0*]3% 5GA}Jsa襹ѺG3 D+8|ѻqTP%Z O` մ
!F [=oG@fiFm 5H p.R]P
*BDI5pD )] `
n {L TҴ@qg@ 1͆*4= MLuj+
O5JTAO_7
4_%bt Ql&S% ]rO4)-@K|zkL ՝ +.NC*t(Hc!\Qorp)-Yu%L-+ҍz5crwU{
v$xR@(221'G@%@ \ <ϼS}Z!+kgʲz 0 W Times New Roman B I S a c e h l m n o s t X hRqJ U f J fJdqf 2h#Q#ã
n`) % 2 2 2 2 2 2 2 2 FnW a I X # Y W^0U h ( -
J Y [M Z W{0U h ( +
K Z 9O [ W{0U h ( +
L [ #N \ W^0U h ( -
M \ (L@ 1 ] g6_ 0U f ( Balance = 0
N ] ^ W{0U h ( >
O ^ & _ W{0U h ( <
P _ o@ ` W{0U h ( >
Q ` H+ a W{0U h ( <
R a Vl. b `)X W f
* pJ7e 23{زŝ! S b C 2 c `40 W f "uԳfISdFe4řSfC T c 5 @ 5 E L d Vs 33
/gr1lޚ5mW ؽSVѯh u 8pڜ Wr0 b e Vs&( 33
.wrG_ލ0mQ8).ӁnB8RC| f eݚ="ih
.uIpޜ vr L f Vs 33
ŽSVѯh 7 ؽSVѯh u 8pڜ Sr2 0 g & d e f ŜIBl 1 g p # h _D?` 0C 33 ( PG 2
5 h @:Ol~ " i w?
2 f In large businesses, accounting may be performed by separate departments and pulled together to be reconciled at the Controllers office. In a smaller company, one person may do all of the data entry, another may write checks, and the CPA or PA will come in and reconcile the books to the banks, and produce the Financials. These statements and their design present a crucial look into the health or mistakes of any business.
You need to have a detail-oriented bookkeeper to enter the data, and a PA (Public Accountant) to produce reliable Financial Statements, which is the goal of an accounting system. Sometimes you can find a PA with reasonable rates to do all but the taxes. A PA charges less than a CPA (compare $50+/hr to $150+/hr). Because accounting consumes time and money, you need to find someone knowledgable and efficient to manage your books on a monthly basis. At tax time, a CPA or a IRS Tax Agent can do the taxes from the reports generated by your PA. While bookeeping fees may be less expensive, handing over unreconciled books to a CPA can be much more costly than a PA in the long run.
There are several types of tax reporting when it comes to year-end taxes, depending on what kind of business you are: Sole Proprietor, Partnership, Limited Liability Corporation, S Corporation, Non-Profit or Corporation.
E i @ 5 E # j _D?` 0C 33 ( PG 3
5 j @:Ol~ k | | 2 f Whether you file a Schedule C as a Sole Proprietor, or file a Corporate Tax Return, if a business has a reliable set of books that produce accurate Financials Statements, then the CPA can enter the data into tax turbo software, and voila: you have been rendered professional and other business associates will take you seriously.
One of the things we have noticed lately is some tampering with the rules of accounting, and we would like more feedback about that. We are more than curious when big companies report strong profit projections, claim bankruptcy and cause huge layoffs of personnel. People's lives are affected by this behavior and it is unethical.
We want to jump into this topic with people who are in the know later. But if we analyze changing accounting standards for the last twenty years, we might see where things begin to get fuzzy. For instance, reporting fixed assets at market value rather than at cost is a major faux pas in accounting, yet the possibility was raised in the Wall Street Journal last year. Is this now a standard being taught at MBA programs, rendering the new arrivals on the business scene stupid, and society defenseless?
E k 5 @ 5 E # l _D?` 0C 33 ( PG 4
5 l @:Ol~ m W^
0 (
E m n y
2 f Another issue is the handling of an asset account known as Goodwill, which was generated as a way for corporations to be accepted by communities back when they needed recognition. The corporation gave away free goods and services to the community and the way they booked it on record was to credit Pro Bono (free) Sales, and to Debit Goodwill. One of the bylaws of a corporation is to find ways to give back to the community, but how do we track those contributions?
Today, Goodwill is an offset to brand recognition at the time of sale. In other words, a company's assets may be worth less than what a company sells itself for, so the difference is called Goodwill. What can explain this gross change in perspective?
