Cash vs. Accrual Accounting

All businesses need to choose either the cash or accrual accounting method.

It's important to understand the basics of the two principal methods of keeping track of a business's income and expenses: cash method and accrual method (sometimes called cash basis and accrual basis). In a nutshell, these methods differ only in the timing of when transactions, including sales and purchases, are credited or debited to your accounts. The accrual method is the more commonly used method of accounting.

Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction.

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Mortgage bankers lobby asks for accounting relief

The largest trade group representing the U.S. mortgage industry on Tuesday told U.S. accounting rulemakers that lenders need to use more flexible bookkeeping if they are to save home loans headed for foreclosure.

The Mortgage Bankers Association argued that the authors of today's accounting rules did not envision a time of widespread mortgage failures on the scale now being faced. If they had, the trade group said, the accounting rules would have allowed more flexibility to easily modify many home loans before they fail.

"Unfortunately, no one at that time, the MBA included, could have foreseen a day in which thousands of loans that are in default (or in reasonably foreseeable default) might be modified within the same reporting periods," according to the nine-page letter addressed to the Financial Accounting Standards Board, which sets U.S. accounting rules.

Source : http://www.reuters.com/

A little more notice would have been nice

A new state sales tax code took effect New Year's Day. Businesses only learned about the changes — which, at least initially, will complicate their bookkeeping — in early December.

Somewhere along the way the Department of Finance and Administration dropped the ball on getting word out to businesses so they could make necessary adjustments for the changes in sales tax collection.

On the Friday before Christmas, the DF&A was explaining its goof and the overall situation to the Arkansas Legislative Council.

You'd think the DF&A would have gotten word out sooner to businesses and the public since the changes include adding sales tax at the point of delivery and lifting the $2,500 sales tax cap on retail purchases and services.

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ACCOUNTING ADVICE: Tips on tax savings for small businesses

There are many things small business owners can do throughout the year to save on taxes come year-end. Many of these you may already know, but I thought with a new year and the perceived fresh start that this would be a good time to instill a few reminders.

1. Equipment purchases - The cost of computers, office furniture and machinery used in the business can be deducted rather than simply depreciated up to the about of $128,000 for 2008.
2. Employing an owners child - For 2008 a child can earn tax free up to $5,500. Thus a teenager employed in a parents business can obtain valuable experience and a tax-free income. Since this is earned income, the "kiddie tax" does not apply.
3. Retirement plans - The annual limit on contributions to both traditional and Roth IRAs for 2008 increases to $5,000 (plus another $1,000 for those age 50 or older).
4. Home office deduction - this can be a tricky one, and one I've written on before, but it can be a valuable one for small business owners who do a lot of work from home.
   

All of the above a valuable deductions that small business owners can easily take advantage of, but they must be done with proper documentation. As with any case, please consult your tax advisor so that you can rest assured you are above any reproach in the eyes of the IRS.

Finally, as we start a new year, I just want to take a moment to thank you all for your support. I do this for all of you who read it, so please feel free to e-mail me any comments, questions or article requests. May you all have a blessed and prosperous New Year and let's work together to make Montgomery County strong.

Source : http://www.thepaper24-7.com/