Accounting Procedures And Methods

Accrual Based Accounting: Is It the Right Choice for You?

Accrual based accounting, where your business tracks daily, weekly, and monthly expenses when they are incurred and profits when they are earned (rather than when expenses are paid or received) has several tax benefits when it comes to accounting procedures.

What are some of the benefits of accrual based accounting?

1. It gives your business more control over tax deductions. Your business can make purchases, donations or intentionally incur other expenses very close to the end of the quarter (including the last day of the quarter) in order to receive deductions to reduce your tax liability. But if you're paying monthly expenses on a Net-30 schedule, you won't actually have to pay that money until the next quarter.
2. It gives your business more control over taxable income. You can bill projects within a quarter to increase your income on the books, or can delay billing until after the end of a quarter to reduce taxable income.
3. Your profit-and-loss is not in someone else's hands. Clients often pay late, which can lead to surprises at quarterly tax time. With accrual based accounting, you determine when income and monthly expenses are logged (within reason, of course).

Making the switch to accrual based accounting? A virtual accounting firm like OSI, with years of expertise in accrual based accounting, can help.

How can Accrual Based Accounting Help Manage Your Cash Flow?

"Net-30." "Net-60." "The check is in the mail." C-level executives and accounting departments in businesses of all sizes often hear these words — or use them frequently. Net-30 is desirable payment terms when you're paying for goods or services. Not so much when you're waiting for cash flow.

Accrual based accounting can help balance things in your company's favor by helping you manage cash flow — especially if you're a distributor or retailer managing the sale of goods to retailers or the public.

Accrual Based Accounting Gives You Fast Deductions, Slower Monthly Expenses
In the case of retail or distribution businesses, you may not see income from merchandise you've purchased for months, when it sells to your customers. But accrual based accounting lets you write off purchases as they happen, even if you are on Net-30 (or more) terms. Then, you don't have to worry about paying taxes on the income earned until after you actually sell the products. If your customers are on Net-30 terms with you, too, you can defer logging the income even longer.

With strategic accrual based accounting, you can reduce your quarterly tax bills or schedule larger tax bills for times when you have better cash flow, keeping your business running smoothly 12 months out of the year.

Four Ways to Reduce Your Fixed Expenses

Think your fixed expenses are truly "fixed?" A careful cash flow analysis with an accurate profit and loss statement in your hands may reveal otherwise. Some areas of SMB or small business expenses that may be considered "fixed" are: 

• Office space
• Internet, phone, etc.
• Equipment maintenance

1. Office Space: Do you rent or lease? Would refinancing at a lower interest rate help reduce your monthly payments? Can you renegotiate your lease for a better rate if you extend the commitment? Are there even ways you could barter (through a network or privately) to reduce your monthly lease? Or does it make more sense to buy in this market? If you decide to buy, be sure to factor in the short-term costs of employee and office relocation, including temporary lost productivity. But you can see how creative thinking can help you reduce costs on what you might consider a fixed expense.
2. Internet, Phone, etc. Are you getting the best prices available? Would switching services give you a better rate? And could you do so with no downtime?
3. Equipment Maintenance: You don't want to skimp on maintaining the equipment that keeps your business operating. But are you getting the best prices for services?
4. Employee Salaries: This is a touchy topic, as no one wants to make cuts. But are there areas of your business you could outsource for less money, with better results? After you've looked at reducing all your other areas of fixed expenses, it may be worth considering. Accounting and bookkeeping services is one area of small business expenses that many SMBs can outsource to a virtual firm.

Reduce Expenses by Studying Your Profit and Loss Statement

The profit and loss statement may be something the bookkeeping department tosses on your desk quarterly, and you give it a cursory glance. Unless things aren't going well, you may not think about the numbers. But there's valuable information that could help you improve the bottom line. Knowing your profit and loss statement includes accurate, up-to-date figures is the first step in managing expenses.

Sometimes called an income statement, the profit and loss statement is an itemized list of your revenues minus expenses.

You can see: 

• What areas of your business are over-budget or under-budget to make adjustments accordingly. Are you overspending, or simply not allocating enough necessary funds to a specific expenditure?
• Spot unexpected, unnecessary expenditures. Was your travel budget off the wall last quarter due to a few overly generous salespeople looking to land those big clients? Or are you just spending too much on international calling, where a better communications plan would reduce those monthly expenses? Are you overnighting items you could simply load to an FTP site or send through a file transfer website like YouSendIt? These are all ways to reduce monthly expenses, and your profit and loss statement will help you spot them.
• Your cost of goods v. sales income, along with increases in product returns. Consistent tracking of your profit and loss statement will show you unusual expenses related to your sales channels, so you can fix issues before they do significant damage.