We begin to wonder how obviously successful companies like Macy's can be bankrupt and still have creditors and still do business, and still make profits? PG&E in California is another mystery. They resold assets to another affiliate firm and then claimed bankruptcy, robbing Californians without recourse. And now Enron is facing charges of fraud as well. With all the major players, from the Govenor of California to the President of United States receiving kick backs, and payoffs. Don't let anyone ever tell you that an accounting system can be a place for things to hide. It is not.
F n E @ . 5 E F # o _D?` 0C 33 ( PG 5
5 o P p W^
0 (
E p t q q?
2 f A double entry accounting system that has both a Balance Sheet and an Income Statement reveals all the historical transactions of a company. And this raw data is stored at the bank on microfiche. Any set of books can be recreated from these source documents. It may be costly to get copies of all of the records from the bank, but it is less costly than frauding the retirement accounts of laid off employees. All corporations are required by law to operate according to GAAP and FASB accounting standards. Companies that make huge decisions based on pro forma Financials, (which are wishful projections of the future) and then offer those Financials as reality to the investors and employees of that company, is committing fraud. This fraudulent accounting produces the kind of the letdowns the dot.commies have suffered of late. When this kind of wishful thinking fails, employees get laid off and victimized in the long run.
How can we be smart enough to ask the right questions? We don't have all the answers. When we know the questions to ask, to test the reliability of an accounting system, the answers we get will guide us and our companies to encourage the shift to Enlightened Capitalism. We will be enlightened enough to ask reasons for things and know where to get our answers.
F q @ 1 4 5 E F
Accounting 0M5@. @ $ v r p v x A 3f3 v 6[h-;,O@b2]X9XAT®,J 84 E$'
CX v]Da<4^ub\` 4 r 5e5 D @h s q
2 f Accounting is a transactional historical process by which all raw data of a financial operating system is captured and then reported for the purposes of conducting commerce. These standardized processes are set according to the Generally Accepted Accounting Principles rules, the Financial Accounting Standards Board, and the Securities and Exchange Commission. These governing bodies present rules that give confidence to the reliability of a business's Financial Statements.
Certified Public Accounting firms are the interface between these Regulating Boards and the Business Owner. CPA's are heavily relied on and are liable for accuracy in reporting. Another less costly player is the PA, the Public Accountant, not certified to keep up with the tax laws, but knowledgeable in the area of setting up the books so that the Financials are reliable. However, it is the realm of the CPA to keep abreast of the newest rules and tax advantages so that the Client, who is the Business Owner, can proceed with confidence.
The components of an accounting system are simple when you break it down. Raw data enters an accounting system from original documents such as checks, deposits, cash receipts, credit cards, and journal entries. These documents, when assembled in an
E s 5 @ 5 E 1 g p 5 h אh t p 2 f accounting system operated according to GAAP and FASB rules, provide Financial Statements that enable management to operate efficiently and with accuracy.
Accounting systems are set up on a cash basis or an accrual basis as explained below. Of the two, the accrual basis is the most reliable because it catches timing differences that are not caught when the books are kept on a cash basis. On the other hand, cash basis accounting works best for tax purposes because you do not pay taxes on items not yet received or paid.
We find that unless you have inventory, where you are required to keep your books on an accrual basis and pay taxes on an accrual basis, we suggest that you keep an accrual system for operations, but convert it to cash at the end of the year when you have to do your income taxes. This is easily done with closing entries in an Excel Software System.
Cash basis accounting means that all of the entries in the system are captured only when cash is either received or paid out. On a cash basis, cash is credited (reduced) and Expenses, Direct Costs, Assets or Liabilities are debited (increased). In other words, you write a check for the rent, or some film, or a computer, or a debt.
E t @ 5 E 5 j א u y
2 f Accrual basis accounting means that all of the entries in the system include both cash transactions as well as transactions in transit. What does that mean? It means that you have installed an Accounts Receivable Ledger and an Accounts Payable Ledger in your General Ledger. Items in transit live in these ledgers.
Accounts Receivables record Sales earned (credit) and also record money owed to the company held in the Accounts Receivables (debit) until they are paid in full. This accruing of AR enables a company to track actual sales and distinquishes between those sales that are paid for in cash (debit) and those sales that are still outstanding (debit)... in other words, who still owes you money. When the Receivable is paid, cash is debited and AR is credited, wiping out that obligation, but not affecting the sales figures.
