accounts. 

Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid. The cash method is the more commonly used method of accounting in small business.

Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction. Read more "Accounting Methods"

Why Do Businesses Need to Accurate Bookkeeping?

Bookkeeping is the process of keeping full, accurate, up-to-date business records. It involves making a record of the monies received by a business as well as the monies paid out. Bookkeeping covers money a company owes to vendors, employees, tax agencies, contractors, lenders, and any other individual or entity. Equally, accurate records of amounts owed to a company by outside individuals and organizations are also recorded in a company's books. 

The job of bookkeeping can be very time consuming. With no exceptions, every monetary amount that is paid or received must be recorded. Additionally, accuracy is of the supreme importance, making keeping the books in a quick manner a very bad idea. As business owners are often lacking in time, many choose to hire bookkeepers to keep company records well maintained.

Certainly bookkeeping is necessary and beneficial to business owners. Proper bookkeeping can help businesses effectively manage cash flow, stay well-informed on company performance, and develop plans for the future. Moreover, accurate bookkeeping is required by both federal and local tax agencies. Read more "Why Do Businesses Need to Accurate Bookkeeping?"

Accruals and Deferrals

In order to comply with the revenue recognition and matching principles, revenues and expenses have to be reported in the time period in which they are earned or incurred. Accruals and deferrals are instrumental in helping this proper reporting of revenues and expenses happen. Accruals and deferrals require adjusting entries at the end of the accounting period.

Accruals and deferrals occur only when a business uses accrual-based accounting methods. If accruals and deferrals are not used correctly in the accounting cycle, certain accounts may seem undervalued or overvalued.

Under the accruals, conditions are satisfied to record a revenue or expense, but money has not changed hands yet. An accrual occurs before a payment or receipt.

Under the deferrals, money has changed hands, but conditions are not yet satisfied to record a revenue or expense. A deferral occurs after a payment or receipt. Read more "Accruals and Deferrals"

End of Financial Year Guide

Closing the accounting year and beginning a new one

The end of the fiscal year can be a busy time. Individual and small business owner need to know the most common activities that are done during the close of one business year and the beginning of a new one in order to make yearend tasks go as smoothly and efficiently as possible. 

The most common tasks to close business year include:

  • Reconciling Balance Sheet Accounts
  • Entering Year-end Accounting Adjustments
  • Closing the Books
  • Sending Customer Statements
  • Reporting for Year-End
  • Preparing 1099 & 1096 Forms
  • Consulting Your Accountant
  • Distributing Profits
  • Paying Sales Tax
  • Budgeting for Next Year

You may need your accountant's or bookkeeper's assistance to perform the activities if you think they put extra burden on your daily business routine. Read more "End of Financial Year Guide"