Category: Accounting

What Are the Three Major Areas of Accounting?

Accounting and finance are integrally connected for each business firm. Accounting is the study of how information is gathered and distributed inwards and outwards. Finance, is the study of how firms make the investments and financing decisions they make operate their business.

Finance relies on accounting information to operate, and accounting must have financial experts in order to translate accounting information for the general use. There are three major areas of accounting:

Financial Accounting:

Financial accounting is where accounting deals with external parties interested in the business firm. According to the Financial Accounting Standards Board (FASB), it provides the most important financial collecting and reporting functions for business firms.

Financial statements produced for the benefits of your external investors. Investors need to be able to get the review of financial statements such as the income statement, the balance sheet, and the statement of cash flows in order to decide whether they should invest in this business firm or remain invested in the company, or not.

Financial statements are of interest to another group of external individuals- the creditors of the firm. Creditors are the bond-holders of the firm or they could be the debt-holders of the firm. Creditors are individuals who loaned money to the firm, and interested in receiving a return on their investment and, eventually, a return of their principal.

Managerial Accounting:

Managerial Accounting is where accounting associated with gathering and articulating the financial information for inside organizations such as managers and staff.

You may compare it to the financial accounting which is concerned with information for external individuals. The Institute of Certified Management Accountants states that management accountants are the ‘value creators’ among accountants, thereby taking their place between the finance people and the financial accountants in the business organization.

Managers use financial information to take better business decisions. They use a variety of techniques such as variance analysis, risk management, and cost-volume-profit analysis to predict the best forward-looking information as possible.

Cost Accounting:

Some professionals consider Cost-Accounting as a part of Managerial-Accounting and some think that Cost-Accounting is a different functional area of accounting. Cost-Accounting and Managerial-Accounting surely overlap.

Cost-Accounting looks at the costs of production for a business by looking at the fixed costs of the products and services, they sell and their input costs. Input costs compared to output cost for the measurement and better understanding of the financial performance of a firm with directly regards to the production costs. Elements often used: indirect costs, or overhead, raw materials, as well as labor. Managers use the information from Cost-Accounting to establish the cost control programs for their business firms.

Why is accounting important?

Accounting is a deciding factor regarding the financial health of a business. Logging and tracking an organization’s financial data can help you find out a company’s cash flow, income and expenses. All of this information can be provided to stakeholders who have a direct impact on business operations. The more financial information you have about your company’s financial health, the better positioned you are to make decisions about your company’s future.

Types of accounting

Contrary to popular belief, accountants don’t only prepare taxes. Accountants can also investigate white collar crimes, audit businesses, or work exclusively in government and manufacturing environments.

Accountants can be CPAs (Certified Public Accountants) or perform bookkeeping and accounting tasks such as managing the accounting cycle at a small business or a large corporate entity. They can also work for a nonprofit or a large consulting firm.

Here are some of the different areas of accounting and what they entail.

Financial accounting

Financial accounting is the process of compiling financial reports for external use. Financial accountants work with their colleagues and managers to strategize how a company can be more profitable. Also, they track all financial activity recorded in a ledger in addition to ensuring that internal procedures are being followed and that all financial activity appears on relevant financial statements.

They must abide by Generally Accepted Accounting Principles set for U.S. businesses and International Financial Reporting Standards if a company operates overseas. Overall, financial accountants need to have strong attention to detail to convey the current financial state to outside sources.

Managerial accounting

This type of accounting documents, monitors and assists in the financial planning of an organization. Their documentation is typically meant for internal stakeholders rather than the public. A managerial accountant must be careful in communicating confidential information and to whom. They work with their managers to analyze and create a budget to meet the needs of the short- and long-term goals of the organization.

Cost accounting

Cost accounting can be seen as a subcategory of managerial accounting. Cost accountants are responsible for documenting, presenting and reviewing manufacturing costs. They oversee all variable and fixed costs to see if output aligns with the cost to produce a product. They also work with managers to decide on future decisions based on the financial forecast and the progress of production.

Auditing

Internal and external auditing falls under the category of public accounting. External auditing is the action of a company providing financial statements to a third-party for financial feedback. In this instance, a third-party is a reliable source in describing if a company’s financial statement is a representation of GAAP.

