Accounting Basics: Current Assets - Accounts Receivable

 Almost as common a term as cash nowadays, accounts receivable is an accounting term meaning amounts owed to a business by other business or customers (individuals or otherwise). An accounts receivable arises anytime when goods are sold but cash is not received immediately; thus when you purchase something for cash at Walmart you are not creating an accounts receivable. If you commit to purchase something (say a lawnmower) and you are offered the option to pay next month, now you have created an accounts receivable on the retailers books.

Unlike a note receivable (to be discussed next), there is generally no signed agreement beyond an invoice for an accounts receivable. They are generally short term in nature (less than a year, if not only a couple months). Because of their short term nature, they are generally listed as a current asset on the balance sheet next after cash.

Accounting Basics: Current Assets - Cash

 Cash is normally the first item listed under Current Assets on the Balance Sheet. What does cash include? Cash includes any deposits available in the bank as well as anything on-hand which might include bills and checks or money orders to be deposited.

Accounting Basics: Current Assets

 We've previously discussed what Assets are. In an unclassified balance sheet where you only have 3 major classifiations (assets, liabilities and owners equity) that would be in the story. A much more useful report is the Classified Balance Sheet. Here, the three major categories are subdivided to provide readers of the financial statements with much more detailed information. The first such subdivision under assets is Current Assets.

Current Assets are defined as those assets which will either be converted into cash or otherwise 'used up' by the business in a relatively short period of time (generally one year or less). On the balance sheet, they are generally presented in order of liquidity; thus cash is generally listed first.

Other examples of current assets include accounts receivable, notes receivable (which often have a current and a non-current portion) and prepaid expenses. These will be examined in future entries.

Accounting Basics: Assets

 As hinted in my previous entry, the balance sheet is comprised of three basic sections: assets, liabilities and owners equity. Assets are resources or items of value owned by the business. They are items of value which can be used or exchanged in the production or delivery of services of the business.

Typically, the most common asset people think of is cash. Cash can be exchanged to purchase office supplies, raw materials used in production, pay employees, etc.; thus it is an asset of the business. Machinery is another asset; it is used in the production of the goods or services delivered by the business.

Substantial effort is made by accountants in valuing assets; some of which may not have a clear current value. For example, a piece of equipment purchased five years ago for $100,000 and used daily in the operation of the business is not worth $100,000 today (in the same way that a five year old car is not worth the price paid for it when it was new). In this instance, accountants use depreciation to adjust the value of a 'fixed asset' such as this (to be discussed later).

5 Expectations to Set before Hiring a Bookkeeper for your Business

As a business owner, you might be wondering if you need the services of a bookkeeper for financial accounting of your business. Most business owners think that they will be able to learn any skill that is necessary to run their business better. But is it really that simple to learn to do your own books or does your business need the expertise of a bookkeeper? According to a well-known saying, if you try to be a jack of all trades, you will be master of none. It is hence advisable to hire a bookkeeper to do your business bookkeeping. Look for an experienced firm providing accounting services; they will have experienced bookkeepers for hire. However, there are a set of skills for a bookkeeper that help in the accounting and bookkeeping field and before you hire a bookkeeper, you’ll want to set some expectations to make sure he/she knows what to do. The following are some of them:

1. Your bookkeeper should have a basic understanding of your industry
   An expert bookkeeper with the basic knowledge about your industry will make a huge difference and you will be miles ahead on the learning curve if your bookkeeper already has a basic understanding of your industry. While the basic fundamentals of accounting and bookkeeping are similar, there are some variations according to the industry. Each industry has different terms which can be learnt on the job only. So be sure to look for a bookkeeper who has experience in your industry.
   
   
2. Your bookkeeper should be good a communicator
   Communication will be a critical aspect of getting your accounting and bookkeeping done in a proper way. Your bookkeeper needs to understand your requirements and communicate any doubts or confusions clearly. Good communication skills will allow the bookkeeper to become a useful asset for your business.
   
   
3. He/she should have the ability to integrate modern technology with the basics of accounting and bookkeeping
   The days of doing accounting and bookkeeping with hand are long gone; today all functions of bookkeeping are done with the help of latest computer softwares like Quickbooks, Peachtree, MYOB, Great Plains, other Sage Products and ERP Systems. Ideally, your prospective bookkeeper should know such technological changes or have the ability to learn them.
   
   
4. A strong commitment to your business is a must for your bookkeeper
   While hiring a bookkeeper, it is essential that you find someone who will give his/her complete attention to your business; your business should be on the top of the bookkeeper’s priority list. Your financials will be impeccable only if your bookkeeper is focused on getting things done the right way.
   
   
5. Your bookkeeper should be able to pay attention to details
   An ideal bookkeeper for your business would be one who is detail oriented. Perfection in business financials depends on the fine details of transactions, which the bookkeeper should be able to pay attention to. Such a bookkeeper will enable you to pay complete attention to the core activities of your business without worrying about the financial side of it.
   

It is critical for your business’s profitability that you set these expectations for a bookkeeper before bringing him/her on board. You will know where your business is headed through the financial records the bookkeeper will maintain. If the bookkeeper you hire meets all these expectations, then he/she will be a perfect addition to your business and team.

How to Search for a Reliable Accounting & Bookkeeping Service Firm

Managing your business cost-effectively has become even more important in this recession. In such a situation, hiring an outside accounting firm for faster financial accounting would be a wise solution compared to adding more in-house accounting staff. Searching for an accounting and bookkeeping firm can be a daunting task at best. Given below are five tips which will help you in your search for an expert accounting services firm.

