The 3 Critical Financial Statements

There are three vital statements for understanding the condition of a business or entity: (1) the Profit and Loss Statement, (2) the Balance Sheet and (3) the Sources and Uses Statement. Each of them provides a different perspective of how an entity is operating. Combined, they show examiners the health of the business. Each statement reflects a different perspective on the business’ financial operations.

The first statement, the Profit and Loss, can also be called the Income Statement. It documents the amount of money coming into the entity (the income) and the money going out of the entity (the expenses). The difference between what comes in and what goes out is the Net Income, if there is more money coming in than going out. If not, there is a Net Loss. The statement covers a specific period, which is shown in the heading of the statement. Note that it tells us nothing about what has happened for any date that is not included by the statement dates. Think of it as a snapshot for the specific time period. Some common snapshot periods are monthly, quarterly and yearly ones.

The second statement, the Balance Sheet, covers the condition of the business from the time it began until the ending date on the statement. The Balance Sheet reveals three important business characteristics: (1) it summarizes the assets owned by the entity (e.g., buildings, bank accounts, inventory, etc.); (2) the entity liabilities (e.g., loans, outstanding bills, etc.); and (3) the business owners’ equity. The statement is arranged in what is called the ‘accounting equation’, which indicates total Assets will equal the sum of Liabilities and Equity. Balance Sheets are commonly issued at the same frequency as the Profit and Loss and usually reflect the business on the last day of the Profit and Loss period.

Finally, the Sources and Uses Statement reveals how the business received and used funds during the statement period. It shows how much money was provided by business operations and how much was provided by loans or capital received by the entity. The statement also summarizes how the funds were used by the entity. It demonstrates if the company is healthy, headed for trouble, or just bouncing along. Like the Profit and Loss, this statement covers only the period shown in the statement heading. It says nothing about any period not included in the statement. Again, the statement usually covers the same period as the Profit and Loss.

Taking these three statements together, there is a present picture of the business. From the Profit and Loss, comes how well it did during the period, a short-term perspective. From the Balance Sheet it is seen how the entity is accumulating assets or liabilities, from a long-term perspective. Finally, the Sources and Uses statement demonstrates where and how efficiently the entity resources were used during the period. All three perspectives are important to the entity overview.

To an investor or owner the statements answer three questions about the entity. Did the entity make a profit? Did the entity increase the owners’ equity? And finally, were entity assets used efficiently? From the overviews in these three statements, further questions might be formulated in specific areas.

Michael Russell

Your Independent guide to Accounting

The 3 Critical Financial Statements

There are three vital statements for understanding the condition of a business or entity: (1) the Profit and Loss Statement, (2) the Balance Sheet and (3) the Sources and Uses Statement. Each of them provides a different perspective of how an entity is operating. Combined, they show examiners the health of the business. Each statement reflects a different perspective on the business’ financial operations.

The first statement, the Profit and Loss, can also be called the Income Statement. It documents the amount of money coming into the entity (the income) and the money going out of the entity (the expenses). The difference between what comes in and what goes out is the Net Income, if there is more money coming in than going out. If not, there is a Net Loss. The statement covers a specific period, which is shown in the heading of the statement. Note that it tells us nothing about what has happened for any date that is not included by the statement dates. Think of it as a snapshot for the specific time period. Some common snapshot periods are monthly, quarterly and yearly ones.

The second statement, the Balance Sheet, covers the condition of the business from the time it began until the ending date on the statement. The Balance Sheet reveals three important business characteristics: (1) it summarizes the assets owned by the entity (e.g., buildings, bank accounts, inventory, etc.); (2) the entity liabilities (e.g., loans, outstanding bills, etc.); and (3) the business owners’ equity. The statement is arranged in what is called the ‘accounting equation’, which indicates total Assets will equal the sum of Liabilities and Equity. Balance Sheets are commonly issued at the same frequency as the Profit and Loss and usually reflect the business on the last day of the Profit and Loss period.

Finally, the Sources and Uses Statement reveals how the business received and used funds during the statement period. It shows how much money was provided by business operations and how much was provided by loans or capital received by the entity. The statement also summarizes how the funds were used by the entity. It demonstrates if the company is healthy, headed for trouble, or just bouncing along. Like the Profit and Loss, this statement covers only the period shown in the statement heading. It says nothing about any period not included in the statement. Again, the statement usually covers the same period as the Profit and Loss.