Internal auditing determines the effectiveness of internal accounting processes. An internal auditor can review employee departmental responsibilities, management policies and approval procedures on related projects. In turn, they provide useful feedback that can help a company to become more profitable and efficient.

Tax accounting

Tax accountants help businesses stay in compliance with annual tax codes when they file each year. They also assist companies in planning for future tax returns, such as avoiding certain tax burdens and understanding the implications of specific tax decisions. Usually, larger organizations will hire a tax accountant to navigate the complexities of financial records.

Accounting information systems

Accounting information systems, or AIS, manage the improvement of successful accounting procedures. Employees working in this field decide on the best times to install updated technology and monitor the progress of existing systems to determine if there is an increase in productivity over a given timeframe. They can make decisions in conjunction with the IT department to instill continuity with technological processes.

Fiduciary accounting

Fiduciary accounting is the procedure of trusting one individual to handle financial accounts. They’re obligated to serve on behalf of their clients for accounts tied to real estate, trust funds, investments and others. Also, they must give relevant financial information to their clients once a year, which includes a summary of all accounts, schedules of receipts, gains, losses and the assets they have at their disposal.

Forensic accounting

Forensic accounting requires accountants to reconfigure a company’s financial information when some information is missing or not available to review. The goal of forensic accounting is to gather all available documentation and accurately and comprehensively record all credit, debit and cash transactions in financial statements. These professionals often work on legal cases involving fraud, claims and disputes.

Public accounting

Public accounting refers to businesses that provide accounting advice to clients based on their needs. They can work in auditing, assist with tax returns, consult on procedures tailored to the installation of technology or computer programs and provide legal advice.

Government accounting

Government accountants manage the financial planning and allocation of resources to departments within a local, state or federal government. This type of accounting has standards that must comply with the Governmental Accounting Standards Board (GASB) who is responsible for developing consistent accounting procedures for local and state governments. They also monitor a government’s budget and allocate funds appropriately.

What are the pros and cons of outsourcing a company’s payroll function?

Managing payroll services in-house often requires an individual, or a team, with a thorough knowledge of the PAYE tax system. If your business doesn’t have these skills in-house, you can organise your payroll by outsourcing it.

What is payroll process outsourcing?

Payroll outsourcing involves hiring an external company or an individual to handle all payroll functions. The level of services you can outsource varies. Some suppliers provide a basic service; others provide the full package including liaising with the HMRC and maintaining full compliance so your business never has to deal with payroll.

Typically, businesses outsource payroll to:

• an accountant or bookkeeper
• a specialist payroll company

Outsourced payroll pros

Experience and knowledge

Payroll outsourcers are experts in everything related to paying employees, taxes and government compliance. Complexity increases greatly when you operate across multiple states and countries. Are you taking advantage of all possible tax breaks? Penalties are high even when mistakes are honest. A payroll outsourcer bases their business on knowing all the intricate details and stays up to date on the new and upcoming legislative changes. Payroll outsourcing agreements usually have a liability aspect that protects you in the event of an audit, if the taxman comes back with questions about what has been declared and filed.

Cost

Smaller companies in particular may struggle with the costs of doing payroll. Training internal staff, procuring the necessary equipment like check stock and printers plus arranging contracts for things like direct deposit transfer all add up. An outsourcer is able to offer an affordable cost as they are doing payrolls for a number of companies so you’re getting a volume discount. As you consider an outsourced payroll vendor, compare their prices to all of your internal staffing and hardware costs to get a true picture.

It allows for more payroll services to be offered.

Outsourcing payroll can allow a small business to offer additional services, such as direct deposits and 401k contribution deductions, that they may not be able to do on their own.

Payroll taxes become much easier to file.

Outsourcing payroll will also generally create the financial reports needed to make filing payroll taxes a lot easier for a small business. For some businesses, they may even find that they can even outsource the filing process so they don’t have to even really worry about the tax paperwork.

Payroll outsourcing can offer greater security.

With data security becoming a great concern for employers and employees alike, outsourcing payroll can give a small business a more secure data system then they could establish on their own. One contract may provide multiple servers, backups, and other security technologies that protects their employee data.

