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Wednesday, October 13, 2010

The Liabilities


A Liability is a legal obligation of a business to pay a debt. Debt can be paid with money, goods, or services, but is usually paid in cash. The most common liabilities are notes payable and accounts payable. Accounts payable is an unwritten promise to pay suppliers or lenders specified sums of money at a definite future date.

Current Liabilities

Current Liabilities are liabilities that are due within a relatively short period of time. The term Current Liability is used to designate obligations whose payment is expected to require the use of existing current assets. Among current liabilities are Accounts Payable, Notes Payable, and Accrued Expenses. These are exactly like their receivable counterparts except the debtor-creditor relationship is reversed.

Accounts Payable is generally a liability resulting from buying goods and services on credit

Suppose a business borrows $5,000 from the bank for a 90-day period. When the money is borrowed, the business has incurred a liability – a Note Payable. The bank may require a written promise to pay before lending any amount although there are many credit plans, such as revolving credit where the promise to pay back is not in note form.

On the other hand, suppose the business purchases supplies from the ABC Company for $1,000 and agrees to pay within 30 days. Upon acquiring title to the goods, the business has a liability – an Account Payable – to the ABC Company.

In both cases, the business has become a debtor and owes money to a creditor. Other current liabilities commonly found on the balance sheet include salaries payable and taxes payable.

Another type of current liability is Accrued Expenses. These are expenses that have been incurred but the bills have not been received

for it. Interest, taxes, and wages are some examples of expenses that will have to be paid in the near future.

Long-Term Liabilities:

Long-Term Liabilities are obligations that will not become due for a comparatively long period of time. The usual rule of thumb is that long-term liabilities are not due within one year. These include such things as bonds payable, mortgage note payable, and any other debts that do not have to be paid within one year.

You should note that as the long-term obligations come within the one-year range they become Current Liabilities. For example, mortgage is a long-term debt and payment is spread over a number of years. However, the installment due within one year of the date of the balance sheet is classified as a current liability.

The Account Types

In order to track money within an organization, different types of accounting categories exist. These categories are used to denote if the money is owned or owed by the organization. Let us discuss the three main categories: Assets, Liabilities, and Capital.

Assets

An Asset is a property of value owned by a business. Physical objects and intangible rights such as money, accounts receivable, merchandise, machinery, buildings, and inventories for sale are common examples of business assets as they have economic value for the owner. Accounts receivable is an unwritten promise by a client to pay later for goods sold or services rendered.

Assets are generally listed on a balance sheet according to the ease with which they can be converted to cash. They are generally divided into three main groups:

• Current
• Fixed
• Intangible

Current Asset

A Current Asset is an asset that is either:

• Cash – includes funds in checking and savings accounts

• Marketable securities such as stocks, bonds, and similar investments

• Accounts Receivables, which are amounts due from customers

• Notes Receivables, which are promissory notes by customers to pay a definite sum plus interest on a certain date at a certain place.

• Inventories such as raw materials or merchandise on hand

• Prepaid expenses – supplies on hand and services paid for but not yet used (e.g. prepaid insurance)

In other words, cash and other items that can be turned back into cash within a year are considered a current asset.

Fixed Assets

Fixed Assets refer to tangible assets that are used in the business. Commonly, fixed assets are long-lived resources that are used in the production of finished goods. Examples are buildings, land, equipment, furniture, and fixtures. These assets are often included under the title property, plant, and equipment that are used in running a business. There are four qualities usually required for an item to be classified as a fixed asset. The item must be:

• Tangible
• Long-lived
• Used in the business
• Not be available for sale

Certain long-lived assets such as machinery, cars, or equipment slowly wear out or become obsolete. The cost of such as assets is systematically spread over its estimated useful life. This process is called depreciation if the asset involved is a tangible object such as a building or amortization if the asset involved is an intangible asset such as a patent. Of the different kinds of fixed assets, only land does not depreciate.

The Cash versus Accrual Accounting


Accounts Receivable is an asset that is owed to you but you do not have money in the bank or property to show you own something -it is intangible, on paper. It grows or accumulates as you issue invoices; therefore, Accounts Receivable is part of an accrual accounting system.

Double-entry accounting is the most accurate and best way to keep your financial records. With a computer, you don’t have to fully understand all the accounting details. Basically, in double entry accounting each transaction affects two or more categories or accounts, so everything stays in balance. Therefore, if you change an asset balance by issuing an invoice some other category balance changes as well. In this case, when you issue an invoice, the category that balances the asset called Accounts Receivable is an income or a sales account.

When you bill your client, there is an increase in income (on paper) and hence an increase in Accounts Receivable. When you are paid, the paper asset turns into money you put in the bank – a tangible asset. Through a process of recording the payment and the deposit, Accounts Receivable decreases and the bank balance increases. This accounting program takes care of all the accounting details.

This paper income can be confusing if you don’t understand that it is the total of all invoiced work, both paid and unpaid. If you have invoiced clients for a total of $10,000 but only $2,000 has been paid, your income will be $10,000 and your Accounts Receivable balance will be $8,000, and your bank account has increased by the $2,000 you received. An accountant would call this an accrual accounting method.

A cash accounting method only counts income when money is received, and it does not keep track of Accounts Receivable.

However, in real life, small businesses tend to use both methods without realizing the difference until income tax time.

This program can handle both accrual and cash based accounting. You can use the G/L Setup option in the G/L module to select either Cash or Accrual based accounting. We recommended that you consult with your accountant to determine which system will work best for you.

Types of Accounting


The two methods of tracking your accounting records are:

• Cash Based Accounting
• Accrual Method of Accounting

Cash Based Accounting

Most of us use the cash method to keep track of our personal financial activities. The cash method recognizes revenue when payment is received, and recognizes expenses when cash is paid out. For example, your personal checkbook record is based on the cash method. Expenses are recorded when cash is paid out and revenue is recorded when cash or check deposits are received.

Accrual Accounting

The accrual method of accounting requires that revenue be recognized and assigned to the accounting period in which it is earned. Similarly, expenses must be recognized and assigned to the accounting period in which they are incurred.

A Company tracks the summary of the accounting activity in time intervals called Accounting periods. These periods are usually a month long. It is also common for a company to create an annual statement of records. This annual period is also called a Fiscal or an Accounting Year.
The accrual method relies on the principle of matching revenues and expenses. This principle says that the expenses for a period, which are the costs of doing business to earn income, should be compared to the revenues for the period, which are the income earned as the result of those expenses. In other words, the expenses for the period should accurately match up with the costs of producing revenue for the period.

In general, there are two types of adjustments that need to be made at the end of the accounting period. The first type of adjustment arises when more expense or revenue has been recorded than was actually incurred or earned during the accounting period. An example of this might be the pre-payment of a 2-year insurance premium, say, for $2000. The actual insurance expense for the year would be only $1000. Therefore, an adjusting entry at the end of the accounting period is necessary to show the correct amount of insurance expense for that period.