Accounts Payables go the other way. You purchase items on credit for your business, but don't pay for them in cash until the end of the month, or over time. The Accounts Payable section of the General Ledger credits a Liability account and debits the Expense or Direct Cost, tracking to whom you still owe money.
With an accrual based accounting system you can have an accurate picture of your net worth
E u @ 5 E 5 l @h v n倭2 f through your Financial Statements. Cash Basis accounting doesn't capture information that documents receivables (who owes you) and payables (who you owe). Decisions can be made based on Receivables and Payables, because they capture the reality until the cash comes in or goes out. In an accrual system you are better off, because you know what is up.
Of course the downside to accruals can occur if people do not keep their word, and don't pay up. On the other hand, Cash Basis businesses often get caught in cash flow problems, and cannot operate if cash runs out.
The accrual system tracks the terms of agreement on when to pay for the goods purchased for sale. We earn these terms by establishing a record of good credit. That means we have a reputation for delivering goods, and paying bills on time. When we have a reliable accrual system going, we can really do some business. Most businesses have a net 30 payable system. That means that everyone has 30 days to sell enough goods and services to pay for the costs of goods sold on time. This is business smarts.
E v @ 5 E 5 o א w y
2 f Usually having enough money to pay for our start-up costs puts us ahead of the cash flow game. Remember our receivables are another person's payables. Because most people have net 30 terms for making payments on bills, start-up cash can get us that head start in case we purchase on the first day, but don't sell until the 10th. Sales won't be collected until the 10th of the following month, but purchases will be due on the first. We don't want to be late for bill paying. Bad credit is a painful way to lose business.
Retail has a bad name for paying 60 to 90 days later. So we advise having a cash flow if we are starting up in retail.... or ask for COD (cash on delivery of sales). Retail, by the way, means sales purchased wholesale and resold to the consumer at a 50% to 100% markup.
Some Machiavellian companies want more markup, and pay very little wholesale costs. They feel if you are stupid enough to pay $500 for electricity, you should be charged that much. "What the market will bear" is the general rule here, so if you are a docile, servile, unquestioning citizen, you will pay rather than become unbearable, or do without. Or if our
legislators allow duplicity in commerce, and provide no regulations to prohibit fraud, we are
at the effect of what is going on and have been rendered powerless by our leaders. We think we need some revamping in these areas asap.
E w 5
@ . 5 E $ x _D?` 0C 33 ( PG 6
5 x א
y y
2 f So when it comes to make up, don't do that...find out wholesale costs and pay no more than 100% markup to manage greed. A markup is necessary as it pays for direct costs, overhead costs, payroll etc. Too high a markup may be considered smart business in this kind of an economy, but we feel that if you sell at a fair price, more people will buy and be satisfied customers. A business can drive competition when it sells goods and services at a fair market value. A business that overprices so that only a few can afford creates frustration, hostility, and crime.
To summarize, any accounting system tracks the history of a business through its legal documents: checks; credit card transactions; cash transactions; deposit records; bank statements; and the instruments of accrual, invoices. Know that at any time your books can be recreated from these legal documents, and they can be sourced through the bank. The checks and balances that make up a good accounting system assure you and others interested in doing business with you that your books are reliable. The books are fully auditable, so in an audit, unless you deal with cash, you really cannot hide anything. Well...you can use flexible accounting software that will allow you to change figures, but in an audit this can be easily determined fraudulent, because the accounting must be backed up by the legal documents that created the transactions.
E y 5
@ 1 5 E
Financial Stmts 0M5'@. @ $ z x E
A 3f3 0@,< h, X( X8 h(4$ X X84 DdHx XH|xX Xh^tHtPh^HlX X8xHxXqXtx 4 z 5 D א 4 { n
2 f The Financial Statements (FS) of a business reflect the content that lives in each of the accounts in the General Ledger (GL). The FS define the business's strengths and/or weaknesses at a glance. They provide a summary of all the data in the system, and the information is invaluable for the business owner and the community who needs to trust that data.
It is imperative for a company to report accurately, because without accuracy, no real stability in the market exists. The economy becomes based on surprises complicated by distortions, and no one wins, with the exception of the few who can play the system and get away with it.
