Finance Tips

If you are running your own organisation you have the process of finishing your tax returns, often a new organisation owner will decide to keep costs low by doing his/her own taxes. Whilst it can be nice to do taxes yourself without paying for a chartered accountant a business should be conscious of the various catches and dangers that skulk in tax returns. This is especially true if a business has a lot of tax deductions, as what was a legitimate tax deduction last year may not necessarily be the case this year.

The undeniable answer is to hire a proffesional accountant to look after your company’s books. A chartered accountant will be up to date with the alterations and refreshments to the tax code leaving you to focus on managing your day to day business. Perhaps the most inspiring thing about working with a proffesional accountant is the observation that you won’t be alone should the tax office spring an audit on you. More importantly it is human nature to be cautious when sending tax returns but being too cautious means you’re paying too much in tax and leaving money on the table. A professional accountant will guide you through the process, sailing close to the lines at all times making sure that they get as much back for your company as they possibly can within the boundries, in fact it is often said that a goo tax accountant will save you more than you pay them in fees.

If you decided to complete your tax return yourself and wrongly complete a document then, at best, it’ll be sent back to you to do again, at worst, it will be sent back to you in the hands of a tax inspector who wants to examine every single piece of paper you have. Continue reading ‘Why should we use an accountant’ »

If you are running your own organisation you have the process of finishing your tax returns, often a new organisation owner will decide to keep costs low by doing his/her own taxes. Whilst it can be nice to do taxes yourself without paying for a chartered accountant a business should be conscious of the various catches and dangers that skulk in tax returns. This is especially true if a business has a lot of tax deductions, as what was a legitimate tax deduction last year may not necessarily be the case this year.

The undeniable answer is to hire a proffesional accountant to look after your company’s books. A chartered accountant will be up to date with the alterations and refreshments to the tax code leaving you to focus on managing your day to day business. Perhaps the most inspiring thing about working with a proffesional accountant is the observation that you won’t be alone should the tax office spring an audit on you. More importantly it is human nature to be cautious when sending tax returns but being too cautious means you’re paying too much in tax and leaving money on the table. A professional accountant will guide you through the process, sailing close to the lines at all times making sure that they get as much back for your company as they possibly can within the boundries, in fact it is often said that a goo tax accountant will save you more than you pay them in fees.

If you decided to complete your tax return yourself and wrongly complete a document then, at best, it’ll be sent back to you to do again, at worst, it will be sent back to you in the hands of a tax inspector who wants to examine every single piece of paper you have. Continue reading ‘Why should we use an accountant’ »

Introduction:

Accounting principles are the assumptions and rules of accounting the methods and procedures of accounting and the application of these rules, methods and procedures to the actual practice of accounting.

Definition of Accounting:

The American Institute of Certified Public Accountants defines accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events, which are, in part at least, of financial character, and interpreting the results thereof”.

From the above, it is clear that, Financial Accounting basically deals with Financial Transaction. Its functions are described as follows: Continue reading ‘ACCOUNTING PRICIPLES-SOME THOUGHTS:’ »

Current inventory levels affect the balance sheet of a company. The amount of product multiplied by the cost determines the amount of inventory reflected on the balance sheet. Inventory valuation is easy for companies selling small quantities of high value products because the number of items in inventory at any given time is small. Larger retailers like Wal-Mart and Costco have greater difficulty assigning inventory values and costs of goods sold because of the large number of products that flow in and out. To make this process easier there are multiple methods of assigning value to inventory. We will detail these methods through a fictional company, Candy Inc., to better understand how each affects inventory value and cost of goods sold at the end of the fiscal year.

Candy Inc. sells on average four million lollipops per year. They purchase their inventory every quarter based on the previous quarter’s sales. In 2008 Candy Inc. purchased 300,000 lollipops on January 1, 250,000 lollipops on April 1, 350,000 on July 1 to account for summer demand and 250,000 on October 1 to account for the remainder of the year. In 2008 the candy industry experienced its highest levels of inflation, rising costs, in 50 years. Each quarter saw a 25 cent increase because of the rising costs of sugar. As product flowed in and out of Candy Inc. it became impossible to assign actual value to the cost of goods sold and the current inventory. This example will help us understand the four inventory cost flow assumptions and how they affect current assets and net income.

The four inventory cost flow assumptions are specific identification, weighted average, FIFO (first-in, first-out) and LIFO (last-in, first-out). Specific identification is assigning value of the cost of goods sold and the current inventory based on the actual price paid. For Candy Inc. the cost of each lollipop from the manufacturer would be assigned to each lollipop. The problem Candy Inc would experience given the volume of candy sold is mixed up inventories which would make it virtually impossible to know the true cost of a single lollipop when it was sold to a consumer. Continue reading ‘Understanding Inventory Cost Flow Assumptions’ »

Financial and Tax Accounting

It is a common misnomer that and organization needs to use the same method of accounting depreciation for financial reporting and tax purposes. An organization must decide if it is cost effective to use more than one depreciation method and furthermore which method or combination of methods to use. Each method carries with it a distinct list of benefits and draw backs and can be customized to fit a company’s unique situation.

There are three main types of depreciation techniques.

Straight-Line – Simplest deprecation technique. A company estimates the salvage value of the item and the usable life. It then subtracts the scrap value from the original cost and divides by the life span in years to get the annual depreciation expense. The largest benefit of this method is that it is very simple to understand and easy to use. A major drawback to this technique is that it does not acquire all the possible tax benefit early in the life cycle, effectively leaving those tax dollars on the table longer.

Double-Declining Balance – This technique factors in the fact that an item is more useful near the time of purchase as opposed to near the end of its life. The organization records a larger expense of depreciation in the first few years and it continues to decline until the scrap value is reached. A major benefit to this method being largely front loaded; where most of the depreciation is taken at the beginning of the life cycle is in reducing the taxable income quickly. This method is more complicated and requires involvement of the technical staff to accurately estimate an items life expectancy. Continue reading ‘Financial And Tax Accounting’ »

When a small business owner purchases stock or services from a vendor, it is standard practice that the vendor will offer them credit. This will then create part of the businesses Accounts Payable. This is an advantage as you will not have to pay for any purchases and services you ask for until the credit period has lapsed. Your creditor forwards you an invoice which you file until it’s scheduled for payment. Accounting for your debtors and paying your invoices on time are the duties of an Accounts Payable function. Your bookkeeper must carry out numerous important activities to ensure that your Accounts Payable is managed competently.

Purchase Orders

You launch your purchases cycle by issuing a legitimate and authorized purchase order to your supplier. This is the opening step in identifying the items and products that you require for your business. It will contain itemized particulars of your purchase with unit costs and the total payable for the order. When you place an order with your vendor, the prices quoted on the purchase order will normally fit the decided product price list that your provider has forwarded to you to aid ordering.

The purchase order, or PO, constitutes a legal offer by you to purchase the specified items from your supplier. When your supplier accepts this PO, it confirms the order and your provider is then obliged to carry out the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner truly requires the items. This prevents any mistakes in ordering and prevents budding disputes between the business and the wholesaler.

Any errors in the PO could result in surplus stocks and ineffective or incorrect deliveries. If you urgently need items to complete a client order, then wrong deliveries could be catastrophic for your business. Therefore your business will benefit from meticulous and well thought-out PO preparation. Continue reading ‘Accounts Payable – Accounting For Your Creditors’ »