Similarly, there may be revenue that was received but not actually earned during the accounting period. For example, the business may have been paid for services that will not actually be provided or earned until the next year. In this case, an adjusting entry at the end of the accounting period is made to defer, that is, to postpone, the recognition of revenue to the period it is actually earned.

Although many companies use the accrual method of accounting, some small businesses prefer the cash basis. The accrual method generates tax obligations before the cash has been collected. This benefits the Government because the IRS gets its tax money sooner.

Sunday, October 10, 2010

What Are The Corporations


The Corporation is the most dominant form of business organization in our society. A Corporation is a legally chartered enterprise with most legal rights of a person including the right to conduct business, own, sell and transfer property, make contracts, borrow money, sue and be sued, and pay taxes. Since the Corporation exists as a separate entity apart from an individual, it is legally responsible for its actions and debts.

The modern Corporation evolved in the beginning of this century when large sums of money were required to build railroads and steel mills and the like and no one individual or partnership could hope to raise. The solution was to sell shares to numerous investors (shareholders) who in turn would get a cut of the profits in exchange for their money. To protect these investors associated with such large undertakings, their liability was limited to the amount of their investment.

Since this seemed to be such a good solution, Corporations became a vibrant part of our nation’s economy. As rules and regulations evolved as to what a Corporation could or could not do, Corporations acquired most of the legal rights as those of people in that it could receive, own sell and transfer property, make contracts, borrow money, sue and be sued and pay taxes.

The strength of a Corporation is that its ownership and management are separate. In theory, the owners may get rid of the Managers if they vote to do so. Conversely, because the shares of the company known as stock can sold to someone else, the Company’s ownership can change drastically, while the management stays the same. The Corporation’s unlimited life span coupled with its ability to raise money gives it the potential for significant growth.

A Company does not have to be large to incorporate. In fact, most corporations, like most businesses, are relatively small, and most small corporations are privately held.

Some of the disadvantages of Corporations are that incorporated businesses suffer from higher taxes than unincorporated businesses. In addition, shareholders must pay income tax on their share of the Company’s profit that they receive as dividends. This means that corporate profits are taxed twice.

There are several different types of Corporation based on various distinctions, the first of which is to determine if it is a public, quasi-public or Private Corporation. Federal or state governments form Public Corporations for a specific public purpose such as making student loans, building dams, running local school districts etc. Quasi-public Corporations are public utilities, local phones, water, and natural gas. Private Corporations are companies owned by individuals or other companies and their investors buy stock in the open market. This gives private corporations access to large amounts of capital.

Public and private corporations can be for-profit or non-profit corporations. For-profit corporations are formed to earn money for their owners. Non-profit Corporations have other goals such as those targeted by charitable, educational, or fraternal organizations. No stockholder shares in the profits or losses and they are exempt from corporate income taxes.

Professional Corporations are set up by businesses whose shareholders offer professional services (legal, medical, engineering, etc.) and can set up beneficial pension and insurance packages.
Limited Liability Companies (LLCs as they are called) combine the advantages of S Corporations and limited partnerships, without having to abide by the restrictions of either. LLCs allow companies to pay taxes like partnerships and have the advantage of protection from liabilities beyond their investments. Moreover, LLCs can have over 35 investors or shareholders (with a minimum of 2 shareholders). Participation in management is not restricted, but its life span is limited to 30 years.

What Are The Types Of PartnerShips


A partnership is a legal association of two or more individuals called partners and who are co-owners of a business for profit. Like proprietorships, they are easy to form. This type of business organization is based upon a written agreement that details the various interests and right of the partners and it is advisable to get legal advice and document each person’s rights and responsibilities.

There are three main kinds of partnerships

• General partnership
• Limited partnership
• Master limited partnership
General Partnership

A business that is owned and operated by 2 or more persons where each individual has a right as a co-owner and is liable for the business’s debts. Each partner reports his share of the partnership profits or losses on his individual tax return. The partnership itself is not responsible for any tax liabilities.

A partnership must secure a Federal Employee Identification number from the Internal Revenue Service (IRS) using special forms.

Each partner reports his share of partnership profits or losses on his individual tax return and pays the tax on those profits. The partnership itself does not pay any taxes on its tax return.
Limited Partnership

In a Limited Partnership, one or more partners run the business as General Partners and the remaining partners are passive investors who become limited partners and are personally liable only for the amount of their investments. They are called limited partners because they cannot be sued for more money than they have invested in the business.

Limited Partnerships are commonly used for real-estate syndication.
Master Limited Partnership

Master Limited Partnerships are similar to Corporations trading partnership units on listed stock exchanges. They have many advantages that are similar to Corporations e.g. Limited liability, unlimited life, and transferable ownership. In addition, they have the added advantage if 90% of their income is from passive sources (e.g. rental income), then they pay no corporate taxes since the profits are paid to the stockholders who are taxed at individual rates.

The Advantages of Computerized Accounting


Here are some of the advantages of using a computerized accounting system:

• The arithmetic of adding up debits and credits columns is done automatically and with total accuracy by the computer.

• Audit trails or details are automatically maintained for you.

• Produce financial statements simply by selecting the appropriate menu item.

• A computerized system lets you retrieve the latest accounting data quickly, such as today’s inventory, the status of a client’s payment, or sales figures to date.

• Data can be kept confidential by taking advantage of the security password systems that most accounting programs provide.

Computerized accounting programs usually consist of several modules.
The principal modules commonly used are:

• General Ledger
• Inventory
• Order Entry
• Accounts Receivable
• Accounts Payable
• Bank Manager
• Payroll

In a good accounting system, the modules are fully integrated. When the system is integrated, the modules share common data. For example, a client sales transaction can be entered in as an invoice, which automatically posts to the General Ledger module without re-entering any data. This is one of the greatest advantages of a computerized accounting system – you need to enter the information only once. As a result of this:

• Data entry takes less time.

• There is less chance that errors will occur.

• You do not have to re-enter data for posting.

Saturday, October 9, 2010

What Accountants Do...

We have said that accounting consists of these functions:

• Recording

• Classifying

• Summarizing

• Reporting and evaluating the financial activities of a business
Before any recording can take place, there must be something to record. In accounting, the something consists of a transaction or event that has affected the business. Evidence of the transaction is called a document.

For example:

• A sale is made, evidenced by a sales slip.

• A purchase is made, as evidenced by a check and other documents such as an invoice and a purchase order.

• Wages are paid to employees with the checks and payroll records as support.

• Accountants do not record a conversation or an idea. They must first have a document.

In almost any business, these documents are numerous and their recording requires some sort of logical system. Recording is first carried out in a book of original entry called the journal. A journal is a record, listing transactions in a chronological order.

At this point, we have a record of a great volume of data. How can this data best be used? Aside from writing down what has occurred for later reference, what has been accomplished? The answer is, of course, that the accountant has only started on his task. This greatvolume of data in detailed listings must be summarized in a meaningful way.
When asked, the accountant must turn to these summaries to answer questions like:

• What were total sales this month?
• What were the total expenses and what were the types and amounts of each expense?
• How much cash is on hand?
• How much does the business owe?
• How much are the accounts receivable?