The Financials are derived from the data in the General Ledger and provide two reports:: The Balance Sheet and the Income Statement. These are what are termed as the "Financials", and are required reporting to meet tax and government obligations. The Financials are required by banks, creditors, and investors in order to provide goods and services. Real Estate Holdings, Retirement Contributions, Dividends and Interest, as well as Investment Information cannot be assessed without reliable Financials.
E {
@ 5 E 1 g p 5 h 0h | n
2% f THE BALANCE SHEET
The Balance Sheet (BS) reflects three kinds of information: Assets, Liabilities, and Owners Equity (in a Sole Proprietor) or Common Stock (in a corporation) . The BS is the permanent record of the business, and it shrinks or grows according to what happens on the other side of the GL, in The Income Statement.
ASSETS
Assets are the items the business owns, and they are generally found in the accounts that range within the 100 numbering system and branch from there depending on how many sections exist for Asset Reporting. The first section is the Banks. Here you list all your bank accounts that are associated with your business: Checking, Payroll, Market Rate Savings, etc. (100-110). The second section provides accounts for Other Current Assets, such as Bank Transfers, Advances, Prepaid Expenses, Security Deposits, Liquid Assets or Holding Accounts. (111-119)
The third section holds the balance in the Accounts Receivables Ledger of the business, for Sales not yet paid. The details are held in a separate ledger for customers and invoices
E |
@ 5 E 5 j h
x } v
2 f generated by those customers. You can track customer history in this account. (120)
The fourth section holds the Inventory account, where applicable. This section contains all of the purchases held for resale until sold. Once sold, Inventory is credited (reduced) and Cost of Goods Sold is debited (increased) so that the Income Statement reflects the Cost of Sales. (121) In a Quickbooks accounting system, inventory is recalculated when sales are posted.
The fifth section holds Fixed Assets and these are the tangible items the business owns such as automobiles, buildings, furniture/equipment, computers...generally assets that have material costs, items over $500. These Assets are expensed at the end of a period in an expense account called Depreciation. The Depreciation Expense account is debited and an Asset account called Accumulated Depreciation is credited, reducing the value of the Asset on the books. (130)
A sixth section holds Other Assets such as Investments, Retirement Funds, Stock Purchases, etc. Some BS have intangible assets, such as organizational expenses or Goodwill, which are Amortized (sort of like how Depreciation works) over time. (140)
E } u
@ 5 E 5 l @ ~ |
2% f LIABILITIES
Liabilities record any debt you have generated by the purchase of Assets, or of Expenses incurred. This section is recorded beginning with the 200 numbering series. The first Account is always the sum of the Accounts Payable section, detailed in a separate ledger where individual Vendors and their bills wait to be paid. Vendor history is tracked here as well. (200) Other Liability Accounts show up on the BS separately and they vary according to the kind of business you have, and what you purchase on credit. You may have an Automobile Payable, a Loan Payable, a Sales Tax Payable, a Payroll Tax Payable, a Mortgage, whatever you may agree to buy now and pay later for. Often there is Interest Payable as well if there are assets that have been purchased. (201-299)
OWNERS EQUITY OR CAPITAL OR COMMON STOCK
The Owners Equity (OE) section of the Balance Sheet represents the difference between the Assets and the Liability Section and holds original investment, ongoing contributions made to the company, the Draws or Withdrawals taken from the company, the offset to Stocks and Bonds Dividends, Retained Earnings, and Current Earnings. This section is recorded by accounts holding the 300 series. (300-399)
E ~ u
@ 5 E 5 o @ ) v 2% f THE INCOME STATEMENT OR REVENUE STMT, OR PROFIT AND LOSS STMT
The second Financial Statement generated by an accounting system is the Income Statement (IS). This statement records the temporary accounts of a business that actually generate the Profit or the Loss at the end of a period, which could be the end of the month, the end of the quarter, or finally at the end of the year. At that time the accounts are closed out, and the difference placed into the Balance Sheet as Current Earnings. Income Taxes are based on this annual figure. When the books reopen in the new year, the funds in the Current Earnings account slip into the Retained Earnings account, so that new current earnings can be tracked in the Current Earnings account for the new year.
REVENUE or SALES
The first section of an IS summarizes Revenue or Sales generated for that period. A company may sell goods and/or services, and they may sell more than one kind of good or service, so they may require several income accounts to capture sources of sales. This Revenue Section holds accounts in the 400 series of numbers. (400-410)
E u @ 5 E 5 x אh v
2 f Interest and Dividends earned on stocks and bonds or investments are also held in this section. (411-419) Pro Bono (420-429) ntributions to the community are also recorded here as credits, and offset as Goodwill in the Asset Accounts. Goodwill is generated when corporations follow ethical, logical and passionate principles and choose to contribute to their customer base, or neighboring communities, essentially giving away goods and services for free to generate goodwill.