Taking these three statements together, there is a present picture of the business. From the Profit and Loss, comes how well it did during the period, a short-term perspective. From the Balance Sheet it is seen how the entity is accumulating assets or liabilities, from a long-term perspective. Finally, the Sources and Uses statement demonstrates where and how efficiently the entity resources were used during the period. All three perspectives are important to the entity overview.

To an investor or owner the statements answer three questions about the entity. Did the entity make a profit? Did the entity increase the owners’ equity? And finally, were entity assets used efficiently? From the overviews in these three statements, further questions might be formulated in specific areas.

Michael Russell

Your Independent guide to Accounting

Understanding Account Reconciliation

When you confirm that the balance in your checkbook is in sync with your corresponding bank statement, it is known as account reconciliation.

Any record that you keep regarding your financial transactions with banks, credit card companies, or retail stores is known as an account. It is an arrangement between buyers and sellers in which payments are to be made in the future. The different forms of payment are checks, bills of exchange, and promissory notes. These are transferable, signed documents, which guarantee to pay the bearer a sum of money at a later date.

Purposes of Account Reconciliation
Account reconciliation makes available a suitable method for reconciling the accounts to the monthly financial reports produced by the Financial Records System (FRS). Account reconciliation helps you evaluate departmental account records in regards to the reports, which have been generated by the FRS. This helps you to better verify the accuracy of each account statement. The person in charge of each account should verify the account every month. Account reconciliation helps ensure accurate reports on the account. It helps to identify errors and inconsistencies in your accounting.

In order to perform the reconciliation most efficiently, you should be certain that the person in charge of an account maintains full and accurate records. It is your choice to maintain the records in a manual filing system or on a computer program. You can develop your own filing and record keeping system. It should be capable of providing an effective means of reconciling your accounts on a monthly basis. You can make use of the following files to make the reconciliation process easier.

Open Transaction Files: These files hold all source documents that you may have started for the account, but have not yet processed. Some common types of source documents are Distribution of Deposit forms (for cash receipts), Check Requests, Purchase Orders, Prepaid Purchase Orders, Interdepartmental Billing Forms, Merchandise Orders, and Travel Authorizations.

Pending Files: These files hold source documents that had some activities posted on the FRS report, but await further activities before they can be completed. These include Purchase Orders, Inter-departmental Billing Forms, Travel Authorizations and Travel Expense Reports.

Closed Transaction Files: These files hold the source documents that are fully processed in the FRS. You can always refer to the Records Retention Policy to establish how long documents must be maintained on file.

Monthly Reports: You receive these after the end of each month. The accounts must be reconciled to the monthly reports. The FBM090, Account Statement, and the FBM091 and Report of Transactions can be handed over to the person handling each account. You then compare the open transaction and pending files to the FBM091 and the Report of Transactions, which has a detailed list of transactions posted in a particular month. Make a comparison of the source documents with the report to find out if the encumbrance was properly established, adjusted, or canceled in the correct account and the correct object code.

Additional Help
Software is available to help you in reconciling your accounts in an automated fashion. Apart from providing you with all the help, they are reasonably priced as well.

About David Gass
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com/

Twenty-five Steps for Evaluating & Selecting the Right Accounting Software Package

Selecting the wrong accounting software can be a complete disaster. You could even lose your job or your business by making a poor choice – it has certainly happened many times before. Exactly where can you go to get the information you need to make the right decision? There are trade shows, seminars, and magazine articles on selecting accounting software, but they typically just tell you the good stuff. The accounting software publishers at conferences and other similar shows will provide you with a fancy brochure and show you what they have to offer, but the truth is that it is almost impossible to tell what’s missing or what’s wrong with the product. The Value-Added Resellers (VARs) will come to your office to demonstrate the product, but they usually skip over the negative points and weaknesses as well. The magazine articles all seem to gloss over the bad stuff in fear of chasing away advertising dollars.

Too often it takes a complete installation of the system and at least a month of operations to tell if the product will meet your needs – and by then, it is too late. There seems to be no independent place to go to get good help with avoiding the wrong package. This is a problem that everyone faces when selecting accounting software. The good news is that almost all accounting software packages have gotten better over the past decade, and it is now easier to end up with a fairly good product than it used to be. But still, here are some important steps you should follow when selecting accounting software:

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Cost Benefit Analysis-Whether you should outsource your Bookkeeping to Professional Book Keeper.

