How Bookkeeping Will Change the Way You Do Business
FAS CPA & Consultants
Accounting is the discipline that is in charge of study measure and analyzes the reality patrimony of the reality economically and financially of the organizations, individuals or business; with the purpose of facilitating the direction of its own. Is a science and a technique that supports information of the utility for making economic decisions.
What is the difference of accounting and bookkeeping?
Bookkeeping is only doing the books, that’s why is bookkeeping. Keeping the books, meaning providing the financial statements, reviewing the transactions and doing your books. Accounting is a little more, it involves using the financial statements that come from bookkeeping to take decisions. That’s why you are accountable for the resources that you have used, the assets and liabilities and equity that you have in the balance sheet, the income and expenses that you have on your profit and loss and the uses and the sources of your cash that you have on your cash flow report, how they have been created and you are accountable for those reports that now are in your hands. That’s why many people don’t like to see the financial statements because now when they see them, they have to be accountable. They have to provide a testimony of why they did this and why they didn’t do things different. That’s the difference between one and the other, bookkeeping is doing just the books, but what are you going to do with the books, you have to be accountable for the decisions you have taken with the money that you have and how the money given to you from your clients and how you have been using that money for your expenses and how those decisions with the money that you received and the money that you paid are reported on the financial statements and for that you are accountable.
What are the advantages of bookkeeping?
The advantage of bookkeeping is that you will become accountable, it will force you to take action to improve your life or improve your business. In the case of a business, you have a balance sheet, you have an income statement and now you have the classification for each one of the expenses that you have. Ideally, you will compare those expenses to the average of your industry and if you are over you need to come down. Because that is the nature of the bookkeeping, when the books are taken care of they will give you reports and they will allow you to take action to improve the company, to create promotions, to give discounts to loyal clients, reduce your expenses, reduce your payroll, reduce subscription payments and reduce your expenses in utilities, this will give you control and because of that you are accountable, that’s why bookkeeping has an advantage in that many people prefer to do it at the end of the year and not do it on a monthly or quarterly basis but I will suggest do your books, be accountable, meet your accountant at least once a quarter and plan for the future. This is something that financial statements will give you, another advantage of bookkeeping will allow you to plan for the future. It will give the ability to plan and create a strategy to grow, you can’t grow if you don’t have numbers. Imagine for example, if you went to school and you have no grades, how do you know if you’re approving the class? In Bookkeeping is translated the same way, the objective of bookkeeping is to give you numbers, to give you the numerical representation of your decisions, so you do decisions for the whole year but those decisions are represented in a number, it could be positive or could be negative, but it will be the result of your decision and because of that you will have the chance to change, to plan and create strategies to improve and to grow. Those are the advantages of bookkeeping.
The correct accounting and bookkeeping, helps you plan for the future of your business as it should be, also having good accounting will help you to:
⇒ Evaluate the durability of the business; you will know the answer to important questions that every owner of a business has to have in mind your business growing?
⇒ It will help you accomplish a set goal, accounting and balancing books that will allow you to make expenses and loans, rents to other projects according to the law will help you control and administrate the flow of cash. If your books are in order, you will have the possibility of saving money at crucial times.
⇒ It will help you to prepare for the growing of your business, or reduction of personnel. You just enough with sufficient anticipation, if soon is the time to recruit employees and to move to a bigger office or when is time to make firm steps for the suture in the finances.
⇒ It will help you earn credibility in banks that finance business since you provide information needed and it will help you to guarantee each transaction with support, and each of the different operations has been back up with documentation.
⇒ It will help you establish projects and goals for your business. Responding to confidence questions.
You will be surprised how much you have saved in your accounting, and the books are balanced. This makes it all smooth at the time of the taxes. If you don’t have the time to do all these in the midst of all your business day by day, you must consider definitely the external aspect of your account for someone that will guarantee presentation of reports and that balance books precisely and in this way you will be prepared for the end of the year.
Click Here To Chat Directly With Our CPA. Make Your Consultation
Easy Bookkeeping Tips For Entrepreneurs
All enterprises run on money. It is required to fuel the operation and invest in its future. If a business spends too much or too little, the results will be catastrophic. The only way to know exactly how much to spend and when to spend it is by keeping track of every penny. A small business bookkeeping system is essential for those who want to accomplish financial peace of mind, know what they have and when they have it, and prove to others how well the business performs.