The Cons

• Difficulty obtaining wage and employee data — Depending on your payroll service provider, you may encounter hurdles in accessing payroll figures and other employee data because the information resides on another company’s server.
• Delayed corrections to payroll errors — If mistakes occur, a payroll firm may not respond as quickly as you or your employees wish.
• Cost — Not all vendors tailor services and prices to your company’s size. Do research on vendors beforehand and purchase only those services that make sense for your financial situation.
• Risk of vendor going out of business — It happens — payroll administrators, especially newer ones, fail. In this unfortunate situation, you may lose access to your payroll data, or worse, your money.

What are the risks of outsourcing payroll?

The downside of outsourced payroll is mainly associated with the lack of in-house personnel. While many HR and payroll companies have 24/7 help to ensure you’re never caught in a payroll emergency, the lack of face-to-face contact can be a pain-point for some employees.

Similarly, the loss of control that is inherent to outsourcing may not be suitable for your business, as you’ll be permitting another company to access your team’s private information.  has been designed to offer better security around data, but the idea that your information is no longer secured within your business may not rest easy with you or your staff.

You should also be aware that your legal responsibilities won’t lapse because you’ve chosen to outsource. Keeping channels of communication open and constantly updating your supplier is important, and of all the risks of outsourcing payroll, the assumption that your chosen provider no longer requires your involvement is perhaps the most likely to cause issues.

Finding a CPA for tax-planning purposes

I’m writing to you to find out if you know where I could go or who I could consult with regarding how the IRS would interpret a particular capital gains issue. I act as power of attorney for my mother, who has late-stage Alzheimer’s. She is income-poor and holds a considerable amount in stocks with a very low cost basis. I’m hoping I can sell these stocks and generate cash to take care of her without incurring a big tax liability. Thank you for your consideration.

You should consider seeking out a certified public accountant, or CPA, who can help you figure out the most tax-efficient way to get the funds you need for your mother’s care.

If you have never used a CPA before, you could ask for referrals from family, friends and even the stockbroker who handles your mother’s stocks, if that is the case. Additionally, many CPAs are members of their local chamber of commerce, and you can use that as a resource.

You should be prepared to discuss your mother’s entire financial picture, including not only her income sources such as Social Security, stock dividends and interest, but also all of her financial requirements for the care she needs at this time of her life. You will also need to know what other assets she owns besides the stocks, such as her home.

Ask the adviser

To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Importance and Benefits of Tax Planning

Tax planning should be an integral part of your finances. It’s your loss if you don’t make use of the available deductions and exemptions to save on taxes. Paying taxes is a way of contributing to the nation’s development, but when the government is providing you with options to save taxes, it is only wise to do so.

Importance of Saving Taxes:

Let’s understand tax planning and its benefits with the help of an example. Consider Akash, an IT professional living in a metro city with annual compensation of Rs 16 lakh. He is currently repaying an education loan of Rs 22 lakh which he had availed to fund his higher education

How to Save Taxes?

The Income Tax Act, 1961, provides taxpayers with several options to reduce their tax payable. Various sections offer tax deductions, out of which Section 80C is the most popular. Amongst exemption, claiming house rent allowance (HRA) is the widely used exemption. The best way to save taxes is to lay out a financial plan as and when there is a revision in your salary and to stick to it. Also, it is essential that you make tax-saving investments in the first half of the financial year, so that you don’t make hasty investment decisions at the end of the year. Furthermore, it would help if you claimed all the exemptions and deductions you are eligible for. To do this, you should know and understand the various exemptions and deductions available.

Section 80C

Section 80C is the most popular section in the Income Tax Act, 1961. It provides provisions for taxpayers to save up to Rs 46,800 a year in taxes. Section 80C covers several tax-saving investment options, and investors can choose to invest in any of the options under Section 80C to avail the deduction of up to Rs 46,800 a year. The best tax-saving option under Section 80C is equity-linked savings scheme (ELSS). It is an equity-oriented mutual fund scheme, offering the dual benefit of tax-saving and wealth growth

Apart from ELSS, you can invest in government savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC), tax-saving FDs, and so on. Cumulative investments in these options will provide deductions of up to Rs 1.5 lakh. You can also claim deductions towards your payments made towards children’s school tuition fee and home loan principal repayment under Section 80C.

What Can You Expect From a Career in Tax?

Though you probably won’t help imprison gangsters like Al Capone for income tax evasion, as a tax expert you’ll certainly hunt down creative solutions to surprising problems. Here’s a look at the tax careers out there and what you’d do in a day at the office.

