Accounting Rules

Are you familiar with the rules of accounting? Have you ever heard someone refer to the rules of accounting and wondered what exactly they were talking about?

Below are the rules of accounting and what each of these rules means:

Debit the Receiver―Credit the Giver

According to quora.com, this principle is used in the case of personal accounts. When a person gives something to the organization, it becomes an inflow and therefore the person must be credited in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited.

Debit What Comes In―Credit What Goes Out

By default, every account has a debit balance. When you debit to the account, you are automatically adding to your existing account balance. This is what needs to be done. Just as when credit goes out it needs to be adjusted accordingly.

Debit All Expenses and Losses―Credit All Incomes and Gains

This rule is applied when dealing with nominal accounts. In most cases, the capital of a company is a liability which means by default it is a credit balance. If you credit all incomes and gains you automatically increase your capital and when you debit expenses and losses you automatically decrease your capital.

Are you still not sure about how you should utilize the rules of accounting? Leave your questions in the comments below and one of our trained CPAs can help you better understand how to implement the rules of accounting into your business.

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Balance Sheet

A balance sheet – which is commonly conceived as a “statement of financial position” – reveals the basic financial condition of a corporate entity. Balance sheets do this by showing a company’s assets, liabilities and owners’ equity (net worth). If you be a shareholder in a company, it is vitally important that you to know how to read a balance sheet and be able to analyze it accurately.

Below are the critical components of interpreting balance sheets:

Balance Sheet Equation

The main formula behind a balance sheet is: assets = liabilities + (shareholder) equity

Know the Current Assets

Current assets are known to have a life span of one year or less, meaning they can be converted easily into cash.

Know the Non-Current Assets

Non-current assets are defined as the assets which are not turned into cash just as easily; this often means that these assets are generally expected to be turned into cash value within a year.

Learn the Different Liabilities

On the flip side of the balance sheet, there are liabilities. These are generally financial obligations which a company owes to outside parties.

Learn about Shareholders’ Equity

Shareholders equity is the amount of money generally invested into a business.

Analyze with Ratios

Financial ratio analysis use formulas to help you gain insight into the company and its operations.

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Hiring a CPA

One of the biggest questions which plagues many individuals during tax season is the following: should I do my own taxes or hire a CPA? It’s a question that many professionals still don’t know how to adequately answer. In our opinion? You should hire a CPA, unless you’re a CPA yourself and in that case, go for it!

Hiring a CPA can help you in ways which you would never be able to help yourself. CPAs can help you as you navigate through the tax filing process and can also make sure you receive the biggest refund possible.

Here are just a few reasons that should let you know that you need to hire a CPA

• Do you own a business?
• Are you unsure how you should file your taxes?
• Did you recently get married?
• Did you recently have children?
• Did you recently experience any other life changing event?

If you answered “yes” to any of these questions, it is an indication that you should hire a CPA to do your taxes. The more unique your situation is, the more likely it is that you will need to hire an accountant to avoid making mistakes. While it may seem like an inconvenience to hire an accountant during tax season, hiring a CPA can actually save you money in the long run.

What other reasons have helped you determine if you need to hire a CPA or do your own taxes? Leave your comments below and let us know about your experience.

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Accountants & Client Confidentiality

One of the questions many new business owners often ask when hiring a new accountant is whether there will be a level of confidentiality between them and their new employee. While your accountant is not permitted to speak about your personal finances with anyone outside of your business, it is possible that your accountant could report you to the IRS.

When Confidentiality Must Be Broken

There are several cases in which an accountant must ditch the client and customer confidentiality agreement. One of those times is if your accountant is summoned by the courts. If your accountant be summoned to testify about his or her knowledge of your finances, your accountant will be legally obligated to disclose all information pertaining to your case. Lying or refusing to share information could have them in contempt of court which suddenly could have them behind bars simply for trying to protect you.

Keep Open and Honest Communication

To avoid this sort of dilemma, it is encouraged that you simply keep open and honest communication with your accountant. If you are handling your money illegally, share that information with your accountant. Sharing that information can help your accountant determine if he or she wants to continue working for you. As noted in previous articles, your accountant cannot be held liable for your mistakes; however, they can be held liable for your cover up. Don’t put them in a situation or position to have to cover up for you.

Do you have any more burning questions about the IRS and your business dealings? Post your questions (and comments) below.

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Responsibilities of an Accountant

As much fun as it may be to point the finger and assign blame to other people, it’s not always the answer to all of your problems. In fact, some people wrongly believe that if the accountant you hire mess up your personal and business accounts they automatically assume responsibility. Although the thought that you won’t be held accountable for someone else’s mistakes may be comforting, it’s not actually true in this case.

You are Responsible for Your Taxes

Just because your accountant makes one or two mistakes doesn’t mean you get off free. If your accountant makes an error on your taxes, it’s still your taxes, and you will be held responsible.

Year after year, many business owners attempt to take their accountants to court for being the cause of their audit; however, ignorance of the law does not give you a get out of jail free card. Instead, it actually may make you look worse. As with any other employee you hire, it’s important that you hire qualified individuals who know the laws and also know your business well enough to ensure no mistakes magically arise.

Don’t Target Your Accountant

So if you’re considering firing or even suing your accountant, think again. If anything, they could hold you liable for withholding valuable information that he or she may need in order to do a job for you correctly.

Have you ever tried to hold your accountant responsible for a job they weren’t equipped to do? Be honest and leave your comments below.

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Financial Literacy

Accountants know first-hand what the economy looks like from a financial standpoint and can forecast where it will be in the future; and because of their specialized knowledge, they are qualified to teach you whatever you’re willing to learn about financial literacy. Below are just a few lessons in financial literacy an accountant can teach you:

An Accountant Can Teach You How to Save Money

Yes, an accountant can teach you how to save money, but only if you’re honest about your spending habits. An accountant can work with you one on one to see how you could be saving more and where you spend money recklessly.