Bookkeeping
Bookkeeping allows business owners to track all financial transactions accurately. Without comprehensive records, planning and budgeting are impossible. A budget is dependent on an assessment of all revenue streams and expenses. A balance sheet enables the stakeholders in a business to assess the financial condition with one glance.
Bookkeeping vs Accounting
Bookkeeping is all about meticulous records of all financial transactions. Accounting is all about the bigger picture¾about summarizing an enterprise’s financial condition and its performance over time, allowing participants to make decisions and plans. Despite the same, bookkeeping provides the platform for accounting by keeping the general ledger accurate and complete. On the other hand, the accountants will prepare the tax returns based on the bookkeeper’s records.
Methods Of Bookkeeping
Levels of complexity distinguish methods. Small firms typically start with a single-entry bookkeeping system, where the bookkeeper merely records every transaction on a simple balance sheet as income or expenses. Single-entry bookkeeping will work for small enterprises with low transaction volumes. The more complex double-entry bookkeeping system is essential for reliable bookkeeping in businesses with higher transaction volumes. A double-entry system requires two entries for every transaction to balance assets and liabilities and to follow the money. This is the only way to balance your accounts and is essential to those who will draw up the firm’s financial statements and produce reports on income and expenditure for tax preparation and long-term planning.
Bookkeeping Skills
⇒ Understanding debits and credits
To keep a balance sheet accurate and balanced, the bookkeeper must keep track of every debit and credit, which means they have to record every penny that flows into the firm and every account payable and receivable. The record has to show every scheduled payment and every due inflow to efficiently pair expenses and income.
⇒ Organization
A bookkeeper has to know how and where transactions are recorded and should stick to a uniform pattern. Everything must be checked and double-checked¾the whole point of the double-entry system is to spot errors when the accounts do not balance. A precise and consistent method is crucial.
⇒ Software
It is all about selecting the most suitable software for the enterprise. It takes time to adjust the software to the company’s unique needs and processes but do it once, and the record-keeping will become a lot more efficient.
⇒ It’s all about the details
Accurate bookkeeping is detailed bookkeeping. A bookkeeper that is serious about the details will set the standard for the rest of the employees to do the same. Improved accuracy leads to improved management, decision-making, and profitability and reduces the effort required to prepare financial statements, which impacts the preparation of taxes and applications for loans.
⇒ Communication
Keep in mind that a healthy cash flow depends on communication. A lack of understanding by employees for the importance and the method of bookkeeping can ruin a firm. Typically more than one person will work on the ledgers. Only crisp and precise instructions can guarantee uniformity, and hence, accuracy. Employees need exact instructions and all the required information before they become an asset to the bookkeeping process. Mistakes and omissions cost money.
⇒Professionalism
Double-entry bookkeeping is a complicated full-time job. When a business takes off, it must employ an expert to stay on top of its records and relieve the owners’ burden. An expert bookkeeper will provide the enterprise with:
⇒ Accurate financial records.
⇒ Timely financial records.
⇒ A big-picture perspective on the firm’s financial health.
⇒ Unbiased records and evaluations.
⇒ Peace of mind.
⇒ Time to focus on growth and revenue.
Accounting & Bookkeeping Regulations And Tax Shelter Implications
Proposed regulations (REG-132766-18) relates to simplified accounting rules for small businesses. It updated tax accounting regulations to adopt the simplified regulations introduced by the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 under Secs. 448, 263 A, 460, and 471. The rules will be effective on or after the date, the final regulations are published in the federal register. For tax years after December the 31st, 2017, and before the final regulations are published, taxpayers may early-adopt the proposed rules if the taxpayer follows all the directions contained in the proposed rules for each code provision that were chosen to apply.
These regulations apply to taxpayers with an inflation-adjusted gross receipt of $26 million or less. A few main provisions are included under the TCJA.
⇒ Small businesses, even enterprises with inventory (Sec. 448(c)), will be allowed to use the cash method of accounting instead of the accrual method.
⇒ Small enterprises will no longer be required to capitalize additional uniform capitalization costs (UNICAP) to inventory (Sec.263(A)(i))
⇒ Small businesses will be allowed to treat inventory as nonincidental materials and supplies or to use an inventory method conforming to the taxpayer’s financial accounting treatment of stocks (Sec.471 (c))
⇒ Small businesses will not have to account for long-term construction contracts using the percentage-of-completion method of accounting (PCM) (Sec.460€(1)(B)).
