Accountopedia

It is not easy being an accountant. Since this blog is all about accounting, and accounting is very close to my heart (and brain), today, let us talk about being an accountant or specifically, a Chartered Accountant. The word chartered comes from the fact that the Institute that grants the certification (or more technically, the charter) has been authorised to issue this certification to the accountant in recognition of the fact that this person has completed coursework and articleship.

Of course, all Chartered Accountants are not the same. The area of tax practice and audit services is so vast that invariably accountants of all hues find themselves getting specialized in some area or the other.

Given that tax is one of the most common statutory requirement, being a Tax Accountant is quite commonly accepted. But there is more to accounting than tax.

I would go to the extent of saying that the entire gamut of financial planning and control is under the purview of accountants.

This includes, but is not limited to investments, treasury, purchase, sales, billing, payroll, and a whole host of other finance related areas.

If I have managed to get you intrigued about the area of accounting, I think that the purpose of this blog post has been served. So, until next time, keep counting, ahem accounting.

Any business that sells products needs to know its product costs and depending on what is being manufactured and/or sold, it can get complicated. Every step in the production process has to be tracked carefully from start to finish. Many manufacturing costs cannot be directly matched with particular products; these are called indirect costs. To calculate the full cost of each product manufactured, accountants devise methods for allocating indirect production costs to specific products.

Generally accepted accounting principles (GAAP) provide few guidelines for measuring product cost.

Measuring profits or net income is the most important thing accountants do. The second most important task is measuring costs. Costs are extremely important to running a business and managing them effectively can make a substantial difference in a company’s bottom line.

Accountants need to determine many other costs, in addition to product costs, such as the costs of the departments and other organizational units of the business; the cost of the retirement plan for the company’s employees; the cost of marketing and advertising; the cost of restructuring the business or the cost of a major recall of products sold by the company, should that ever become necessary.

Cost accounting serves two broad purposes: measuring profit and furnishing relevant information to managers. What makes it confusing is that there’s no one set method for measuring and reporting costs, although accuracy is paramount.

Cost accounting can fall anywhere on a continuum between conservative or expansive. The phrase actual cost depends entirely on the particular methods used to measure cost. These can often be as subjective and nebulous as some systems for judging sports. Again accuracy is extremely important. The total cost of goods or products sold is the first and usually largest expense deducted from sales revenue in measuring profit.

The companies to show a rosy picture about their finances they do many things to make sure they show their increase or decrease their incomes as per their fancies. This process is known as window dressing or income smoothing. Of course this cannot be termed as fraud. It is just twisting the facts and presenting it.
In this case, the amount of revenue or income is not shown in the year they are incurred and they are shown as the next year income or expenses.

Here they can add or remove some of the expenditures like maintenance and repairs and show it in the next financial year. To show a good income they would delay these payments and take it in the next year accounts. This process is known as deferred payments. Many expenses like conveyance and recurring costs can be delayed. Even the machine, building cost can be delayed and shown in the next financial year.

The companies which spend money on the training and development of their employees can delay their expenses to keep the profits up in the current financial year. They can also delay the expenses incurred for market research and product development.
To show the decrease in the profit the companies can cut back on the bad debts and the same can be put off for the next financial year. The write off of any fixed asset of the company can be delayed and the same can be set off later.

Therefore manipulating the time of certain expenses or income can affect the balance sheet and the general accounting of the firm and it is assured that these tactics are not illegal but they are just delayed. Of course it gives the wrong picture of the company and the figures are misleading. Mostly they are nothing but shading your own eyes and showing the world a rosy picture. The effects next year offset and cancel out the effects in the current year. Less expense this year is balanced by more expense the next year.

In the famous George Orwell book, titled Animal Farm, the author writes, “All animals are equal, but some are more equal than the others.”

In quite the same way, all auto insurances seem equal, but they are unique in their own ways.

A few days ago, I blogged on loans and today I am blogging on auto insurance. Does that mean that this accounting blog is losing focus?

Not at all.

Instead, I am introducing new concepts that are of interest to budding accountants. After all if you are a practicing CPA, you will need to advise your clients on various financial matters, and insurance might be one of them.

So, when you are in the market for car insurance, make sure to see what is covered, to what extent, and with what riders. That should about do it.

Shakespeare once said that, “Never a borrower, nor a lender be.” At least I think that was Shakespeare.

What the bard probably missed out was the fact that loans, when administered and repaid responsibly can turn out to be great tools for comfort, facilitation, and lifestyle management.

Take the case of a situation where there is an urgent need to spend money, and that this expenditure is really urgent. That is where loans come in really handy.

In case you are wondering why this is important on a blog that is dedicated to accounting, well, a lot of accounting actually arises (and often concludes) in various forms of borrowings.

As an aspiring accountant, you should know about what the terms of the credit are. But that is not all. As you see yourself evolving into a financial advisor, you need to understand the behavioral issues involved with people who borrow money.

Until next time: Happy borrowing and happier repaying.

A person who has worked in a firm or office knows what accounting is. The accountants are the people who pay money or salary to other people or employer of the firm. To keep the business running they have to get the money from the people who owe them or pay their bills for various purchases they have made in a given month. The accountants are known as “bean counters” as they also keep an eye on profits and losses of the company. They also look at the cost of the materials purchases and try and cut down on all the costs. If you are running your own business you would know what is the important for profits for the firm and the losses are so very bad for the firm.