To harbor gross profits and to ignore public interest is a disgusting and unethical business/government-supported practice.
DIRECT COSTS or COSTS OF GOODS SOLD
This second section of the IS holds those costs necessary to generate Sales. A Consulting Firm may expense travel as a direct cost, a photographer expenses talent, film, rental space, and a computer equipment company carries inventory as a Cost fof Goods Sold. These Direct Costs or Cost of Goods Sold are transferred to the IS when Sales are generated, to account for the costs of goods sold. Direct Costs, or COGS, hold accounts in the 500 series. A test for DC or COGS is that you cannot generate a sale without these costs. (500-599)
E u @ . 5 E $ _D?` 0C 33 ( PG 7
5 H _T 2% f OVERHEAD EXPENSES
Overhead Expenses hold the 600 series of accounts in the Financial Statements. These are the expenses that all businesses have to pay, regardless of type of business. The kind of expenses that are labeled Overhead must be accounted for whether Sales are made or not, so being able to cover your Overhead Expenses determines if you can stay in business when Sales are down, or slow in payment. Knowing and budgeting for these costs remains crucial to operations. (600-699)
Overhead Expenses are common sense expenses and generally can be budgeted for: rent, utilities, telephones, insurances, bank charges, office expenses, repairs and maintenance, payroll and payroll taxes, dues and subscriptions, continuing education, employee benefits, depreciation, interest expense, penalties, other taxes and licenses, computer expenses (such as software, not material components under $500), online services, payroll services, outside services, professional and legal fees, etc.
E @ 1 5 E
General Ledger 0M5@. @ $ | p yv x A 3f3 v 6[h-;,O@b2]X9XAT®,J 84 E$'
CXI.`vZwV+%<$l`2uT%KxX 4 5 D @:Ol~ s
2% f THE BIG PICTURE: THE GENERAL LEDGER
The General Ledger (GL) houses the whole enchilada! When you put both sides of the FS reports together you have a system that mirrors itself. The GL holds all the accounts in an accounting system: the 100's, the 200's, the 300's , the 400's, the 500's, and the 600's.
When a tally is done of the GL, meaning you add all of the Balance Sheet Accounts on both sides of the ledger, and then continue to add all of the Income Statement Accounts on both side of the ledger, the correct answer is always zero. A Balanced GL tally's to zero. This is true because the system is double entry, meaning for every debit (+) there is a corresponding credit (-). When you put a plus and a minus together the result is always zero!
A second check for balance is to tally the Balance Sheet Items and get a net profit figure, and then tally the Income Statement items to get a net profit figure, and they balance if the two match. One side will be a credit figure and the other side will be a debit figure and when you add them together, you get zero! Very Zen. But, we need to warn you that just because you
E u @ 5 E 1 g p 5 h @h v
2 f have a credit and a debit in both sides and you balance, doesn't necessarily mean that the data is correct...the books are balanced, but reliability depends on the accuracy of the data.
To assure that the numbers on the Financial Statements are correct, you need to print out a GL and look through the transactions to see if anything got into the wrong accounts and then put in the correction. This takes some time, but it is always good to check the data to be sure your picture reflects reality so that you can use this data to make business decisions.
Human beings are not perfection machines, although they try real hard sometimes to become them. Everyone is subject to error. The errors are normal. Investigating to find them and checking the work is the commitment of an efficient bookkeeper/accountant. Combing the GL for things that need reclassification is normal procedure to ensure accuracy. The errors are reclassified in Journal Entries.
The GL printout is as large as the data entry into the system, so you need lots of paper in your printer and some time for printing. You may keep a clearing account, a 900 account in the Overhead Expense section (bottom og 600 account) of the Income Statement for those items that you are not sure how to classify. They will stick out and demand Attention!
E 5 @ 5 E 5 j אh v
2 f Another catch all account in the Asset section of the Balance Sheet is the Balance Transfers Account. This account is debited or credited when transfering in and out of your own bank accounts to assure that both sides of the transaction occur. An example is transferring money from your checking to your savings accounts and back again.
