It might seem like a no-brainer to define just exactly what profit and loss are. But of course these have definitions like everything else. Profit can be called different things, for a start. It's sometimes called net income or net earnings. Businesses that sell products and services generate profit from the sales of those products or services and from controlling the attendant costs of running the business. Profit can also be referred to as Return on Investment, or ROI. While some definitions limit ROI to profit on investments in such securities as stocks or bonds, many companies use this term to refer to short-term and long-term business results. Profit is also sometimes called taxable income.
It's the job of the accounting and finance professionals to assess the profits and losses of a company. They have to know what created both and what the results of both sides of the business equation are. They determine what the net worth of a company is. Net worth is the resulting dollar amount from deducting a company's liabilities from its assets. In a privately held company, this is also called owner's equity, since anything that's left over after all the bills are paid, to put it simply, belongs to the owners. In a publicly held company, this profit is returned to the shareholders in the form of dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that's left over is profit. It's not derived from one element or another. Net worth is determined after all the liabilities are deducted from all the assets, including cash and property.
Showing a profit, or a positive figure on the balance sheet, is of course the aim of every business. It's what our economy and society are built on. It doesn't always work out that way. Economic trends and consumer behaviors change and it's not always possible to predict these and what income they'll have on a company's performance.
http://www.articletrader.com/business/what-is-profit-and-loss-exactly-in-accounting-terms.html
Monday, March 19, 2007
Measuring Costs in Accounting
Measuring profits or net income is the most important thing accountants do. The second most important task is measuring costs. Costs are extremely important to running a business and managing them effectively can make a substantial difference in a company's bottom line.
Any business that sells products needs to know its product costs and depending on what is being manufactured and/or sold, it can get complicated. Every step in the production process has to be tracked carefully from start to finish. Many manufacturing costs cannot be directly matched with particular products; these are called indirect costs. To calculate the full cost of each product manufactured, accountants devise methods for allocating indirect production costs to specific products. Generally accepted accounting principles (GAAP) provide few guidelines for measuring product cost.
Accountants need to determine many other costs, in addition to product costs, such as the costs of the departments and other organizational units of the business; the cost of the retirement plan for the company's employees; the cost of marketing and advertising; the cost of restructuring the business or the cost of a major recall of products sold by the company, should that ever become necessary.
Cost accounting serves two broad purposes: measuring profit and furnishing relevant information to managers. What makes it confusing is that there's no one set method for measuring and reporting costs, although accuracy is paramount. Cost accounting can fall anywhere on a continuum between conservative or expansive. The phrase actual cost depends entirely on the particular methods used to measure cost. These can often be as subjective and nebulous as some systems for judging sports. Again accuracy is extremely important. The total cost of goods or products sold is the first and usually largest expense deducted from sales revenue in measuring profit.
http://www.articletrader.com/business/measuring-costs-in-accounting.html
Any business that sells products needs to know its product costs and depending on what is being manufactured and/or sold, it can get complicated. Every step in the production process has to be tracked carefully from start to finish. Many manufacturing costs cannot be directly matched with particular products; these are called indirect costs. To calculate the full cost of each product manufactured, accountants devise methods for allocating indirect production costs to specific products. Generally accepted accounting principles (GAAP) provide few guidelines for measuring product cost.
Accountants need to determine many other costs, in addition to product costs, such as the costs of the departments and other organizational units of the business; the cost of the retirement plan for the company's employees; the cost of marketing and advertising; the cost of restructuring the business or the cost of a major recall of products sold by the company, should that ever become necessary.
Cost accounting serves two broad purposes: measuring profit and furnishing relevant information to managers. What makes it confusing is that there's no one set method for measuring and reporting costs, although accuracy is paramount. Cost accounting can fall anywhere on a continuum between conservative or expansive. The phrase actual cost depends entirely on the particular methods used to measure cost. These can often be as subjective and nebulous as some systems for judging sports. Again accuracy is extremely important. The total cost of goods or products sold is the first and usually largest expense deducted from sales revenue in measuring profit.
http://www.articletrader.com/business/measuring-costs-in-accounting.html
Accounting Methods – Cash and Accrual
When starting a business, you have to determine the method you are going to use for accounting and paying taxes. The two choices are the cash method and the accrual method.