The next task after recording and classifying is summarizing the data in a significant fashion.

The records kept by the accountant are of little value until the information contained in the records is reported to the owner(s) or manager(s) of the business. These records are reported to the owners by preparing a wide variety of financial statements.

The accountant records, classifies, summarizes, and reports transactions that are mainly financial in nature and affect the business. The reporting, of course, involves placing his interpretation on the summarized data by the way he arranges his reports.

Every business has a unique method of maintaining its accounting books. However, all accounting systems are similar in the following manner:

• Business documents representing transactions that have taken place. (A business transaction occurs when goods are sold, a contract is signed, merchandise is purchased, or some similar financial transaction has occurred).
• Various journals where the documents are recorded in detail and classified
• Various ledgers where the details recorded in the journals are summarized
• Financial reports where the summarized information is presented
Where variations exist, they have to do with the way the business transaction is assembled, processed, and recorded.

Profit and Loss Accounts - Accounting Basics Every Business Owner Should Know

There is absolutely no doubt that business owners, especially those who attached with small businesses should have a firm understanding of the basics of accountancy and bookkeeping. This is not to suggest of course, that they should be able to set themselves up as accountants in their own right, or indeed that they should be attempting to take the place that should rightly be filled by an accountant in their own business, but far too many business owners totally abdicate all responsibility for their business finances and hand it all over to their accountant, without the slightest idea what he will do with it.

This state of affairs is a very dangerous way to run a business of any size; a good business owner should be able to sit down with his accountant and discuss things, and understand what he is being told. The same goes for bookkeeping; there is nothing wrong with hiring a professional to keep your books, but there is no excuse for not knowing how they are kept.

Take for instance P&L or 'Profit and Loss', for some business owners the very thought of looking at something that sounds so accountancy is terrifying, and yet this particular job is so incredibly simple as to be almost child's play. It is also an incredibly important tool in business, as it allows the business owner to check how well or otherwise their business is doing.

A P&L account, although only needed on a formal basis if you are a Limited Company, in which case a full account will need to be submitted to HMRC each year to enable them to assess for Corporation Tax, is essentially, as the name suggests, a report of the profit and any losses made by your firm usually over a 12 month period. To prepare a P&L account, simply take a summary of all your business' expenditure and sales and deduct your expenditure from your sales and you will have your profit (or loss).

If you are looking for any sort of future funding for your business, an accurate P&L will be vital, as most lenders won't move without one, but it will also help you to know whether or not your business is moving in the right direction; making a continually loss will set alarm bells ringing.

In order to make your P&L as accurate as it should be, your records will need to be properly kept, without omissions or missing information. The figure that comes out at the end will only be as accurate as the figures you have used to produce it, so ensure that you are careful.

Like so much of the rest of the rather complex sounding business terminology P&L is actually very simple, and nothing more or less than the answer to a subtraction sum.

So, the next time that an accountant wants to talk profit and loss over tea and crumpets, tell them you'd be happy to and perhaps take a little more control over other aspects of your business' finance; the rewards you reap may be more than simply financial.

Small Business Accounting - The Basics You Should Know

In my point of view, a lot of small businesses just starting out believe that accounting is a matter of just watching the checkbook. As long as nothing bounces, business is good. But, more and more small business owners are realizing the importance of understanding accounting and the critical role it plays in the success of their business. Good accounting is needed to make successful and profitable decisions. Accounting is known as the language of business. So, whether you want to or not, it is important that you learn this "second" language and understand some of the basic terms to help you make those important decisions.

Definitions of Basic Terms

As with learning any language, the best place to start is by learning the basics. The more you learn the more you will understand as you delve deeper into your business' finances. Fortunately, once you get the basics down there really isn't any need to learn in-depth ratios or extremely difficult reports or tables, unless, of course, you are going into some kind of financial analytical field.

To get you started, the following is a list of basic terms (the backbone of accounting, if you will):

Assets are simply what you own (i.e. checking account balances, cash, accounts receivables, inventory, furniture, fixtures, equipment, vehicles, buildings, land, goodwill, etc...).

Liabilities are what you owe (i.e. payroll liabilities, accounts payable, loans, credit card balances, etc...).

Equity is investment and equity from the company's owners, or partners (owner contributions, owner draws, stock, paid in capital, retained earnings, etc...).

The first three accounts are found on your balance sheet.

Income is what the business sales. This could be products, or services. It is generally referred to as revenue.

Cost of Goods Sold is used to track how much a particular product or service cost, and what type of margins the business is making on them. Businesses can choose to use these type of accounts, or not. I recommend using a cost of goods sold account for businesses who sale higher volumes of products.

Expenses are accounts that are used for administrative and overhead costs to a business (i.e. telephone, rent, payroll, travel, etc...). Too many expense accounts can be cumbersome to maintain, while too few keep the business from knowing where its money is going.

Net Income, also referred to as Net Profit, is not an account, but rather an amount that comes from subtracting your expenses and cost of good sold from your income. The saying "in the black" comes from whether this amount is positive (in the black) or negative (in the red).

The basics of accounting is a good place to start learning this critical language for your business. Remember, knowledge is power and the correct application of knowledge is wisdom. Be wise with your business!

The Certification of Financial Statements

In response to a number of financial scandals (including Enron and WorldCom)
involving a lapse of internal financial controls, the American Competitiveness and
Corporate Accountability (or Sarbanes-Oxley) Act was established in 2002 and introduced
new standards for financial audits and internal controls.

The Sarbanes-Oxley Act (SOX) established detailed procedures that U.S. companies,
along with foreign firms listed on the U.S. stock exchange, as well as their auditors
must follow in order to document, assess, and improve their internal controls
relating to financial reporting.

Pursuant to the Act, CEOs and CFOs of U.S. public companies must certify that:

* They have reviewed the companies’ financial reports.

* These reports do not exclude any significant information.

* Information presented in financial reports is accurate and fairly represents the
companies’ operational and financial condition.

* Each of the certifying officers is responsible for the company’s internal controls,
has evaluated them over the course of the period (quarterly or annual) for which
the financial reports have been prepared, and has reported any deficiencies in or
changes to the existing internal controls.

By signing off on these reports the company officers can be held
personally and criminally responsible if financial information in the company’s
reports is later shown to have been false and misleading.

How To Find Financial Reports

All filings made with the SEC constitute public information and can be found on:
* The SEC’s official web site (http://www.sec.gov)
* Company web sites, investor relations section
* Electronic Data Gathering, Analysis, and Retrieval (EDGAR) web site (http://
www.freeedgar.com)

Form 10-K (Annual Filing)

At the end of each fiscal year, publicly traded companies must file a 10-K report,
which includes a thorough overview of their businesses and finances as well as their
financial statements.

Why Is the 10-K Important?

Companies are required by the SEC to file it annually. Form 10-K usually provides
the most detailed overview of companies’ financial operations and regulations governing
them.

Other Important Filings:

Form 8-K

An 8-K is a required filing any time a company undergoes or announces a materially
significant event such as an acquisition, a disposal of assets, bankruptcy, and so
forth.