Get an Accurate Financial Snapshot with Cash Based Accounting

Since 1916, the Internal Revenue Service has permitted accrual based accounting for businesses. Businesses with gross revenue over $5 million are now required to use accrual based accounting. However, some corporations, even larger businesses, are eligible to use cash based accounting. There are several benefits to the cash based accounting method.

What Is Cash Based Accounting? 
Cash based accounting allows you to report expenses when they are incurred. You also report income when it is received — as opposed to when it is earned or billed. Most businesses beginning with cash based accounting methods but then outgrow it as their revenue grows to total more than $5 million gross.

Benefit to Cash Based Accounting
Cash based accounting gives you a more clear snapshot of your financial picture. After all, you can't pay your expenses with "checks in the mail." When you view your daily, weekly, or monthly expenses, cash based accounting shows you exactly what is in your account and exactly what you've spent. If you've used Net-30 terms, cash based accounting considers that money already spent. Likewise, payments that have not yet arrived don't show up as income. Since there's always a slim chance your customers won't pay their bills, cash based accounting prevents you from paying taxes on income you haven't actually received.

Cash based accounting is a simple way to calculate daily, weekly and monthly expenses and income.

Cash Based Accounting to Combat "Fear"

In a recessionary economy, many people talk about "fear." It turns out, experts say the recession ended more than a year ago, but many businesses are still feeling the pinch. If you are a small- to medium-sized business that does less than $5 million in gross revenue per year, you can use cash based accounting to combat the fear you may be feeling over the future.

How does cash based accounting help? Cash based accounting gives business owners a clear picture of the financial future. Because you're not reporting income you haven't yet received — but you're looking at expenses you've already paid (even on credit or Net terms) — you can see the truth, for better or worse. (And hopefully, for you, it's looking better than it did this time two years ago, when we posted this article about fear and the recession. If not, you can make adjustments by reducing expenses — and see the results on paper right away.)

That's where a virtual accounting department like AccountingDepartment.com can help. A virtual accounting department has nothing at stake with your company — other than to make you happy by helping you manage your small business expenses or medium business expenses better. We can make suggestions from an objective viewpoint. And if business is down and you need to cut back, you won't be faced with the painful task of laying off in-house employees. We won't take it personally if you make adjustments to your accounting services. And when business starts booming for you, we have plenty of staff here at AccountingDepartment.com to provide help with your cash based accounting records and medium or small business expenses.

Is An Accounting Audit Cause for Concern?

Often, the word "audit" strikes fear in the hearts of business owners. After all, honest people wind up in jail, or bankrupt, after audits. Don't they? An accounting audit is not something to fear, however. It's a system of checks and balances that will help your company truly examine and evaluate your bookkeeping and accounting methods and practices. You may come out of an audit with:

• More accurate records
• Streamlined accounting procedures
• A more clear picture of your company's financial future so you can take the right action for continued growth

That doesn't mean an accounting audit is something you want to face alone. An outside accounting agency — with no stake in your company other than to help you get the most from your bookkeeping and accounting records — can help.

The right virtual accounting department will take over your accounting and make sure you're following "Generally Accepted Accounting Principles" (GAAP). Even before the audit, your full-charge virtual bookkeeper and controller can make suggestions to help you streamline processes and cut expenses. When the time for your accounting audit rolls around, you'll be confident your records are in the best shape possible, giving you an opportunity to fine tune based on the auditor's suggestions.

Don't fear an accounting audit. Call AccountingDepartment.com for help.

Three Surprising Ways In-House Bookkeeping Can Cut Your Business Expenses

When you take an honest look at your business expenses, you might find that in-house employees are costing you more than you need to spend, especially when it comes to bookkeeping and accounting services.

Let's look at three ways you can cut business expenses with outsourced, virtual bookkeeping & accounting services.

1. No employee benefits, insurance and taxes to pay. Health insurance, unemployment insurance and employee taxes raise small business expenses more and more each year. Whether you have annual revenue of just over a million or closer to $30 million, chances are benefits are a big chunk of your business expenses. When you outsource your bookkeeping to an independent service, you can eliminate this business expense altogether — at least in one department of your company.

2. No overhead. When you have employees in your office — even if they are temps or freelancers — you have to provide them with office space, a computer, lighting, etc. With virtual bookkeepers, you don't have to provide them with a place to work — or even give them a slice of pizza when you treat the rest of the office on alternate Fridays.