Cash Method
If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.
I open a small business and have to order business cards and stationary. I receive the products and pay the invoice on November 18, 2005. Under the cash method, I can deduct the cost on my 2005 tax return.
Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.
Accrual Method
The Accrual Method of accounting is a bit more complex. Under this method, the focus in on the date the expense is incurred, not paid. Although this may seem a small difference, it can play havoc with your books and piece of mind.
Using our previous example, assume I order business cards and stationary on the December 18, 2005. I receive the products on December 30th, but don’t pay the invoice until January 20, 2006. When can the expense be claimed? It depends on when economic performance occurred.
Generally, economic performance occurs when goods or services are provided to you. In the above example, economic performance would arguably occur when the business cards and stationary were delivered with the invoice on December 30th. Thus, I would be able to deduct the expense for the 2005 tax year.
In Closing
As you can see, the cash method is the easier of the two accounting methods. To determine the best method for your business, speak with a tax professional.
http://www.articletrader.com/business/small-business/accounting-methods-%96-cash-and-accrual.html
Cash Method
If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.
I open a small business and have to order business cards and stationary. I receive the products and pay the invoice on November 18, 2005. Under the cash method, I can deduct the cost on my 2005 tax return.
Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.
Accrual Method
The Accrual Method of accounting is a bit more complex. Under this method, the focus in on the date the expense is incurred, not paid. Although this may seem a small difference, it can play havoc with your books and piece of mind.
Using our previous example, assume I order business cards and stationary on the December 18, 2005. I receive the products on December 30th, but don’t pay the invoice until January 20, 2006. When can the expense be claimed? It depends on when economic performance occurred.
Generally, economic performance occurs when goods or services are provided to you. In the above example, economic performance would arguably occur when the business cards and stationary were delivered with the invoice on December 30th. Thus, I would be able to deduct the expense for the 2005 tax year.
In Closing
As you can see, the cash method is the easier of the two accounting methods. To determine the best method for your business, speak with a tax professional.
http://www.articletrader.com/business/small-business/accounting-methods-%96-cash-and-accrual.html
Careers in accounting
Careers
There are many different careers in the field of accounting ranging from entry-level bookkeeping to the Chief Financial Officer of a company. To achieve positions with more responsibility and higher salaries, it's necessary to have a degree in accounting as well as achieve various professional designations.
One of the primary milestones in any accountant's career is to become a Certified Public Accountant or CPA. To become a CPA you have to go to college with a major in accounting. You also have to pass a national CPA exam. There's also some employment experience required in a CPA firm. This is generally one to two years, although this varies from state to state. Once you satisfy all those requirements, you get a certificate that designates you as a CPA and you're allowed to offer your services to the public.
Many CPAs consider this just one stepping stone to their careers. The chief accountant in many offices is called the controller. The controller is in charge of managing the entire accounting system in a business stays on top of accounting and tax laws to keep the company legal and is responsible for preparing the financial statements.
The controller is also in charge of financial planning and budgeting. Some companies have only one accounting professional who's essentially the chief cook and bottle washer and does everything. As a business grows in size and complexity, then additional layers of personnel are required to handle the volume of work that comes from growth. Other areas in the company are also impacted by growth, and it's part of the controller's job to determine just how many more salaries the company can pay for additional people without negatively impacting growth and profits.
The controller also is responsible for preparing tax returns for the business; a much more involved and complex task than completing personal income tax forms! In larger organizations, the controller can report to a vice president of finance who reports to the chief financial officer, who is responsible for the broad objectives for growth and profit and implementing the appropriate strategies to achieve the objectives.
http://www.articletrader.com/business/careers-in-accounting.html
There are many different careers in the field of accounting ranging from entry-level bookkeeping to the Chief Financial Officer of a company. To achieve positions with more responsibility and higher salaries, it's necessary to have a degree in accounting as well as achieve various professional designations.
One of the primary milestones in any accountant's career is to become a Certified Public Accountant or CPA. To become a CPA you have to go to college with a major in accounting. You also have to pass a national CPA exam. There's also some employment experience required in a CPA firm. This is generally one to two years, although this varies from state to state. Once you satisfy all those requirements, you get a certificate that designates you as a CPA and you're allowed to offer your services to the public.