Form S-1


An S-1 registration is filed by a company when it decides to go public (i.e., sell its
securities to the public for the first time) in the process known as an Initial Public
Offering (IPO).

Form 14A


Form 14A is a required annual filing prior to a company’s annual shareholder meetings.
It contains detailed information about top officers and their compensations.
The form often solicits shareholder votes (proxies) for Board nominees and other
important matters.

Form 20-F


Form 20-F is an annual report filed by foreign companies whose shares trade in the
United States.

Four Underlying Principles In Accounting:

1. Historical Cost: Financial statements report companies’ resources
and obligations at an initial historical cost. This conservative measure precludes
constant appraisal and revaluation.

2. Revenue Recognition:
Revenues must be recorded when earned and
measurable.

3. Matching Principle: Costs of a product must be recorded during the
same period as revenue from selling it.

4. Disclosure: Companies must reveal all relevant economic
information determined to make a difference to
their users.

Sunday, September 26, 2010

Financial Accounting Help - Microsoft Small Business

Debits and Credits (listen carefully)

What Is An IRS Tax Return?

An IRS tax return is a form used to file income taxes with the Internal Revenue Service. Tax returns are usually set up in a worksheet form. They must be filed each year for an individual or business receiving an income during the year, regardless if it is regular or wage income, dividends, interest, capital gains and other profits.

The IRS or Internal Revenue Service is a US government institution assigned in collecting both annual income and state tax from residents and businesses. Many people pay their income taxes to the IRS every year, although some may be required to make quarterly prepayments exceeding the income threshold. Income tax returns are based on the calendar year with yearly payments due not later than April 15 of the following year. An extension request may be acceptable, although estimated payments should accompany the request for an extension, which should be filed early.

IRS tax returns are calculated on a sliding scale, with higher incomes in higher IRS tax groups. While the exact table of taxes change every year, the bottom line is the more you earn, the more you will be taxed. For people who are paid on an hourly basis, the estimated taxes are derived from every pay check. At the year's end, one may get refund for overpayment or requires to pay more tax if an inadequate amount was deducted during the year.

Tax returns are based on the net income or the amount left after deductions. A person falling within the poverty bracket may not be required to pay an income tax at all, although a salary of $50,000 every year could end up costing the person earning it roughly twenty percent of his or her net income. Those earning $120,000 or more might actually fall into the tax bracket nearer to twenty-five percent of his or her income.

The importance of your income tax forms does not always end after you file them. In several instances, whether you are going to buy a car, get a mortgage or trying o acquire loan from a bank, a record of your latest income tax returns will be required for them to be able to approve your request. Actually, the IRS tax return transcript is not a replica or copy of your income tax form, but rather it is a summary of the details that you should know with regards to your income tax.

Furthermore, this form can also be used if you want to make adjustments on your income tax. Additionally, this also shows detailed information about you as the taxpayer, which includes some basic information such as your present marital status and the final adjusted gross income that you have applied.

Income Tax Return Forms - Stop battling the IRS and visit http://www.irs-relief.org

Tuesday, September 21, 2010

Significant differences between US GAAP and IFRS

1. Financial periods required

US GAAP: Generally, comparative financial statements are presented; however, a
single year may be presented in certain circumstances. Public companies must
follow SEC rules, which typically require balance sheets for the two most recent
years, while all other statements must cover the three-year period ended on
the balance sheet date.

IFRS:Comparative information must be disclosed in respect of the previous
period for all amounts reported in the financial statements.

2. Income statement —classification of expenses

US GAAP:SEC registrants are required to present expenses based on function (for
example, cost of sales, administrative).

IFRS: Entities may present expenses based on either function or nature (for example,
salaries, depreciation). However, if function is selected, certain disclosures
about the nature of expenses must be included in the notes.

3.Changes in equity

US GAAP:Present all changes in each caption of stockholders’ equity in either a footnote
or a separate statement.

IFRS:At a minimum, present components related to “recognized income and
expense” as part of a separate statement (referred to as the SORIE if it
contains no other components). Other changes in equity either disclosed in the
notes, or presented as part of a single, combined statement of all changes in
equity (in lieu of the SORIE).

4.Disclosure of performance measures

US GAAP:SEC regulations define certain key measures and require the presentation
of certain headings and subtotals. Additionally, public companies are
prohibited from disclosing non-GAAP measures in the financial statements
and accompanying notes.

IFRS:Certain traditional concepts such as “operating profit” are not defined;
therefore, diversity in practice exists regarding line items, headings and
subtotals presented on the income statement when such presentation is
relevant to an understanding of the entity’s financial performance

Saturday, August 28, 2010

Accrual Accounting and Bad Debt

In accrual accounting, revenues and expenses are reported in the period when transactions occur, regardless of whether payment has been received. While this practice may seem strange at first, many Americans use it everyday without thinking about it. Consider credit cards. Whenever someone uses a credit card, there is no cash changing hands, only an understanding that if everything runs smoothly, the purchaser will pay their credit card company who in turn will reimburse the seller. This is a form of accrual accounting.

Another form of accrual accounting is accounts receivable. When retailers sell products on credit (think of the countless advertisements offering "no money down, no payments until the next year"), this is an example of accounts receivable. In this case, a retailer agrees to accept payments over time in exchange for a good or service. For example, if a shopper were to purchase a $1,000 television on credit from TV Shack, there would be an agreement that they would pay the store back in monthly payments until the full $1,000 is paid off. This $1,000 to be paid off in time would be considered accounts receivable.

The store is able to report the $1,000 sale in the current period even though it will not be receiving payment until a later date. The net realizable value, in this case $1,000, is what the store will receive back from the customer if the customer pays his debts according to the agreement. It reports that it has made a $1,000 sale, based on the assumption that it will be receiving the cash eventually. But what if the customer is unable to pay back the loan on time? What if the customer is unable to pay back the debt in full? Or at all? This would mean that the $1,000 revenue that was reported by the company was never realized. In other words, the company is out $1,000 that it told investors that it had. This phenomenon is known as bad debt.

Businesses know that in some cases they will not recoup what they have lent, but rather than abandon lending, these firms take precautions against bad debt. In some cases, businesses will only lend to the most qualified buyers. In others, the businesses simply demand a larger down payment and charge a higher rate of interest to less qualified buyers. Anyone who has purchased a home is familiar with these strategies that businesses take to insulate themselves from defaults. Many have heard of subprime mortgages, fewer know that this is simply an example of offering mortgages with higher interest rates to buyers who are more likely to default. These are simply methods that companies use to improve their chances of getting their loans paid back.

Another method businesses use to hedge bad loans is a bad debts expense. Also known as an uncollectible debt expense, firms are able to calculate with some degree of accuracy the amount of money that they will need to set aside in case some of their loans are not repaid. In some cases, firms simply assume that a given percent of their loans will default and set aside this percentage of their total loans. In others, the businesses keep track of which loans are most likely to default in order to determine their bad debts expense. This money that is set aside is known as the loan loss reserve.

