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.

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.

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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

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/