An Accountant Can Teach You How to Spend Money

Ever heard the quote in order to make money you have to spend money? That quote was probably created by an accountant who wanted to help their clients learn how to spend money. Accountants can help advise you on what purchases can help your business grow and which purchases could send you in the red quickly.

An Accountant Can Help You with Bankruptcy

Bankruptcy is often considered the end all be all of financial issues. An accountant can help you and your business determine if bankruptcy be right for you and your company. They can also help you as you determine what you can and cannot do in order to dig yourself out of a financial rut.

An Accountant Can Help You Make Better Decisions

Whether you’re trying to determine how much money to save, spend or even use on payroll, an accountant can surprisingly help you with all of it. The better financial decisions you make, the better your financial future will be.

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Specialty Accountants

The Library

Although it has been suggested that people aren’t reading as much as they used to read, the library is still a great resource for information. Practically every library across the country has a resource center for small businesses and it is there where you can find references for businesses and even fliers for businesses seeking clients. This is a great place to look when trying to find a specialty accountant.

Professional Associations

Are you a lawyer? Journalist? Plumber? Whatever your specialty, check your local professional association. Your professional association usually has accountants and other business professionals within their network who are in place just to help businesses within your niche. If your own association can’t help, consider reaching out to the local accountant association to see if they can connect you with accountants within your niche.

Local Colleges 

Local colleges are also a great place to find accountants of a certain niche. They can connect you directly to alumni as well as business students who are in search of experimental clients for their businesses.

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Accountants vs. Turbo Tax

We currently live in a technology driven world, and because of this we often rely so heavily on technology that we fail to realize that working with humans on a day to day basis is very important. Software developers have been doing everything to eliminate the need for an accountant or CPA, and now thanks to modern software advancements many have been falsely led to believe that Turbo Tax can solve all of their accounting needs.

Below are a few reasons why you should hire an accountant instead of relying on Turbo Tax:

To Avoid Computer Errors

Even though modern technology continues to change and shape lives, it is still imperfect. When using software to do accounting or tax functions, you run the risk of encountering computer errors. While humans have been known to make mistakes, you increase your chance of making even more mistakes when you rely on technology more than you rely on an actual person.

To Get Real Time Advice

No one can give you real time advice like an accountant can. Instead of using Turbo Tax and then later hiring an accountant, consider hiring an accountant right now. An accountant can help you with questions or concerns as they arise, but Turbo Tax cannot.

To Assist You with Predictions

How well do you predict your company’s successes? Probably not too well. Because of this, it’s important that you have a CPA or accountant readily able to process information to give you an adequate forecast of your business’s future.

To Help You Grow Your Team

As much as many people may love Turbo Tax, in all reality the software cannot help your team grow. An accountant can give you the services offered by Turbo Tax and also give you the insights needed to actually grow and develop your company.

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Receipts

Don’t Panic

The worst thing you can do during an audit is panic; everyone knows that panicking has never solved any problems. The moment you start to panic, the moment you’ll start making more mistakes, and making mistakes is probably what led you to the audit to begin with.

Make a Mental Note to Start Keeping Your Records

While it may not help you with this particular tax audit, make a mental note to start keeping your records for everything moving forward. Sometimes the best teacher is experience, so learn from this mistake.

Don’t Make Up Receipts

Whatever you do, don’t attempt to create your own receipts fraudulently. You may be able to fool people for a little while, but you won’t be able to keep it up for very long.

Don’t Lie

When you tell the truth, you never have to remember what you said, and for that reason alone you should always be truthful. While this could leave you in hot water with the IRS, lying about records you don’t have could have you in even hotter water, so it’s best to be up front and honest about your current documentation or lack thereof.

Hire a CPA

Hiring a CPA can be your best decision, especially when you are faced with an IRS audit. Many CPAs have had years of experience with the IRS and can help you navigate the process more efficiently.

Have you recently found yourself in an IRS audit without having receipts? Leave your comments below.

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Tax Mistakes

Over the last several years, tax software has helped a lot of people avoid making errors on their tax forms; however, even with new technology, mistakes are still possible.

Here are five mistakes you should avoid when filing your taxes because these mistakes could lead to significant negative consequences:

Miscalculations

Miscalculations are an easy way to get your business audited, so if you can avoid them, avoid them by any means necessary. If you’re not sure how much money you’ve made over the last year, allow an accountant to file your taxes instead. It is better for someone who is trained and certified to do your taxes to make a mistake versus you making a mistake doing something you could have easily avoided.

Misspelled Names

Spell check your taxes before you file them. The IRS is very quick to notice spelling errors; in fact, the IRS may start to ask questions even if you simply misspell a single word or your name. Think about it. If you misspell your name, you could easily also make mistakes on how much money you made. Attention to detail is everything.

Direct Deposit Errors

Because the IRS now makes it possible for you to have your refund check deposited into your account, it’s important that you make sure you don’t make any errors when writing down checking account information. One wrong number could not only send red flags to the IRS but it could also mean that your IRS check could end up in someone else’s bank account.

Forgetting Charitable Contributions

Charitable contributions can save you so much money at the end of the year. Because of this, you will want to make sure you don’t forget to write down your charitable contributions. Writing these charitable contributions will not only decrease the amount of money you owe back to the IRS, but it will also show just how philanthropic you have been throughout the year.

Missing Deadlines

Whatever you do, don’t miss your deadlines. Missing deadlines could have you owing thousands back to the IRS. If you be approaching a deadline and need an extension, contact the IRS or consider having your accountant call the IRS and make a plea for an extension for you.

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