There is some concern that companies' loan loss reserves are inadequate in the face of an economic downturn. Using the percentage model noted earlier, these firms only keep a fraction of the money that they have lent out on hand in case of defaults. This is not unlike the fractional reserve system that our banks use. And like a run on a bank, if for some reason enough of the debtors default on their loans, the company may not have enough money to write off these expenses. Because of this vulnerability, there is a concern that many companies are not as healthy as they may appear.

Recall from above the example where TV Shack lent someone $1,000 to buy a television on credit and then reported $1,000 profit before the customer had begun to pay it off. This may be fine in good economic times, and the customer will likely be able to pay off his debt. But if the economy declines, the customer may not be able to pay the debt because of unforeseen circumstances. TV Shack feels the impact of this as well because they do not get all or any of their $1,000. Because of this, TV Shack is weaker than it looks on paper. TV Shack's investors were unintentionally misled when they read TV Shack's statements reporting $1,000 profit that will never come. For this reason there is concern that the current methods for dealing with bad debt in accrual accounting are inadequate.

Article Source: http://EzineArticles.com/?expert=Jeremy_Saul



Sunday, July 11, 2010

Tips For Business Financial Accounting Management

Financial accounting is a very important part for every type of business like small, mid and large business. Business Financial accounting is the field of accountancy concerned with the preparation of financial statements for pronouncement makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. accounting may be the single most critical data method your company will require. Financial accounting aims to generate two basic financial reports, the balance sheet along with the earnings and loss statements. A predictable software system uses a ledger of accounts to categorize financial activities of one's corporation.

Financial accounting is used to arrange accounting information for people outside the organization or not concerned in the day to day running of the company. Management accounting provides accounting information to assist managers make decisions to handle the business. In short, Accounting is the procedure of abbreviation financial data in use from an organization's accounting records and publishing in the form of annual or monthly quarterly reports for the advantage of people outside the organization.

Financial accounting does not based on only about cash flow and management or knowing about the profits and losses but it is the management of the financial flow across the business and thereby managing it to promote business growth and development. Throughout the flow the accounting equation has to be maintained that is, Assets should be always equal to the Liabilities plus Capital.

Dealing with the business accounting, the first principle that should be followed is to be aware of fraudulence. While doing business with monetary amount one should be very particular about calculation and maintenance. Capital plays a huge role in structuring the business. Therefore saving that finance is important for the management and growth.

6 tips for the Management of Business Financial Accounts:

Accounting Information of employees which play an important role has to be managed in a proper way so that at the year end reports can be generated easily without any hassles. It is very important to set up proper business financial strategies which can be followed so that the business can ultimately meet the agenda.

The various tips that will help you to flow the cash in the proper direction and will help you to understand the need of the proper settlement of the different business financial accounting can be listed as follows:

* Check Financial Transactions:

Everyday business deals with expenses, revenues, profits, and losses. It is important to keep track of each and every financial transaction as these financial statements play an important role during the tax filing and preparing the annual budget. Therefore, the day to day transactions should be maintained while considering the business financial services.

* Revising Billing Statements:

It is important to revise the billing statements sporadically. It might appear that your business is left with few payments. This should be ensured that you are paying only those bills for which your company has received the services. In financial business, you have to be very sure that you are not being cheated anyhow, that could result into a big loss for your firm.

* Review the Invoices:

Invoices are the financial statements that can be reviewed to control the expense of doing business. These financial statements helps in understanding whether you are paying extra to some business or you can get various services at a cheaper rate or you can still manage some other companies to get the similar services at a more effective rate.

* Updating with Taxation Rules:

While conducting business or you are associated with any services, it is important to pay the tax. Especially if you are associated with any financial firm the taxation services policies has to be remembered. The taxation rules changes after certain interval, in order to run the business the rules must be updated to the specialists. It will not only help in managing the accounting book but also it will play a good role during the audit trail.

* Follow GAAP for Accounting Management:

For running the business financial accounting services people should practice the GAAP (Generally Accepted Accounting Principles) policies. GAAP consists of standard principles which should be followed by every accountant to run the business. For the management of different accounts these principles can be adopted and drive the accounting management in a new direction.

* Maintaining Transparency:

It is important to set the budget limit. The budget of the organization includes all the purchases and expenses made by the organization. Whenever any department plans for purchasing goods or any other raw material it has to be approved by the higher officials. In the same way, after the purchasing of the goods, a detailed slip should be maintained so that everyone in the organization should have the idea what are the purchases have been done and how it is going to help the organization economically.

These are certain principles that the accountant or any other outsourced accounting services Provider Company should follow in order to run the business ethically and to meet the financial need of the organization. A systematic accounting procedure helps the business to grow and thereby meeting the expected profit.

Sunday, July 4, 2010

Ledger General Entries - Example

Ledger general entries represent the main step in recording and accounting for business transactions for the purpose of financial statements preparation. Understanding what is general ledger and how to record entries there is the main aim for those who want to master accounting theory and practice. In this article you can explore several examples how ledger general entries are recorded in the accounting books.

Process and Example

Based on the accounting cycle before transactions are recorded into the general ledger, they are reflected in the general journal by certain entries which name accounts impacted by the transaction, stating whether the particular account is debited or credited and providing short description of the transaction. The following example demonstrates this:

D Cash $10,000

___C Share Capital $10,000

_______Establishment of company XYZ by investing cash in the form of share capital.

In the above you can see an example when new company is established and shareholders invest cash into business. Therefore there is an increase in balance of Cash account, which is debited and increase in balance of Share Capital account which is credited. Do not forget that in each entry debit must equal to credit, which comes out of the main accounting equation, where Assets=Liabilities+Equity.

The next step is to post general journal entries to the General Ledger Accounts. In the above example the following entry is made:

D____________________Cash (General Ledger Asset Category Account)______C

Opening balance___0____________________________________

_______________$10,000________________________________

Closing balance___$10,000________________________________

This was posting of increase in cash into Cash account. Since the company is established, there is 0 opening balance in Cash account. The balance of this account is on the Debit side, since this is Asset category account, which always must have Debit balance.

D___________________Share Capital (General Ledger Equity Category Account)_____C

_________________________________________________Opening balance_____0___

_______________________________________________________________$10,000__

Closing balance__________________________________________________$10,000

This was posting of the second part of the above transaction, i.e. increase is Share Capital into General Ledger. Opening balance is on the Credit side and has a balance of 0. The balance of this account is on the Credit side, since this is Equity category account, which always must have Credit balance.

So this was a very simple example of ledger general entries. In practice there might be many more complex transactions impacting not only two general ledger accounts, which must be recorded correctly. The main aim is to record the entries into the correct accounts and on the correct (debit or credit) side of account, which will ensure that assets are equal to the sum of liabilities and equity.

If you want more detailed understanding of accounting, you can easily and comfortably learn accounting concepts at home with accounting online course. Why wait? Start learning accounting basic now.