3. An objective look at your business expenses. The accounting and bookkeeping staff at AccountingDepartment.com does more than just punch numbers for you (although we do that accurately and less expensively than you might think). We will help you evaluate your business expenses to create a better ROI. Additionally, with our daily, weekly or monthly reports, you can see at a glance, just where your money is going. This puts you in a much better position to make positive changes to your business expenses — and your bottom line.

Cutting Business Expenses Like an Outsider

Have you ever cleaned out your closets at the change of season? You may be thinking, "What does fashion and housekeeping have to do with accounting procedures," right? More than you might think.

Maybe you can't bear to part with that pair of Jordache jeans from your senior year in grad school. You perform calisthenics to pull them on and convince yourself they "still fit." It's only your wife who tells you otherwise.

When you hire an outside accounting & bookkeeping company, our staff will act as that loving wife, pinpointing the business expenses that are no longer a "good fit" for your company. You control the purse strings. The final call is always yours and you sign off on every check. But our staff can see what you may be too close to see. We'll offer honest cash flow analysis to see the areas you can really cut corners without hurting your commitment to quality or your bottom line.

Most importantly, with bookkeeping and accounting tasks out of the hands of your staff — not to mention the burden of training and managing bookkeepers, you'll be able to do your own cash flow analysis from a more long-term perspective. You won't be reacting to outside influences, but creating the future of your business by focusing on the projects that offer the best ROI.

You can hang on to those old Jordache jeans for a few more years if it makes you feel better. But now's the time to make that positive change in your business expenses.

When Small Business Expenses Are Not Small, At All

Do you consider yourself an SMB? You may have heard that term a lot, especially on the Internet, but what exactly does it mean? No one knows for sure. What it comes down to, really, is that if you consider your company an SMB (small- to medium-size business), it probably is. But even if you don't think of yourself as "small" or even mid-size, you may be, by the revenue standards of the top Fortune 500s.

The SBA (Small Business Administration) uses a 40+ page brochure to define the term "small business" or "SMB" in various industries. A general rule of thumb is that businesses with fewer than 500 employees are "small businesses" and businesses with fewer than 1,000 employees fall into the SMB classification.

However you define yourself, when you look at your cash flow analysis, we doubt you view your monthly "small business expenses" as small, by any means. Rent, utilities, employee salaries, professional dues — possibly even manufacturing equipment, maintenance ... plus sales and marketing costs and more. Where can you reduce your monthly expenses and still provide the same quality of service to your customer base?

Outsourcing certain departments, including your accounting and bookkeeping services, through a virtual firm is one way to reduce small business expenses. You'll save on:

• Salaries
• Benefits (including PTO)
• Unemployment taxes
• Office equipment
• Overhead
• Training and retention of employees

Understanding the Different Types of Business Expenses to Manage Expenses Better

You can cut costs significantly by evaluating your daily, weekly and monthly business expenses and finding ways to save money. Just as with your household budget, there could be areas you could spend less.

Here are some areas to consider when you evaluate your business expenses through a profit and loss analysis.

• Office space: Leased or owned?
• Utilities: Phones, Internet, electricity, water, even garbage collection factor into your business expenses and your bottom line. You may be able to cut some costs with an energy audit and "green" improvements to your office space, which could also net you tax refunds.
• Employees: Payroll, benefits, insurance, etc.
• Freelancers/professionals: These cost less than employees, but are still business expenses worth considering
• Travel
• Marketing and advertising

A careful profit and loss analysis will show you ways you can really cut business expenses, without hurting your bottom line or having your employees feel as if they have to beg for sticky notes.

Questions to Ask When You Choose a Daily Bookkeeping Firm

Are you looking for an outside bookkeeping firm to handle your daily bookkeeping & controller needs? Has your company grown so rapidly you don't have the time to train new monthly bookkeeping staff — or the space to hold them?

A virtual accounting & bookkeeping firm that provides daily bookkeeping & controller services could be the answer. But how do you find a reputable company? Here are some questions to investigate.

• What business software do they use? Is their staff trained in the most common bookkeeping software? Most importantly, do they use what you use?
• Is your information secure? Cloud-based computer is here — and it's not going away. But security measures and encryption must be in place to ensure the security of your company's sensitive financial records when you use in-the-cloud monthly bookkeeping software.
• Is the information backed up in multiple ways? A data loss can be catastrophic, but SaaS has built-in backups and controls.
• Who owns your data? A company like AccountingDepartment.com uses an ASP (Application Service Provider), which means we host the data, but you own the records — always — and will always have password-protected access to your up-to-date financial records and monthly bookkeeping data.

Three Reasons to Stick with a U.S.-based Firm for Daily Bookkeeping

When many people hear the word "outsourcing," they think of virtual services (like virtual assistants) who operate from other countries — often countries where the U.S. dollar goes a lot further than it does here. Some businesses hire a virtual assistant from another continent for $200 for an entire month to answer their emails. But that's email — not daily bookkeeping, profit and loss statements, or tax information.