What is a role of a bookkeeper in your organisation :
BOOKKEEPERS keep complete, up-to-date, and accurate records of accounts and financial arrangements. Bookkeepers verify and enter information into journals and ledgers or into a computer. They periodically balance the books and compile reports and financial statements. Bookkeepers also receive, record, bank and pay out cash. They balance checkbooks with monthly bank statements. They may calculate employee wages from plant records or time cards and issue payroll checks. Some of the other work they may do includes posting accounts receivable and payable, prepare and make bank deposits, record payrolls, maintain inventory records, purchase supplies, prepare purchase orders and do expense reports. Bookkeepers may also make schedules, sort documents, and file bills. These type of jobs are found in every industry and may have various job titles, such as accounts payable clerk, accounts receivable clerk or assistant bookkeeper.

Cost of a Bookkeeper :
The pay for these jobs depends upon experience, clerical skills, the level of responsibility and the job location. Beginning salaries go from minimum wage to $ 15 per hour. Experienced Bookkeeper can make $ 20 an hour. After having worked for three years with the same firm, a Bookkeeper can earn at $ 25 per hour. A Bookkeepers usually work 40 hours a week; sometimes it may be necessary to work overtime. Some employers have fringe benefits such as paid vacations and sick leave, life and health insurance, and bonuses. Other benefits that the employer may include are participation in a credit union, or retirement and profit sharing plans.

Advantage of outsourcing Bookkeeping work to a professional bookkeeper :
There are several distinct advantages to outsourcing your bookkeeping functions. First and foremost is saving money. You get what you pay for and if you don't pay for quality than you won't have quality service. However, you can save money by outsourcing because you won't be paying for employer payroll tax expense, workman's compensation and general liability insurances, vacation time, sick time, health insurance and other benefits a good full time bookkeeper will expect from his/her employer. Just remember, however, that these costs will be built into the consultant's hourly rate and their fee will reflect these costs. Any bookkeeping consultant who has not taken these costs into consideration is not a bookkeeper you want - if they don't know enough to include these costs into their fees, then they don't know enough to be a help to your business. You should expect to pay at least three times what you would pay an experienced full charge bookkeeper.

And just how do you save money by paying three times the amount you would pay an employee? Well, let's see. There will be no recruiting, interviewing and training costs for start. And if you should find yourself unhappy with the services there will be no additional recruiting, interviewing and training to replace your bookkeeper. Also, you will not have to be concerned about law suits such as sexual harassment, unlawful firing, age discrimination, sexist, etc. Or an increase in your unemployment rates because you laid off an employee that you really wanted to fire but had no lawful cause to do so. So right away we have less time and money spent and potentially less hassle if things don't go well.

And of course you will not be paying workman's compensation and general liability insurance premiums. Also any worthy bookkeeper will expect at least two weeks vacation, coverage for sick time, health and dental insurance and even perhaps more benefits.

Most professional bookkeepers will have their own offices saving you space within your office. So you will not be buying that extra desk, calculator, computer and computer software. Your bookkeeper will be providing all of that as part of his/her fee. No software updates, computer maintenance, training costs, etc. Of course should you prefer to have your computerized bookkeeping records available to you at your office, a small investment in software installed on your computer makes this possible. Also no office supplies to be paid for. You will be amazed at just how much pens, pencils, and paper can be used by a bookkeeper. Your consultant bookkeeper will either ask you to drop off the work at their office, will pick it up at your office or some may even offer remote bookkeeping service. And by having your bookkeeping done off site, your bookkeeper will be able to work more efficiently and accurately because her/his office will most likely offer less distractions than your busy office. All of this is saving you money.

And the best reason for outsourcing is that you control the amount of money spent on bookkeeping. What I mean by this is that the person you hire to do your bookkeeping will be doing just that - not answering the phone, dealing with drop-bys, chatting to other employees, etc. Also you can start with just a few hours a month and add on when you need to and then adjust downward again should it be necessary. Can you imagine finding an employee to start with only four hours a month, then asking them to put in 20 hours a week for awhile and then back down to four hours a month again. I don't think you would keep them for very long, but a free lance bookkeeper is able to work around these variables and even more importantly expects to work with flexible schedules.

So have I convinced you yet? If so, then just remember "you will get what you pay for". Go for top quality because your financial records are the core of your business and without great bookkeeping you cannot expect to succeed no matter what type of business you have. After all don't you think you are worth it ?