Reviews on Top 3 Payroll Tax Software for Small Business

If you have a small business you know that you have to keep all of your financial records as organized as possible to ensure that you can make payroll accurately as well as file an accurate and timely tax return. There are many different programs for you to choose from, which can make the process of getting organized a bit overwhelming. Most programs today are very easy to use, and once you get the hang of it you can make payroll as well as tax payments very easy to deal with.

If you need help with payroll taxes you might want to look at a program such as QuickBooks. This program is manufactured by Intuit and is one of the leading programs for small businesses that need accounting software. There are several different versions available such as QuickBooks Basic, the QuickBooks Pro, as well as QuickBooks Premier. This online tax program has time tracking software that is nice, and the program is available for both Windows and Macintosh based computers. Many find that this has all of the features that they need because it allows them to do tracking, banking, invoicing, statements, and more all in one program.

Another great small business software is Small Business Money by Microsoft. This software has been created with business in mind and allows for users to create invoices, track spending, manage cash flow, handle payroll and so much more. There are different versions of this software available so that small business owners can find the version that best suits them and their specific needs. Many report that they like Money because it is very easy to use, without all kinds of extra bells and whistles that simply get in the way.

If you need help with payroll taxes and accounting you may also want to check out Peachtree. This is a great accounting software that will allow you to track spending, handle payroll, and do basic account management very easily. The software is meant to be used by small and medium sized companies and works much like Quicken and QuickBooks, though some prefer this program and its small differences that it has.

As you can see, there are many different programs on the market today that can help small and medium sized companies handle their payroll taxes and other day to day business maintenance. Many find that trial and error is the best way to find the program that works for them. Making a list of your basic needs will help you find the program that is best for you.

article source

http://www.express1040.com/

Understanding the Cash Flow Statement

This article looks at the cash flow statement, the final of the 3 primary financial statements that all public companies must report to the SEC. In the first article, we covered the income statement, and the second article looked at the balance sheet.

The purpose of the cash flow statement. The cash flow statement has 2 primary purposes. One, it indicates to the investor how much cash money flowed into or out of the business over a period of time, usually a year or a 3-month quarter. Second, it reconciles the other two financial statements - income statement and balance sheet. For the income statement, it reconciles the accounting assumptions with the actual cold, hard cash the business earned. For the balance sheet, the cash flow statement shows the differences in the level of assets or liabilities from the previous reporting period.

One major difference between the cash flow statement and it's siblings is that there are no accounting assumptions or estimations on the cash flow statement. The income statement contains many accounting assumptions for things like depreciation and taxes. Likewise, the balance sheet estimates the worth of acquired businesses (goodwill) and intangibles like patents or brand names. The cash flow statement values are very real - this is the *exact* amount of cash coming in and going out of the business. Since creating cash from assets is the basic function of any business, the cash flow statement has a well earned reputation amongst value investors for being the most important of the 3 reports.

Cash flow statements are organized into 3 sections. The first, cash from operations, is the most important. This is the section that reconciles reported net income from the income statement and adds back non-cash costs, as well as accounting for the change in working assets like inventory, and so forth. The second, cash from investing activities, is where the company lists out items like capital expenditures, acquired businesses, and purchase/sale of equity or bond holdings. The third, cash from financing activities, is where dividend payouts, stock repurchases, cash received from bond issues, and debt repayments are listed.

As before, we'll look at Intel's (INTC) fiscal year 2007 cash flow statement, and then briefly explain each item. All values are in millions of dollars, and parenthesis represent negative values (cash going out). In order to keep this somewhat brief, some line items have been grouped together.

Net Income: 6,976
Depreciation: 4,546
Share Based Compensation: 952
Asset Impairment: 564
Tax Benefit from Share Based Payments: (118)
Amortization of Intangible Assets: 252
Gains on Equity Investments: (157)
Gains on Divestitures: (21)
Deferred Taxes: (443)
Changes in Working Assets and Liabilities: 74
Net Cash from Operations: 12,625
Additions to Property, Plant, Equipment (Capital Expenditures): (5,000)
Acquisitions, Net of Cash Acquired: (76)
Purchases of Available-for-sale Investments: (11,728)
Maturities and Sales of Available-for-sale Investments: 8,011
Investments in Non-marketable Equity Instruments: (1,459)
Net Proceeds from Divestitures: 32
Other Investing Activities: 294
Net Cash from Investing Activities: (9,926)
Decrease in Short-term Debt: (39)
Proceeds from Government Grants: 160
Excess Tax Benefit from Share-based Payments: 118
Additions to Long-term Debt: 125
Proceeds from Sales of Shares to Employees: 3,052
Purchase and Retirement of Common Stock: (2,788)
Payment of Dividends: (2,618)
Net Cash from Financing Activities: (1,990)
Net Change in Cash Holdings: 709
Free Cash Flow: 8,079
Dividend Payout Ratio: 32.4%
Free Cash Flow Margin: 21.1%
Free Cash to Earnings Ratio: 181%

A brief explanation of each line item:

Net Income. The net income line from the income statement. Cash is reconciled against this starting point.

Depreciation. Depreciation expenses in the income statement do not affect cash. For a personal example, think of the depreciation in your vehicle's value each year. Although it diminishes your net worth by reducing the amount you could sell the car for, it does not affect your cash holdings.

Share Based Compensation. Tech companies like Intel often reward employees by granting them stock or stock options. The estimated final value of these must be expensed on the income statement, but issuing stock or options does not require cash, so the amount expensed is added back here.

Asset Impairment. The value of assets on the balance sheet are in most cases estimated. Intel's accountants decided that, due to weak demand, the value of some assets was lower than was being carried on the balance sheet. The resulting write-down affected the balance sheet value, but did not affect cash holdings, so it is added back here. This line item also contained employee severance charges that were expensed in the current period, but not yet paid out in cash.

Tax Benefit from Share Based Payments. When employees exercise their stock options, the amount of profit they receive can be written off Intel's tax bill, as employee compensation is tax deductible. On the cash flow statement, this value is subtracted from operating cash and added to cash from investments as a re-classification exercise.

Amortization of Intangible Assets. Similar to Depreciation or Asset Impairment, Intel has set up a schedule to degrade the balance sheet value of some of it's intangible assets over a period of time. While this affects the balance sheet and is counted as an expense on the income statement, it does not affect cash and is added back in here.

Gains on Equity Investments. As mentioned in the balance sheet article, Intel holds equity positions in a few companies it works with, notably VMware (VMW) and Micron (MU). Like your personal portfolio, unrealized gains and losses affect net worth, but not cash balances. Therefore the gain recorded in the income statement is subtracted back out here.

Deferred Taxes. As mentioned in the balance sheet review, deferred taxes represents over or under-estimated tax payment carry-forwards. Again, this is a carrying account, only for tracking tax balances; changes in it are strictly for accounting purposes and do not involve cash.