Here are three reasons to stick with a U.S.-based daily firm, who hires trained bookkeepers and certified accountants knowledgeable about GAAP and U.S. tax laws, to manage your company's daily and monthly bookkeeping tasks.

1. The Security of Your Data: U.S.-based virtual bookkeeping businesses are just like you — our reputation is at stake every time we provide a service. We use an Application Service Provider, who host your data, through your choice of bookkeeping software including popular programs like QuickBooks and Peachtree, on our secure server. You always have access to your data.
2. Personalized Service: Your personal controller & bookkeeper works from 8 am to 5 pm in their (and your) time zone. This means you have access to your bookkeeper when you need them — during office hours. No time zone difference to worry about. One bookkeeper is assigned to your company, and they are available for you.
3. No Call Center: Our bookkeeping services may take place in the homes of our U.S.-based employees. We run a paperless business, which means you don't have to worry about your financial records being printed and left on a desk somewhere.

Can Deferred Tax Accounting Cut Your Variable Expenses?

There are many ways to cut your company's variable expenses with careful budgeting. One variable expense is your quarterly taxes. Deferred tax accounting is a commonly accepted practice, recognized under GAAP, to reduce your tax liability within a quarter.

To accurately calculate and report deferred taxes, your daily bookkeeping records must be accurate and up to date. If you've faced challenges in your current accounting department with high turnover rates, long learning curves when it comes to bookkeeper training, or simply an overworked bookkeeping staff, a virtual bookkeeping service can help.

If you're using deferred tax accounting to minimize your tax liability and reduce variable expenses, a virtual bookkeeping firm will work with your tax preparer or individual auditor to ensure the data is presented correctly.

Because AccountingDepartment.com uses an Application Service Provider (ASP), all your bookkeeping data is stored securely on servers. This helps create a "paperless office" where bookkeeping data, including all the information necessary for deferred tax accounting, is readily available for authorized personnel to access at any time, from any computer with Internet access. In addition to the enhanced security of cloud computer, there's no chance that sensitive files will be left on a desk for unauthorized personnel to see, or thrown in the garbage where they could open your company up to risks of theft and identity fraud.

Deferred tax accounting requires accurate, easily accessible financial records. If this has been a challenge for your business in the past, AccountingDepartment.com can help.

Accurate Daily Bookkeeping Procedures: The Key to Financial Success

How accurate are your current daily bookkeeping procedures? How did your company do on its last accounting audit? If your bookkeeping staff is overworked or underqualified — or if you have frequent turnaround that causing you to waste time hiring and training employees, a virtual bookkeeping firm may be able to help.

One thing it's important to understand: the key to effective daily bookkeeping procedures is based in accurate daily bookkeeping. Accurate bookkeeping records on a daily basis make it easy for your bookkeeping staff to generate monthly reports.

A virtual bookkeeping service offers several advantages when it comes to daily bookkeeping procedures:

• Very low turnover... one bookkeeper will handle all your bookkeeping procedures and be in touch on a regular basis via phone, email or instant messenger
• No need to use resources hiring and training new bookkeeping staff
• Your virtual bookkeeper focuses on your bookkeeping alone, no office distractions

• Payroll
• Cash receipts and disbursements
• Record Vendor Invoices
• Record Vendor, Debit Card Transactions, Pay Pal & EFT Payments
• Record Sales Invoices
• Record Purchase Orders (PO)
• Bank reconciliations
• Credit card reconciliation
• Recurring reports

Can a virtual bookkeeping firm help you streamline your daily bookkeeping procedures and save your company money?

Can An Outside Accounting Firm Help You With Revenue Forecasting?

Revenue forecasting includes complicated formulas that take into account a number of factors in your business, including:

• Historical trends
• Market trends
• Marketing and advertising plans
• Your overall business strategy

Virtual Bookkeeping Services Can Help with Revenue Forecasting
If your monthly bookkeeping isn't in order and up to date, there's no chance your revenue forecasting will be accurate. That's one way a virtual bookkeeping service can help.

Accessing that information easily may be another challenge you face in your current accounting structure. The virtual bookkeeping services at AccountingDepartment.com puts all the up to date information, including monthly expenses, profit and loss statements, and projections, in an easy-to-read format, online, for you to access 24/7 from any computer with Internet access.

You can also easily extract and share specific information with relevant personnel to help in creating a marketing plan, evaluating sales goals, or simply motivating key management team members.

If you've never had a virtual bookkeeping firm help with your revenue forecasting, now may be the time