Whatever types your business you will need to balance your books i.e. The banks outgoings and incomings. This is known as accounting and you would want to recruit a person who is accountant who can keep the tab of all these. The accountant can follow the accounting principals and can help you in keeping your company profit making.

Most of the companies balance their account on a yearly basis but it is good to know how their
performance is and what goals they would like to achieve in their field. The farmers need to take the loans to plant their crops they will not get that loan if they are running on losses and would get their loans easily if they show profit in their balance. And if they are doing well they may need not take any loan and they can fund their own crops for planting and may save on loan interest charges.

All the businesses need to keep their accounts in systematic order or else their finances can go haywire and they will not be able to stay aloft in the business. Staying on top of accounting, whether it’s for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you’re smart. Not doing so can mean anything from a bounced check or posting a loss to a company’s shareholders. Both scenarios can be equally devastating. Accounting is basically information, and this information is published periodically in business as a profit and loss statement, or an income statement.

A business needs to know their profits and losses on a daily basis so they recruit people for their accounting and bookkeeping department.

The accountant or bookkeeper need to record the salaries and taxes earned and paid every month. They need to make sure that all the taxes are deducted and paid to the government in time. These taxes include Income Tax, Social Security, or employment tax. The other deductions include the retirement, medical benefits, sick leave, or leave payments. Most of the company has their own payroll departments who take care of all these taxes and deductions. The other companies recruit a specialist for such work or outsource it.

The account department also records any payments received by check or cash from the customers for the material supplied or the services rendered. It is the duty of the accounting department to make sure that the amount thus received is deposited in the accounts and also make sure that the outgoing payments are recorded accordingly. They should let the company know what is the surplus or the deficit and what amount of the pay outs are to be done. What do the company owes the bank, vendors or any other person.

The checks are the life line of any business you need to make checks payments for supplies, purchases, salaries, taxes, loans and other services provided by people. The accounting department is responsible to issue all the checks and send it to the party concerned.

The accounts department also needs to track the investments, the purchase order; the sales invoice the payment by the client. They also need to check on the assets of the business like business property and furniture and fixtures, computers and the small items like pencils and pens etc. The accounts department people are solely responsible for the day to day expenses and they need to take care of the cash in hand and also at the bank. The bank and the cash in hand need to be balanced daily and the report to be made for the owner to see.

A balance sheet is a quick picture of the financial condition of a business at a specific period in time. The activities of a business fall into two separate groups that are reported by an accountant.

They are profit-making activities, which includes sales and expenses. The operating costs include financing and investing costs. The profit making, investment in the assets of any kind like furniture, fixtures for the office, the office etc are capitals.
The profits are reported in the income statement. The cash flow shows the finance and investment made during the year. The cash flow shows the increase or decrease in the cash flow of the company during a given year.

The balance sheet is the balance of the company’s assets, liabilities and owners equity for a given year and at the end of the year. The word balance, in business means the balance between the assets and liabilities of the company. The balance sheet of the company shows how much they have spent in a year and what profits are recorded. The balance sheet is prepared every year and it can be prepared any time owner needs to know how the company is doing. The balance sheet is different from the income and cash flow statements as the balance sheet represents the balances.

To take the money out of the business is very difficult. In business to have a cash reserve is a must and the experts say a reserve of six to nine months worth of income is to be safely stored in the bank. If you have a business worth of $250000, you will need to save 1.5 million dollars will be the most difficult part of the business. This shows that we cannot save so much money in the actual and it can be only a theory. So how does a small business plan a savings program for their long term success?

The first step towards good management is realizing the business needs a savings plan. The savings can help you grow in future and it also makes sure you have ready investment capital and you do not need to apply for loans. If the markets are volatile and face some rough weather then you know you have a back up and you will not go under. Savings helps seasonal businesses with the ability to purchase the raw materials and take care of the payrolls unless the new season arrives. Always remember that the business was not built in a day and the savings also take time to build. So slowly and steadily try to build your reserves.

Review the books regularly and try and figure out ways and means of cutting costs. Open a separate savings account and try to siphon off the money from the business to the saving account slowly. This will make you aware of the costs and you can put stop to unnecessary costs. This will help you keep a check on all the expenses and you will not have to face the surprise of losses six months or a year from now.

Today, the business accounting has become more and more difficult. This is due to the accounting function by the business man. We have several software packages which can help the business man to manage and maintain the accounts. One such package is Quasar.

All versions of Quasar offer inventory control and in its more basic use the inventory control lets the business man to find out the location and the quantities of all the inventory lying with them at any given time. The inventory module is so compact and varied that it can immediately deduct the parts from the inventory if they are assembled and the items can be grouped into various categories and you can keep a check on all these items. The purchase order can be generated for items that are below. Cost and selling price for the items can be set in advance and the discount can be worked. Finally the items can be reported to show profit margin and sales per item.
The sales and purchase are also very easy on Quasar. The quotations can be easily turned into the sales invoice. The discounts, promotional discounts can be created depending on the customer, or individual person. Similarly a purchase order can be converted into a invoice and can be paid with a printed check. It can also keep the check on the miscellaneous expenses like freight charges, franchise fees etc.

The Quasar is very easy to use and the data entry system is very fast. The options you require are not keyboard controlled so you will need to use the mouse regularly. Most of the options are mouse controlled only. But most of the other functions are controlled by the keyboard with special shortcuts. This lets you do faster data entry which saves time and money in the long run.