Do not print out your FS or your GL while there are items in these accounts. Your PA or CPA can guide you on what to do with items that you are not clear about, but until you have a conversation with one of those people, it is best to keep them in a clearing account instead of guessing. Guessing is never a useful tactic in accounting. Remember: trash in, trash out.
The GL and the FS, and a copy of the year end reconciled Bank Statements are all you need to give to a CPA or Tax Consultant at the end of the year. That person can peruse the GL for reclassifications, and advise the PA or Owner or Bookkeeper of the required journal entries to put corrections into the accounts. Because the CPA is required to be continually educated about changing tax laws, it is a good idea for a CPA to see the GL and be confident that the books are in order before they put their name, or their firm's name, on the tax returns. So providing a GL is really useful and cuts down on conversations that would need to be had
E t @ 5 E 5 l @h v
2 f otherwise for clarifications that can easily be resolved with the GL at hand. Your CPA will love you for it.
As stated earlier, Journal Entries are the method used in changing the content of the GL for both adjustments to the accounts and to insert the closing entries that will clear out the Income Statement portion of the GL in preparation for the upcoming year's activities. Journal Entries that get posted at the end of the year are not generated by raw data such as checks, credit cards, or cash. These entries are generated by the rules of accounting. One of the rules is that you cannot expense Assets all at once, but can expense them over time through an account called Depreciation. The credit is to the Depreciation Account in the Assets, and the debit is to Depreciation Expense in the Overhead Expense Account on the Income Statement.
Another rule is that you can expense only 50% of Entertainment Expenses, and the other 50% needs to be non-deductible when it is time to do your taxes. The Journal Entry would credit the Entertainment Expense Account and debit the Draw Account or the Retained Earnings Account in the end, both of which live in the Equity Section of the Balance Sheet. If personal items are charged on a corporate entity, they have to be set up as a Loan
E t @ 5 E 5 o א v
2 f Receivable account and either paid back by the end of the year, or interest needs to accrue if it extends beyond one year.
There are a variety of Journal Entries that can be made to an accounting system, depending on the type of company: Stock Dividends, Earned Dividends on Investments, Goodwill, Sale of Assets, Accrued Interest Expenses, the Expensing of Prepaid Items. The PA or CPA can advise or will do the entries and send a document with the entries so that the books can be closed at the office and reflect the same information as the Tax Returns. A good CPA will provide closing entries and explanations to the Income Statement portion of the GL in preparation for the upcoming year's activities.
Gross Profit is determined by Gross Sales less Direct Cost or Cost of Goods Sold. This results in what is known as a Profit Margin. The number tells you the ratio of purchases to Sales, and lets you know what it costs you to generate those sales, and what kind of profit you are making, given the costs associated with generating those sales.
The closing entries to the GL post opposite same amount entries to each of the Income Statement Accounts, causing each account to zero out, and the final closing entry is what
E t @ 5 E 5 x @(
2 f remains as the sum of all Revenue, all Direct Cost or COGS, and all Overhead Expenses.
This is what is known as Net Profit or Net Loss, depending on how the numbers pan out. This last entry, the Net Profit transfers to the Balance Sheet, in the Current Earnings section of the Owners Equity portion and sits there until the books reopen. At that point that figure joins prior years' figures in the same section in an Account called Retained Earnings. The Retained Earnings of a BS reflect the health and vitality of the business over time.
Transactions that are not in the General Ledger do not show up on the Financial Statements. The Enron debacle attempted to dupe the public by not including on their financials some investments made offshore to avoid paying taxes. These investments were dispersed among the elite of the company before Enron claimed bankruptcy. As we listened to the hearing January 17th of Harvey Pitt, Chairman of the SEC, the commission responsible for auditing the accounting industry, we realized just how cunning these madmen have become. Don't let anyone fool you. All books can be recreated from bank records. The bank keeps copies of all transactions that occur in all bank accounts. Unless the transactions were performed in cash, GAAP and FASB and the recreation of the financials through raw data unravel the truth about Enron.
E E @ . 5 E 5 a y_
2 f Once you understand how the GL works, you can pretty much manage the particulars of an accounting system. You can print your Financial Statements. You can look at Ledgers which will tell you who still owes you money, who you still owe money to, what your net worth is, etc.
You can use this data to set up budgets which will help you to ensure that your Payroll is met, that your inventory is stocked, that your advertising is working, and your profit can be made.