Tax at a glance

Tax is an unavoidable fact of life – it affects every person, company and organisation. Everyone wants to save money on their tax bill. Everybody wishes someone would do the paperwork for them.

What roles are there in tax?

A tax role has two main parts: compliance and consultancy.

Compliance is the nitty gritty of tax – the paperwork. One key compliance job is to complete your client’s tax return according to the current regulations and file it on time. Depending on your specialism, you might do calculations, accounting and paperwork for things like setting up family trusts or estate planning. At the beginning of your career you can expect to focus on compliance while you learn the ropes.

Tax consultancy is the problem-solving side of the tax business. Tax advisors make sure their clients’ finances are tax-efficient (simply put, they find ways for their clients to pay the minimum tax possible). It means knowing tax regulations inside out and being able to take advantage of all the available tax structures, tax breaks and loopholes. This is what you’ll focus on as a qualified tax advisor.

How to Hire a Tax Professional for Your Small Business

Hiring the right tax professional for your small business is important. Getting good tax help can translate into money for your business. Ideally, you should form a long-term relationship with a tax professional so you have someone to call year-round. Because this person is so important to your business’ bottom line — and will help ease your stress throughout the year — take the time to learn about the different types of tax pros, how they can help, and how to choose one.

Types of Tax Advisers

Anyone can claim to be a tax expert. And people who prepare tax returns don’t have to be licensed by the IRS

Make sure your tax preparer is one of the following:

Enrolled agent (EA). An EA is licensed by the IRS. The EA has either passed a difficult test or has at least five years of experience working for the IRS. Enrolled agents are the least expensive of the tax pros and often offer bookkeeping and accounting assistance.

Certified public accountant (CPA) and other accountants. CPAs are licensed and regulated by each state. They perform sophisticated accounting and business-related tax work and prepare tax returns. Larger businesses or businesses with complex business tax returns often need CPAs. The larger CPA firms are expensive. Smaller CPA firms are cheaper and may be better for the typical small business.

Tax attorney. Tax attorneys are lawyers with a special tax law degree (called an L.L.M. in taxation) or a tax specialization certification from a state bar association. Tax attorneys can be expensive. But you should consult one if you have a tax problem, are in trouble with the IRS, need legal representation in court, or need business and estate planning.

Whatever type of professional your business needs, make sure he or she has specific knowledge and experience in helping small businesses. It’s even better if you can find someone who already knows a good deal about your type of business or industry.

How Tax Pros Can Help Your Business

If you find a good tax professional, you seek his or her assistance in many ways throughout the year.

simple tax

We’re not your normal suit and tie kind of CPA’s. We don’t want to just see you once a year when we do your taxes. We actually want to have a relationship with you and we want to help you plan for your future. We specialize in tax returns and tax planning with the goal of “no surprises”. You shouldn’t ever be surprised by a big tax bill or an issue with the IRS.

Rely on your go-to tax consultants to make things less taxing

If there’s something that every American knows about the IRS, it’s that it is too daunting to deal with. All those calculations, exemptions, and deductions can drive you crazy even if you’re aware of when and what forms need to be filed. The good news is that you no longer have to do taxes on your own. You can now benefit from the best tax preparation services offered by dime simple business, the only company that can make the process completely stress-free for you. We are driven by the idea that complex things can be turned into simple things, and we’ll prove that.

Meet your team of seasoned tax accountants in Alpharetta, GA who are looking forward to helping your non-profit, business, or church move forward. We will prevent your organization’s financial future from taking a beating by preparing long-term forecasts, filing your returns, and developing cost-effective strategies. We will stand behind you when dealing with the IRS and keeping up with the ever-changing tax code while looking after your interests as a taxpayer.

Long-standing business relationships. When working side by side with dime simple business, you’ll always have a team of experts at your service, no matter the issue. We are not like those “specialists” who only show up before the deadline to file your tax return and then disappear for months. We are here day and night to help your organization thrive and secure its financial future.

Invaluable assistance for all. Regardless of what type of organization you’re managing – a small business or a church – we can make sure you’ll never be landed with a huge tax bill. Our capabilities allow us to protect the interests of all while providing hassle-free tax return services and more.