About Bhaskar Thakkar

Mr.Bhaskar Thakkar is a qualified Chartered Accountant and professional bookkeeper from India. He is a president of M/s. BT Associates, Chartered Accountants. The said firm provides Book keeping, Accounting, Auditing and Tax preparation services to various Chartered Accountants in UK, US and Canada. The firm is also specialized in preparation of VAT returns, Payroll Processing. Visit btassociate.com,. A division of said firm provides various outsourcing solutions please visit jobs2india.com., to get more details.

Source: http://www.theleadingarticles.com/

Top 5 Bookkeeping Secrets To Get Your Books In Shape

Now that year end and tax season is over, it's time to sit down and review your books and plans for the next year. I love tax time but not for the reasons you may expect. I love it because it gives me a chance to connect with my clients (I'm a virtual bookkeeper specializing in bookkeeping for Internet Marketers) and help them implement some simple tricks and strategize to help get their books in shape.

Here are my top 5 bookkeeping secrets:

1. Keep an audit trail: I know, fancy bookkeeping word (scary to some because of the word audit) but an audit trail is simply a record of all your invoices, checks and expenses in numeric order. Does it sound daunting? Don't worry - there are many options to choose from when it comes to bookkeeping software. My personal favorite: Quickbooks.
2. Due date reminders: Use your Outlook calendar, Trumba, Google calendar, wall calendar... anything! Be sure to set reminders for bills that are due, tax remittance deadlines, payroll remittance deadlines. You could save thousands of dollars per year simply by paying your bills on time (not to mention keep your credit rating in check).
3. Bank statements: With the advent of the internet, e-bills are all the rage. Sure it's eco friendly but if you ever get audited, the auditor is going to want to see physical copies of everything, not digital. So at the very least, you should request a bank statement be mailed to you.
4. Keep good records: Too many business owners don't keep good records. Bookkeeping is the glue that keeps your business together. Without good books, you can't make financially sound decisions for your business.
5. Computer software: The biggest mistake people make is not taking the time to set up the software correctly when they install it on their computers. If you want a financial report you can trust, you will need to be sure it is set up correctly from the start.

Incorporating these simple strategies into your bookkeeping cycle will help streamline the books and make bookkeeping more enjoyable.

About the Author
Raquel Morphy is a virtual bookkeeper specializing in bookkeeping for internet marketers. A detailed checklist on how to set up your bookkeeping software can be found in her ebook: Bookkeeping Secrets Revealed. http://www.bookkeepingsecrets.com/

Source : http://www.goarticles.com/

Charting Your Course with Good Bookkeeping

When the exact longitude and latitude of the ship are known it's possible for the captain to chart an accurate course across rough seas. The general manager of a business is like a ship's captain. Knowing your location and direction is fundamental for charting the right course in sailing and in business.

The charts for a business are its income statement and balance sheet. A good general manager uses these to know exactly where the business is and where it is headed. Armed with this information, better business decisions are more likely. A competent bookkeeper provides these reports accurately and in a timely fashion.

It is the job of the bookkeeper to accurately state the condition of the business in a real time basis. The bookkeeper records all changes in the financials of a business using a double entry accounting system based on the fact that Assets = Liabilities + Owner Equity. All business transactions are accounted for using this system.

Some basic tools of the bookkeeper are:

• Ledgers such as accounts receivable, accounts payable, fixed assets
• Journals for recording each financial transaction
• Vouchers such as checks and numbered bills for services or material
• Invoices representing sales of products or services
• Journal entries (recurring and special)
• Trial Balances for interim reporting
• Financial Statements beginning with the income statement and balance sheet

Four important features of competent bookkeeping are:

1. Timeliness:
   It's generally important to record transactions on a timely basis. This means that invoices and bills are posted by the next business day. However, on some instances similar transactions are processed in batches.
2. Account Reconciliations:
   It's also critically important for accounts to be reconciled monthly to assure accuracy. For the cash to be right, for example, check books must be reconciled to the bank statements and outstanding checks must be identified.
3. Analyzing Accounts:
   For payables and receivables, it's important to know the age of the bills and invoices. How much is “current” and “overdue” is basic to staying on top of your credit rating and vendor relations. For receivables it's important to know how you are doing in collecting funds from each of your customers.
4. Matching:
   Revenues in a fiscal period must be matched to expenses incurred in that same period. When items don't match in the same period, inaccurate income statements are the result. This leads the general manger to miscalculate the direction of the business.

Good bookkeeping is the foundation of good accounting. It is also fundamental to help the general manager steer the business through rough seas and into calm waters.

To find a bookkeeping service for your business visit the Accounting Aisle.

Source: http://www.articlealley.com/article_124609_15.html