Changes in Working Assets and Liabilities. Intel's accounts receivable, inventory, accounts payable, and other working capital balances obviously fluctuate on a daily basis. Two things to look for here are accounts receivable rising (Intel not able to collect it's owed cash payments), and inventory rising as a percentage of revenues. These represent weakness in Intel's customer base, and rising inventory is a big concern as technology products degrade in value very quickly. Over time, this line item should work out to about break-even. Consistent negative values here indicate poor management of collection and demand forecasting.

Net Cash from Operations. The sum of all of the above line items. This is the amount of cash Intel earned over the reported period, one of the most important pieces of data available.

Additions to Property, Plant, and Equipment (Capital Expenditures). Any items the company purchases for business that have a useful life over one year are considered "capital expenditures". These are not expensed in the income statement, but are charged off gradually through depreciation. For Intel, these are things like new chip-making equipment, office furniture, computers, and so forth.

Acquisitions, Net of Cash Acquired. This is the cash Intel spent purchasing other businesses.

Purchases of Available-for-sale Investments. Cash Intel put into purchasing equity and/or bonds for the purpose of earning a higher return. "Available-for-sale" means these are usually done on the open market.

Maturities and Sales of Available-for-sale Investments. The inverse of the above. Proceeds from equity and/or bonds that matured or were sold in the period.

Investments in Non-marketable Equity Instruments. Cash spent for a considerable equity investment that was done off-the-market. In this particular case, Intel invested nearly $1.5 billion for a joint venture stake in IM Flash Technologies.

Net Proceeds from Divestitures. Cash received from the sale of various assets and businesses the company no longer deemed strategic. Looking over the 10-K, this includes optical networking components group, media and signaling businesses, and several others.

Other Investing Activities. The catch-all for investing-based items that don't fit anywhere else. These consist of a number of items spread all over the 10-K, which I won't list here.

Net Cash from Investing Activities. All of the investing based items (here, the previous 7) added together.

Decrease in Short-term Debt. Cash Intel used to pay off some of it's short-term debt balances.

Proceeds from Government Grants. There is not much detail on this in the 10-K. Presumably Intel received a nominal amount of cash from some government agency.

Excess Tax Benefit from Share-based Payments. See the similar entry under the operating cash section.

Additions to Long-term Debt. Cash received from selling corporate bonds.

Proceeds from Sales of Shares to Employees. Most tech companies, and many other companies as well, have employee share purchase programs where employees can purchase equity at reduced prices. The amount of cash Intel's employees paid the company for these shares is recorded here.

Purchase and Retirement of Common Stock. The amount Intel spent to buy back and retire it's own shares.

Payment of Dividends. Just what it seems - the cash paid out to shareholders in the form of dividends.

Net Cash from Financing Activities. All of the financing based items (here, the previous 7) added together.

Net Change in Cash Holdings. Calculated as (Net Cash from Operations + Net Cash from Investing + Net Cash from Financing). This is the amount of cash added to or subtracted from Intel's balance sheet during the period. In this case, Intel increased it's cash balance by $709 million dollars over the fiscal year.

Free Cash Flow. Free cash flow can be calculated two ways. Classically it's (Net Cash from Operations + Depreciation - Capital Expenditures). MagicDiligence, and Joel Greenblatt in The Little Book that Beats the Market, calculate it as (Net Cash From Operations - Depreciation). Free cash flow is the cash available for the company to invest in growth or pay back to shareholders through share buybacks or dividend payments. MagicDiligence uses depreciation as this is a more accurate view of "maintenance capital expenditures". The traditional calculation can include capital expenditures used for growth (for example, buying new property or buildings), which unfairly skews the free cash flow calculation for quickly growing companies.

Dividend Payout Ratio. Calculate as (Dividends Paid / Free Cash Flow). This percentage shows you how much of free cash flow is being paid out in dividends. Too high of a percentage (over 60-70%) could indicate an unsustainable dividend.

Free Cash Flow Margin. Calculate as (Free Cash Flow / Revenues). This is the amount of every dollar of sales that is converted into free cash flow. The higher the better here. Look for at least 5%. Intel's very high 21% figure is just another indication of the top quality nature of the company.

Free Cash to Earnings Ratio. Calculate as (Free Cash Flow / Net Income). A big red flag is when this is consistently less than 100%. We will discuss this more in the red/green flag articles.

Now, we have a working explanation of all three financial statements that all public corporations report to the SEC. Next, we'll look at 10 red flags to look for when examining these statements.

article source

www.magicdiligence.com


Saturday, July 3, 2010

How to Calculate Payroll Tax

The IRS is very strict on payroll tax and the deductions associated with it. Even a small miscalculation can land an organization in serious trouble with this regulatory authority. So, it is important to maintain careful records of payroll accounts in an organization.

The first step to calculating payroll tax is getting each and employee to fill up the W-4 form from the Internal Revenue Service. This form aims to calculate the payroll tax depending on the marital status of an employee and the number of dependents. Since most states have payroll structures that are based on the federal system formulated by the IRS, this form helps organizations calculate the payroll tax withholding for both federal and state governments.

Currently, the social security tax withheld from an employee's wages is calculated as 6.2% of total salary. This same amount has to be contributed by the employer, and added to the payroll account of the organization. The wage base for this tax is $76,000 dollars a year, beyond that, taxes need not be deducted from the employee. The same procedure is followed for Medicare taxes, calculated at 1.45% of the employees' salary. There is no wage base for Medicare taxes, and the employee and the employer goes on paying the tax independent of the salary of the employee. The Federal Unemployment Taxes (FUTA) is also calculated at 6.2%, but an employer can take credit up to 5.4%. The FUTA wage base is $7,000 dollars; an employee whose wages exceed this amount in a year, stops paying FUTA taxes that year. The same rules are applicable to State Unemployment Taxes (SUTA) also.

These calculations and deductions have to be done accurately to avoid any confusion. Each company must have a payroll account to that these deductions are transferred to and paid to the state and central governments at the end of the year.

article source

http://www.z-payroll.com/

Thursday, June 24, 2010

Accounting Basics - What is Accrual Accounting Principles?

The accrual accounting method is a method of managing the accounting of a business in which transactions are recorded at the time they take place even if an exchange of assets has not taken place between the entities involved in the transaction, i.e. payment for the goods sold or services provided was not yet received by the seller and wan not yet made by the buyer. This method is based on the basic accounting principle called the matching principle, i.e. when it is necessary to match revenue with expenses incurred to earn such revenue.

How is the Accrual Accounting Method Used?

The basis of the accrual method of accounting dictates that as soon as a document, such as a billing statement or sales receipt, which supports the assumption that a debit or credit transaction has taken place, the accountant makes an entry into the appropriate accounts to represent the transaction. The accountant would not, for example, wait until the cash is collected to record a sale as a credit in the accounts, but would record it as soon as the contract was made to support the title to get cash in the future. Of course, if cash or other property is exchanged between the entities involved in the transaction at the time the transaction initially takes place, such as a purchase made in a retail store, then the transaction would be recorded at that time regardless of the accounting method being applied.

What are the Benefits of Using the Accrual Accounting Method?