An accounting system is a mechanism for perfection. The data you enter determines whether your business can predictably stay in business. Your business philosophy and purpose will determine how you manage the numbers and the people who assist you.
We at noodlebrain.com have a strong intention that people can learn this stuff and build relationships with companies to stay secure and growth-oriented in their own communities. Please ask us questions and generate conversations in the topics section so that we can broaden our information base. Then we can get a clue and manage assets, liabilities and net worth even if we are not running a business ourselves.
E 5 @ 1 5 E
Labor 0NP. @ $ s p v x A 3f3 v 6[h-;,O@b2]X9XAT®,J 84 v]Da<4^ub\7/ ,I.q 4 5 D @h # s
2 f Labor is the most important cost to consider in running a business as it is the most expensive cost of any company, even a company of one. Whether we have employees or contract outside labor, it makes a huge difference in how we relate to them, how we pay them, and how we report them regarding tax issues. Keep in mind that collective payroll taxes run our government. Payroll Taxes as well as Income Taxes pay for our roads, our human services, our defense, our medicare, our welfare systems, and other government resources. Without our taxes our government could not operate.
There is an important distinction between the employer/employee relationship and the business owner/contractor relationship. We talk about this in the Communications Module under the title Deference Pattern Communication Styles and Relationship Pattern Communication Styles. Outside of the importance of Communication Styles, there are further criteria that have laws attached to them and we must know the difference between the two, because the unlawful treatment of payroll and contractors fees can put one out of business. There are two ways people are paid for their labor:
1) through payroll services or in house payroll accounting, or
2) through invoices for payment of contract labor.
E u @ 5 E 1 g p 5 h @ v
2% f 1) PAYROLL ACCOUNTING
Payroll Accounting is the method of tracking labor hours for employees in a company. The payroll accounting for employees records Gross Payroll, less tax deductions, as well as any other deductions for retirement or benefits, and pays a net figure in the end. It is crucial that these figures be accurate. There are huge payroll tax penalties, fines and interest that fall on the company that doesn't track, and pay for, the payroll taxes of its employees.
The Employer/Employee relationship is a Deference Relationship and as such, the Employer pretty much owns the time of the Employee for the duration of employment. In return, (in America) the Employer matches FICA and MED Payroll taxes for the employee, and tracks Gross Income, Federal, SDI, Benefits, Retirement, and State taxes the employee pays within the year.
It used to be normal for a business to pay insurance and retirement benefits for employees, but good ole Machiavelli is too greedy to do that now. The government doesn't seem to respect the interest of the public as much as they do corporate interests these days, and we are too stupid to protest, so we have fallen out of the loop on that one. Europe and Canada
E u
@ 5 E 5 j @ s >2 f still pay, or the governments do, but they are beginning to backslide as well.
The Payroll Tax Quarterly Report, or Form 941, is a mandatory report for all employee based companies. This document is used by both the company and the IRS to assess payroll on a quarterly basis. There are tax deposit forms for both the IRS and State that are issued when a company applies for both a Federal Tax Identification number, and a State Identification number. These numbers are required on all reports.
At the end of the year, the Employer must issue a W-2 form that states what occurred in the payroll account for each employee, and also issues a W-3 that reports total Payroll and Tax deductions for the entire company.
The Social Security Administration tracks the employee record of every employee on a social security number provided on a W-4 document that is required reporting when an employee is hired. This document is completed by the employee at the date of hire and gathers tax reporting data such as name, address, social security number,and how many dependents an employee is claiming, which determines how much tax a person wiill pay per year. An I-9 for Immigration status and proof of citizen is also required reporting.
E u
@ 5 E 5 l h s
2% f 2) CONTRACT LABOR
If you are fortunate enough to find good people who are responsible enough to manage themselves and deliver on their word regarding their agreements with you, your reward as a payer of these services is that you are not obligated to pay taxes, nor benefits, nor vacation, nor breaks. On the other hand, you do not own their time, their tools, or their materials, nor their method of fulfilling on the contract, as long as they fulfill on the contract. The contract can be a verbal one, or a written one, and each party to the contract may terminate the agreement at any time without penalties. Now we think some Machiavellian type companies are contracting labor and treating these people as employees without having to pay for the benefits of ownership. We want that to stop and are serious about making a very clear distinction here between an employee and a contract laborer. Below is the criteria for an employee. A contractor need not comply with these critieria.