How to choose the right accountant

Top tips for choosing an accountant

Once you’ve decided it’s time to hire an accountant, the next step is to choose which accountant to hire. It’s important to take the time to do this carefully, and there are a few things you’ll want to consider first. You’ll need to think about issues such as the accountant’s location, the division of workload and the type of accounting software you’ll use. Consider how much you’ll have to pay the accountant, and whether they can help to reduce your business taxes.

Ask yourself if location matters

It used to be important to have your company’s accountant located nearby. But today, more companies are collaborating online, using cloud-based technology to manage their business. This means that location is less of an issue. With cloud accounting, you and your accountant can view identical real-time data at the same time – no matter where you are.

Choose a certified or chartered accountant

In many countries, accountants are regulated by professional bodies which look after accounting qualifications and try to maintain high professional standards. Depending on the country you’re in, professional accountants may be called Certified Public Accountants or Chartered Accountants. Chartered Accountants (CAs) are highly qualified professionals who have completed degree-level study along with workplace experience and a professional competence program.

Tips to Choose an Accountant for Your Small Business

Know What You Need

But before you choose an accountant, you need first to understand the kind of work or responsibilities you want the accountant to handle for your business. If you need monthly financial statements and bookkeeping tasks, a non-certified accountant or bookkeeper can be hired. But to get tax planning advice, tax returns prepared, or audited financial statements, you need a CPA or certified public accountant.

Look For Small Business Experience

Beware of big accounting firms. You need someone who works with small businesses, and it could also be a bonus if the accountant works with businesses in your industry. While working for clients from a specific industry for a long time, some accountants get to know the related challenges very well. If the accountant has been dealing with several clients like you, he/she can guide you well about making the right financial decisions for the growth of your company.

Decide Whether You Need an Accountant or a CPA Firm

Many small business owners start by managing their taxes on their own. Unlike the past, it has become much easier for business owners to do simple bookkeeping tasks with the help of advanced software like QuickBooks, Xero, Sage, and similar others.

Choosing the Right Accountant for Your Business

Choosing the Right Accountant: Hiring a Firm Versus an Inside Accountant

Many entrepreneurs who launch their own businesses start out by wearing the accountant’s hat and doing your own taxes, in addition to doing just about everything else in the business, too. It’s become easier for a layperson to keep track of a business’ finance with the advent of simple bookkeeping software, such as QuickBooks, Quicken, and Microsoft Office Small Business Accounting. But there comes a time in a growing enterprise when it makes sense to hand over responsibilities for taxes, accounting, and the rest of the financial functions to specialists.

Choosing the Right Accountant: When Is It Time?

Many small businesses don’t have the volume of financial transactions that necessitate hiring a full-time — or even part-time — bookkeeper or accountant on staff. Then again, the financial situation of their business is such that they could benefit from more regular financial review and planning and up-to-date accounting — instead of leaving every invoice, receipt, and ledger to hand off to the tax preparer at the close of the fiscal year.

Inside accountant

When the business grows in revenue and the transactions become more complicated, it is time to consider hiring a full- or part-time inside accountant. Since the outside accountant’s fee grows with the size of the business, the owner may see some cost savings by bringing some of the work in-house.

How to Choose an Accountant Who Is Also an Advisor

Personality

Is the accountant’s style compatible with yours? Be sure the people you are meeting with are the same ones who will be handling your business. At many accounting firms, some partners handle sales and new business, then pass the actual account work on to others.

Fees

Ask about fees upfront. Most accounting firms charge by the hour; fees can range from $100 to $275 per hour. However, there are some accountants who work on a monthly retainer. Figure out what services you are likely to need and which option will be more cost-effective for you. Get a range of quotes from different accountants.

How to choose an accountant for your small business

Why should I hire you?

Hiring an accountant can be “even more important” than taking on a member of staff, says Clive Lewis, head of enterprise at The Institute of Chartered Accountants in England and Wales (ICAEW). “If you get the wrong person, you can miss out on things you should know,” he explains, “and that can be very costly.”

Could my money work harder?

James Richardson is a company director at Metric, an accountancy firm specialising in start-ups. He says most people believe an accountant will just be looking after annual accounts and tax compliance. However, “that’s only a small portion of what a good accountant can – and should – be doing for you.”

Are we a good match?

The right accountant will have more than just prestige – it’s important they understand small business needs, and are able to offer relevant insight.