With the accrual accounting method, since liabilities are accounted for as soon as they is a legal basis for them to occur, it is less likely that a business will fail to allocate assets to cover the liabilities due to an accounting error. Also, since using accrual accounting means that assets, liabilities and revenues are recorded in chronological order, accrual accounting allows transactions to be evaluated easily and efficiently. In addition the accrual method of accounting provides more accurate financial position of the business. However, the accrual method does require that more entries are made into the accounts and since transactions are recorded despite whether cash for goods sold or services provided is received or not, in case customers fail to pay their debts, such debts will have to be recorded as losses. This is a good practice, as financial statements will indicate quality of accounts receivable and losses incurred on sales to non-paying customers.

We can conclude that this method of accounting is more widely used and recommended accounting method.

Example of the Accrual Accounting Method

The company ABC on May 2, 2009 signs an agreement with the company XYZ to sell 1000 chairs. The chairs are delivered to the warehouse of the company XYZ on May 3, 2009 and the ownership title to the chairs is transferred to this company at the delivery time. Payment for the chairs will be made within 30 days from the delivery date. Applying accrual accounting method company ABC in its books will record the transaction on May 3, 2009, when the chairs were delivered to the customer, i.e. recording sales revenue and accounts receivable from the company XYZ, reduce value of inventory by the cost on inventory sold and reflect cost of sales as the expenses related to the sales income of chairs, despite the payment for the goods will be made later.

Applying the same method of accounting, company XYZ will record purchase of chairs in its books, i.e. increasing inventory value and recording liability (accounts payable) to the company ABC.

Thus both companies will have to record this transaction on the date, when ownership title to the goods was transferred from the seller to the buyer, despite the date when actual payment will be made.


The Defination And The Basics Of Amortization.

Many of us have done it at a point or another during our lives however most of us do not know that the term is called amortization. Amortization in its simplest term means paying off your loan over a period of time. Amortization is pretty general and does not just relate to home loan or mortgages. It can be used to refer to your car loan, credit card bills etc.

The process of amortization is usually determining how much you need to pay for each payment over a set period of times. It is usually calculated by the loan amount, the time period in which you have to pay back, the amount per payment and the interest rate.

An example would illustrate the above point better.

Take for example you brought a house for $150,000, you pay a deposit of $20,000. So you are left with a home loan of $130,000. Suppose you found a lender who is willing to give you the loan that is for a period of 30 years with an annual interest rate of 7%

So how much would be your monthly payment?

First we divide the principle loan amount which is $130,000 with the time period in months. That would be 30 times 12 equals 360 months. You also need to factor in the interest rate of 7%. When you add up, the monthly payment would be around $870.00.

Besides calculating the monthly payments, for amortization loans, the interest payment is first deducted and then followed by your loan. However, it does not mean that the first payment is totally used to pay interest but rather parts of it.

Taking our previous example, the monthly payment of $870.00. About $760 will be used to repay interest while the rest ($110.00) is used to pay off your principle loan amount. For each subsequent monthly payment, the amount of interest paid is reduced. Eventually after as you approached the 30-year period, your interest paid would be minimum while the majority of your monthly payment goes towards repaying the principal loan.

Quite clearly as you can see, for each new loan you take out, the early monthly payments will be used to pay off the interest with only a small portion towards repaying your loan.

As you can see, amortization is quite a complicated matter. Most people would never be able to calculate the amount of interest and the amount that goes into repaying the principal loan per month. Thankfully, there are many free amortization calculators available on the internet. You can use them to calculate your monthly payment before deciding which loan to take. Your lender will also provide you with these information when you take a amortization loan.

Accounting Payroll Software

Accounting and payroll is one of the toughest and tiring jobs, if you are not fond with numbers then you are not suited for this job. Mostly this work deals with numbers, amounts and your company's finances and how to manage them.

Accounting involves maintaining the business records of a person or organization and preparing forms and taxes or other financial purposes. Accounting departments hold the records of your employees' payroll and the financial records of your company.

To have an accounting of your company's records is very important so you could keep track of your finances; you'll know where your company's money has gone, or on which department used the money and what it is used for.

Here are some tips and advice for you concerning accounting and payroll software.

You must first decide when you would like to pay your employees, would you pay them twice per month, every week, or every other week if you like. Then after you have make a decision you then have to choose if you want to hire a payroll agency or you're just going to use one of your employee to do the job.

You also need to set up a filing for your employees' records. It's recommended that you must keep important papers and records files on your employees. Ask your friends that manage their own payrolls so that you will know what documents you need to ask in your employee for filing.

If you decided to buy an accounting and payroll software then you should set a budget. You also have to consult someone who has knowledge on these things. You also need to know what kind of features that your company needs in an accounting and payroll software.

You also have to search through the net and look for the right software since you already know what vital features you need. If you want you could download trial version to see if you like their software.

You also need to consider if the software is difficult to use or not, if you buy software that is difficult to use then you need an employee or you need to hire a person who is familiar with computers and software. But if you can buy the user friendly software then you need not hire an expert and just operate the software on your own or assign one of your employees to do the payroll.

Nothing is hard if you just study and understand how it works or know its functions. Accounting and payroll software are created for companies, and to help those employees that are assigned to that area making their work a lot easier and faster. Companies can also benefit from it for the software will also help you find your employees files a lot faster, unlike before when you needed to open folders by folders. Now with just one click you'll find what you need. This kind of software, is helpful to any kind of business, you just need to find and buy the right one.

Accounting Entry Level Salary

There are plenty of entry level opportunities for new accounting graduates. In recent years there have been smaller numbers of students choosing accounting as their field of study creating a shortage of accounting graduates. There are several reasons for this; one the requirements have become tougher; two the field has gotten a bad reputation from accounting scandals; and three increasingly complex laws and regulations have made it an unpopular field to work in for many.

There are four basic fields of accounting: Public Accounting; Managerial Accounting; Governmental Accounting; and, Internal Auditing. Each of these fields has widely varying job duties, however the fundamental tasks of the profession broadly stated "are to prepare, analyze, and verify financial documents in order to provide information to clients". Most accounting jobs require at least a bachelor degree in accounting, but previous job experience is also helpful and most collages offer part time and summer internships.

An accounting salary can range due to many reasons. These include experience, certification, and overall grasp of accounting procedures and protocols. It can also be based on the current economic climate and hiring trends. For example, an entry-level accountant will make much less than a certified account. Although the potential for growth is present, the industry is based on client needs and requests. Therefore, one who can facilitate this will stand out from those who do not possess full market capacity. In addition, educational levels can also determine pay scales and promotional factors. This is common in the financial spectrum and something that changes at a rapid rate.

An accounting salary for an entry-level position usually ranges from $45,000 to $69,000. This includes public accounting, tax, and auditing positions. It also depends on the size of the firm of financial institution you are employed with. Naturally, a larger firm may pay a higher salary then that of a medium sized or smaller enterprise. Managers and directors, however, can make anywhere from $84,000 to $160,000 per year. This is due to the executive nature of their job, and the intricate procedures, which must be learned or followed. Public accounting firm partners can generate up to $200,000, with the prospect of earning even more over time.