CRITERIA FOR DETERMINING IF A COMMON LAW EMPLOYEE RELATIONSHIP EXITS
1. Worker is required to comply with instructions.
2. Worker needs to be trained.
E u @ 5 E 5 o א -
s
2 f 3. Worker's tasks are integrated into normal business operations.
4. Worker's services are personally rendered and not delegated.
5. Workers is not responsible for hiring, paying, or supervising worker's assistants.
6. Worker has a continuing relationship with the hiring firm.
7. Worker's hours are set by the hiring firm.
8. Worker must devote substantially full-time efforts to hiring firm's business.
9. Work is performed on hiring firm's premises.
10. Worker's services conform to order or sequence set by hiring firm.
11. Worker is required to submit regular oral or written reports.
12. Worker's payment is based on time spent instead of by the job.
13. Hiring firm pays for travel and business expense.
14. The hiring firm furnishes tools, materials, and other equipment.
15. Worker has no significant investment.
16. Worker has no risk of economic loss.
17. Worker is not working for more than one hiring firm at a time.
18. Worker does not make services availabe to the general public.
19. Worker is subject to discharge even if the job requirements are satisfied.
20. Worker can terminate relationship with hiring firm without incurring any liability.
E @ . 5 E 0N Ќ5 x אh ? Arial q sʀ2 f Courts look to the right to control the worker. These rules were set forth in 1996 for employees. Since then things have changed and the nature of business has changed, so we probably need to participate in the re-evaluation of these rules. To perform as contract laborer, you need to be the expert, schedule your own hours, you may work at the firm and use their tools (computer, software,etc) but you need to manage your time and produce agreed upon results without supervision, you need to have at least five other clients, and you need to get paid at the time of service, or set up an agreement for payment, and you need to receive a 1099.
E @ 1 4 5 E
Software . @ $ q p v x A 3f3 v 6[h-;,O@b2]X9XAT®,J 84 v]Da<4^ub\ǔ+ACCOUNTING SOFTWAREQuicken: not professional enough to run a business.
Maybe household expenses, but isn't built to do double entry accounting.
Quickbooks: excellent for professional acc ounting for small businesses. But be aware that the system is highly sensitive, and if one doesn't understanding and use standard accounting principles when entering the data, things can go awry and the company will be standing on inaccurate information and reports will not be representative of what is really so. Use a PA or a CPA, or have one of them managing the reconciliations and review the accuracy of the input.
Excel: great for spreadsheet itemization and for converting accrual data to cash.
Larger Corporation Accounting Systems: Peachtree, SBC, etc...
These systems have separate modules for each section of the accounting system so that different departments can enter data. The controller integrates the numbers into the General
E E @ 1 2 E 1 g p 4 5e5 h א { 2 f Ledger once a month, but you don't have a real General Ledger when you print the GL out. You have journalized entries, these are summary figures that should be reconciled to the separate Ledgers first before they go off to the GL for input. It would be useful to keep a separate QB Pro program to put the entire GL onto referencing these Batch Modules for continuity and auditing purposes.
All of Noodlebrain's accounting is currently being produced in QuickBooks by Nicholson Business Services, an Independent Contractor.
We have no experience with the larger accounting systems per se.
However, we will link to them below, so that if you are a larger company, or want to grow, you can have some sense of the tools out their to help you.
E E @ . 5 E 5 j @! x
f [2MUlPZ#b5P:gZ+(!hP
UlPIHSpC:$!NhPBVlP:L R
SpCH[J犡VIV5I,K7!VIYTP,܅:0x(P ҴYpC:!@CBhP5d0C X"N[ {xh[0C:hT ܅Z@{:@{:'(h\5P ꅱBVlP:L {
SpC[犡VISb5g ԅZ燍ZhU!@{a[ {
U@{!hU!^5IX@1 ExhU!r;6x <܅Z3lPIWpCZ'@X@Ca
Ub5RD0C PZX@CZ΅
hP΅I'!r7fjD0օ
'C J*#UNhP5:!lP What to look for in an accountant? Honesty, reliability, ability to answer questions, willingness to teach, train.
Reasonable price range.
Can communicate.
Can resolve problems, refer you to people who can at a reasonable price.
E u # @ E . @ $$ 1 g p$ @ @ 6 7 5 @:Ol~@ 5 G H I J K L M N O P Q R S T @
- . 1 4 8 = > ? @ A B C D @ @ @