In terms of Sec. 471 (c): If a taxpayer does not have an applicable financial statement (AFS), it may account for inventory using the same method for the books and records prepared according to the taxpayer’s accounting procedures.
Check Our Accounting & Bookkeeping Outsourcing Services
Taxpayers classified as tax shelters cannot use the simplified rules, even if they meet the gross receipts test.
A tax shelter is a partnership or other entity excluding a C corporation that allocates more than 35-percent of its losses to limited partners or entrepreneurs. The rule is problematic. It does not allow large deductions or losses during a tax year. The AICPA recommended on May the 7th, 2020 that the definition of a tax shelter should be updated to simplify the tax system for small businesses and provide parity among entities. The purpose of a tax shelter under the TCJA is the same as the one added to Sec.448 in 1986. It goes beyond an entity formed for tax avoidance or evasion purposes, which is how the general public would define a tax shelter. The definition of a tax shelter under Sec.6662(d)(2)(C) as an entity with the significant purpose to avoid or evade federal income tax is the more appropriate definition is a tax shelter limitation is needed. The broader definition disadvantages entities with inactive owners who provide much-needed finance to entities that were not formed for tax avoidance or evasion.
If you use a rolling multi-year average taxable income, it will provide more certainty and consistency and ease the accrual method’s transition.
The proposed regulations allow the permanent election to determine any year’s tax shelter status based on allocations of the year before. This provides some relief. It will enable the entity to know whether it is a syndicate at the beginning of the year. This way, the impact is delayed for one year. No entity will be allowed to use these simplified methods for small businesses next year. It is valuable to know when your business will change from a cash to an accrual method and have a full year to plan the change. This way, your business can decide when the Sec.481(a) adjustment will be included in taxable income, which will allow you to recognize the adjustment when it will be most advantageous for your enterprise.
Even those who prefer the cash method can plan and make informed decisions that minimize the impact of a change in the accounting method. Examples would include the deferral of payments of expenses to an accrual method tax year and using accrual accounting methods to accelerate the deduction of costs and defer recognition of advance payments.
In the past, many taxpayers who were supposed to follow the accrual method in terms of Sec.448(a) if they were a tax shelter, did not because there was no material difference between the two systems. With the pandemic in our midst now, many taxpayers now face substantial losses, which suddenly makes the two methods substantially different for them.
If your business cannot pay its bills, it cannot deduct those expenses in a cash-basis measure of taxable income, while all of these expenses might be deductible in terms of Sec.461 if you follow the accrual method.
A tax shelter can change from cash to accrual by using the automatic change procedures of Rev.Proc. 2019-43.
The TCJA provides favorable accounting methods for small enterprises unless it rises to a tax shelter definition. Then the favorable rules no longer apply despite the lack of tax avoidance or evasion plans by the firm.
The AICPA recommends that Treasury and the IRS regulate all the interests held in entities that meet the definition of a syndicate but meet the Sec.448(c) gross receipts test, be deemed as held by individuals who actively participate in the management of an entity, under Sec. 1256(e)(3)(C)(v). However, Treasury and the IRS rejected these recommendations. The 1986-concerns no longer exist because the passive activity loss limitation rules of Sec. 469 prevent passive owners from deducting entity losses unless they have passive activity income. Moreover, in 1986 most states did not have LLC laws yet, and LLCs’ use as entities was rare.
The TCJA has expanded the old definition. It includes a syndicate for which 35-percent of losses for a tax year are allocable to the owners who do not actively participate in the entity’s management.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
Check The Video Version Importance Of Accounting for Business
We Are Just A Message Away From You. Get A Consultation
Accounting Firm providing Accounting Advisory, Tax Planning and Offshore Strategies to grow your business and protect your assets.
Clients Feedback
Our Clients Reviews
President
Thanks to FAS & CPA Consultants and Fulton Abraham Sanchez, CPA, I was able to resolve a debt of $479,677.71 that I had with the IRS.
Entrepreneur
My experience with FAS CPA & Consultants has been incredible, their professionalism is impeccable. I highly recommend them.
Manager
I highly recommend FAS CPA & Consultants, they are responsible, efficient and very dedicated.
Manager
Our Blog
Latest Articles
How to Get a U.S. Banking License
How To Get A U.S. Banking License Email Us Today Support@fascpaconsultants.com and Get An Offshore Strategy Review I Want...
Fulton is a wonderful CPA who fully understands tax law and provides honest advice for his clients.