1. Talk to Family, Friends and Professionals
   
   Interacting with trusted people and getting their opinion is one of the most suitable approaches to search for an expert accounting and bookkeeping firm. You can ask them about which accounting firm they use, how it works for them and how they went about finding the right professional to hire. This is a great way to make sure you get the right information from the right people. It is important to separate a firm which provides good accounting services from others who are not that good at what they do. The opinion you get about the services of any professional speaks a lot about its reputation; so if you don’t hear anything good about a specific accounting and bookkeeping firm, don’t hire it.
   
   
2. Understand your Requirements
   
   One of the key factors in your search for good accounting services understands what your business requires. Once you have the overview of what each accounting firm offers, you can take your pick of accounting and bookkeeping services which are more relevant to your business. You can decide the frequency – daily, weekly or yearly accounting services; you can also decide the types of services your business needs: accounting, bookkeeping, tax preparation etc. But remember, for deciding all this, it is crucial that you fully understand what your business requires.
   
   
3. Do some Research
   
   You shouldn’t restrict yourself to any criteria from the beginning. Your search for accounting and bookkeeping services requires in-depth research, as hiring the wrong firm would prove an expensive mistake for your business. Through research, get an overall idea of what accounting and bookkeeping service providers are offering, what their prices are, whether there are any conditions, guarantee of services etc. Ask for their work samples and client testimonials. You can also use the internet to look through websites and connect with other businesses already using accounting services. Such research will help you in matching your business requirements to the accounting services on offer.
   
   
4. Ask for Details
   
   After you have selected a couple of firms providing accounting services, you should ask them for details regarding price quotes, terms and conditions, customer support etc. Once you get the required information, you can decide on the best deal suitable for your business.
   
   
5. Be Patient
   
   If your search for a good accounting and bookkeeping service provider is taking a little time, be patient. There are a lot of professionals out there, and you need to filter through them to find the ideal outsourced accounting service provider for your business. Once you have made the right choice, your business’s accounting and bookkeeping will be safe in the hands of the best professionals in the industry.
   

10 Bookkeeping Tips for your New Business

If you’ve finally taken the plunge and started your own business, you are in for a great experience. There is a lot of hard work and risk involved in owning a business, but nothing compares to the satisfaction of watching your own venture grow and become successful. We have put together an exclusive list of 10 bookkeeping tips to start your business on the right note.

1. Keep Receipts for All Transactions
   
   Receipts for all the transactions are a must for a healthy bookkeeping system. Some businessmen believe that if they are using a check or credit or debit card, they do not need a receipt; they can just refer to their bank account and get the details. But the Internal Revenue System (IRS) policy clearly states that any cash or check transaction needs receipts to be validated. If you cannot produce relevant receipts for transactions, you cannot claim certain tax benefits.
   
   
2. Indulge in Daily Bookkeeping
   
   Maintaining daily records of financial transactions is one of the most important aspects of bookkeeping. If the day-to-day bookkeeping is not up to the mark, then the business can fall apart. If you do not have the time to take care of these administrative duties, consider hiring a firm providing bookkeeping services.
   
   
3. Be Consistent in Bookkeeping
   
   Many small business owners start their bookkeeping with a lot of enthusiasm, but in time, they fail to maintain it consistently. Inconsistency in bookkeeping may be the biggest mistake you make and might prove fatal for your business. As soon as you start your new business, the first pledge must be to maintain your accounting and bookkeeping. If you cannot take care of it yourself, hire an accounting bookkeeping firm to do it for you.
   
   
4. Keep a Trail for Audit
   
   Your bookkeeping should be done in such a way that you can easily retrace your business’s financial transactions. This is not a complicated process and can be done in simple steps like keeping records in their numeric order, not skipping invoice or check numbers and maintaining separate records for your business and personal transactions. If you can trace your business’s financial transactions up to a year backwards, consider your record keeping perfect.
   
   
5. Get a Bank Statement at the End of the Month
   
   Many businessmen believe that simply logging into a bank account and checking the transactions will enable them to reconcile their business expenses. But it is a more complicated procedure than that. Getting a bank statement at the end of the month would be a good idea to reconcile all transactions and track expenses.
   
   
6. Use the Right Accounting System
   
   Determine whether the cash or accrual is the right accounting system for your business and use the one applicable. The IRS requires that if your business has more than $5 million in sales or keeps and inventory, you use the accrual accounting system. (The cash method of accounting counts expenses when you pay them and income when you receive it, whereas in the accrual method you count the income and expenses at the time they happen)
   
   
7. Maintain a File for All Documents
   
   This may sound a simple enough step, but most businessmen fail to follow it. As a result, the end of the financial year has many businesses and their accountants struggling to find documents to support financial transactions. If you simply maintain a file for all the transactions and file the relevant papers at the time of their occurrence, the end-of-the-year hassles won’t happen.
   
   
8. Keep Business and Personal Transactions Separate
   
   Having a separate bank account and credit card for your business is a must for a healthy bookkeeping system. That way, you can keep your personal transactions separate and at the end of the year, claim applicable tax benefits on business transactions.
   
   
9. Use QuickBooks
   
   Using popular softwares like QuickBooks helps in maintaining proper accounting and bookkeeping records for your business. Such softwares make it easy to calculate incomes and expenses and make a great backup system for all your documents. Many known accounting and bookkeeping firms use this system and can help you integrate it into your business for you.
   
   
10. Hire a firm providing bookkeeping services
    
    If all the above points sound too much of a hassle for you to keep in mind, it may be best to hire a professional firm providing expert bookkeeping services.
    

A professional accounting and bookkeeping firm can take all the responsibility for your day-to-day functions so that you can concentrate of growing and expanding your business.