Many CPAs consider this just one stepping stone to their careers. The chief accountant in many offices is called the controller. The controller is in charge of managing the entire accounting system in a business stays on top of accounting and tax laws to keep the company legal and is responsible for preparing the financial statements.
The controller is also in charge of financial planning and budgeting. Some companies have only one accounting professional who's essentially the chief cook and bottle washer and does everything. As a business grows in size and complexity, then additional layers of personnel are required to handle the volume of work that comes from growth. Other areas in the company are also impacted by growth, and it's part of the controller's job to determine just how many more salaries the company can pay for additional people without negatively impacting growth and profits.
The controller also is responsible for preparing tax returns for the business; a much more involved and complex task than completing personal income tax forms! In larger organizations, the controller can report to a vice president of finance who reports to the chief financial officer, who is responsible for the broad objectives for growth and profit and implementing the appropriate strategies to achieve the objectives.
http://www.articletrader.com/business/careers-in-accounting.html
Accounting Principles
If everyone involved in the process of accounting followed their own system, or no system at all, there's be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.
If GAAP are not the principles used for preparing financial statements, then a business needs to make clear which other form of accounting they're used and are bound to avoid using titles in its financial statements that could mislead the person examining it.
GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.
GAAP are not cut and dried, however. They're guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.
http://www.articletrader.com/business/accounting-principles.html
If GAAP are not the principles used for preparing financial statements, then a business needs to make clear which other form of accounting they're used and are bound to avoid using titles in its financial statements that could mislead the person examining it.
GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.
GAAP are not cut and dried, however. They're guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.
http://www.articletrader.com/business/accounting-principles.html
Wednesday, January 24, 2007
Why Shift To Accounting Software?
Before tackling the question as to why should you switch to accounting software, here are a few lines about accounting first.
Accounting in business helps in proper management of revenues and expenditures that ultimately decide whether a business is heading towards failure or success. It is a process of collecting, summarizing and analyzing the financial data of an organization.
To manage all these, you can either hire an accountant or invest in a good accounting software. And the growing popularity of accounting software suggests that the latter option is a better investment. So, do not be discouraged if you do not have any knowledge about accounting. Just invest in a good accounting software which in turn will take care of your accounts.
In fact, it is becoming a norm to purchase an accounting software application before starting a business. You can find accounting software for both small as well as large businesses. You can choose from a basket of multiple accounting software programs. Depending on the type of business you have and how you run it, you have to choose the software package that compliments your business, instead of being a limiting force.
Simply put, the main advantages of switching over to accounting software are that it saves time as well as money. No doubt, your accountant(s) may be the best in business, but the following points will make it clear why an accounting software scores over any of them:
To remain competitive in this age, your business needs all the information quickly. You can not wait for the paper works to get finished. You must be aware of what is happening in your company. Accounting software can do all these things for you.
Modern businesses are all about managing time. To smoothly run your business, all you should look for is time management.
Accuracy is another thing where you can not let your guard down. While human beings can never be error free all the time, you will find that accounting software can be 100 percent correct at almost all the times.
Another advantage of accounting software is that it will keep you updated. It works great when applied to tracking tax codes changes.
All the current accounting software are easy to use, set up and navigate. And with the advancement of technology, they are becoming more specialized, catering to the needs of specialized businesses.
Last but not the least, an accounting software helps you save money as it is a one time purchase. Also, it can grow with your business thus minimizing your future cost.
All the above mentioned points are reasons enough to make you shift to an accounting software. An accounting software will make your business management better, more efficient and easier. But, choosing the best software is the most critical thing. By looking at the websites, reading reviews and talking to former users, you can apprise yourself about different accounting software. In fact, the accounting software market is full of different types of accounting software with many different features. You just need to calculate your needs and zero down on the product that suits you the best.
Accounting in business helps in proper management of revenues and expenditures that ultimately decide whether a business is heading towards failure or success. It is a process of collecting, summarizing and analyzing the financial data of an organization.
To manage all these, you can either hire an accountant or invest in a good accounting software. And the growing popularity of accounting software suggests that the latter option is a better investment. So, do not be discouraged if you do not have any knowledge about accounting. Just invest in a good accounting software which in turn will take care of your accounts.
In fact, it is becoming a norm to purchase an accounting software application before starting a business. You can find accounting software for both small as well as large businesses. You can choose from a basket of multiple accounting software programs. Depending on the type of business you have and how you run it, you have to choose the software package that compliments your business, instead of being a limiting force.
Simply put, the main advantages of switching over to accounting software are that it saves time as well as money. No doubt, your accountant(s) may be the best in business, but the following points will make it clear why an accounting software scores over any of them:
To remain competitive in this age, your business needs all the information quickly. You can not wait for the paper works to get finished. You must be aware of what is happening in your company. Accounting software can do all these things for you.
Modern businesses are all about managing time. To smoothly run your business, all you should look for is time management.
Accuracy is another thing where you can not let your guard down. While human beings can never be error free all the time, you will find that accounting software can be 100 percent correct at almost all the times.
Another advantage of accounting software is that it will keep you updated. It works great when applied to tracking tax codes changes.
All the current accounting software are easy to use, set up and navigate. And with the advancement of technology, they are becoming more specialized, catering to the needs of specialized businesses.
Last but not the least, an accounting software helps you save money as it is a one time purchase. Also, it can grow with your business thus minimizing your future cost.
All the above mentioned points are reasons enough to make you shift to an accounting software. An accounting software will make your business management better, more efficient and easier. But, choosing the best software is the most critical thing. By looking at the websites, reading reviews and talking to former users, you can apprise yourself about different accounting software. In fact, the accounting software market is full of different types of accounting software with many different features. You just need to calculate your needs and zero down on the product that suits you the best.
Monday, December 25, 2006
When Money Matters Call Accounting Software Can Ensure Your Business Success
Call accounting and telecom billing software provides many business benefits that can both save money, as well as help businesses generate revenue
Call accounting and telecom billing software provides many business benefits that can both save money, as well as help businesses generate revenue. A feature-rich call accounting software can provide many business benefits, such as:
· Long Distance Bill Verification: Was the bill from your chosen long distance phone company accurate? Mostly, it isn't. Using a call accounting system to check your long distance gives you some peace of mind - and documentation to back up your request for a refund of overpayments you may have made.
· Motivate sales people: The more phone calls they make, the more they sell. Keep track of their call volume and manage them accordingly.
· Bill Clients and Projects back for telephone charges incurred on their behalf: Every lawyer, government contractor, etc. does it. It makes sense.
· Allocate telephone calling costs among departments and divisions: Telephones - voice, data, video and imaging - are some of your biggest expenses. They're a cost that should be allocated to the products you are making, or the departments and divisions in your company. Telephone costs can determine which product is profitable. Which isn't. A software company recently dropped one of its three "big" software packages because phone calls for support got too expensive.
· Control Telephone Misuse: The rates for calling can vary widely depending on your carrier rate, the route the call takes, who makes the dialing decision...a call accounting system is a good check to see if you are spending money needlessly.
If your business isn’t using a call accounting or telecom expense management software, you could be losing money.
Call accounting and telecom billing software provides many business benefits that can both save money, as well as help businesses generate revenue. A feature-rich call accounting software can provide many business benefits, such as:
· Long Distance Bill Verification: Was the bill from your chosen long distance phone company accurate? Mostly, it isn't. Using a call accounting system to check your long distance gives you some peace of mind - and documentation to back up your request for a refund of overpayments you may have made.
· Motivate sales people: The more phone calls they make, the more they sell. Keep track of their call volume and manage them accordingly.
· Bill Clients and Projects back for telephone charges incurred on their behalf: Every lawyer, government contractor, etc. does it. It makes sense.
· Allocate telephone calling costs among departments and divisions: Telephones - voice, data, video and imaging - are some of your biggest expenses. They're a cost that should be allocated to the products you are making, or the departments and divisions in your company. Telephone costs can determine which product is profitable. Which isn't. A software company recently dropped one of its three "big" software packages because phone calls for support got too expensive.
· Control Telephone Misuse: The rates for calling can vary widely depending on your carrier rate, the route the call takes, who makes the dialing decision...a call accounting system is a good check to see if you are spending money needlessly.
If your business isn’t using a call accounting or telecom expense management software, you could be losing money.
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