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The Major Differences You Should Know About Cost Accounting and Financial Accounting

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accounting services, financial accounting, cost accounting

 

Many people wonder about the differences between cost accounting and financial accounting. Both accounting methods can help make more effective decisions as a business manager. Yet, there are significant differences between the two.

Let’s first start by defining each one.

  • Cost accounting applies costing methods and techniques to reduce business costs. Its main goal is to calculate the cost per unit of your business’ products or processes.
  • Financial accounting classifies, stores, records, and analyzes a company’s financial statements. The goal is to improve the business’s profitability and increase its transparency. Financial accounting presents an accurate financial picture of a company to the stakeholders.

The major differences between cost accounting and financial accounting are as follows:

  1. Cost accounting helps you determine the expenses associated with each of your products. Financial accounting helps better understand a company’s profitability through its financial statements.
  1. Cost accounting is a tool used by management to improve business process efficiency. Financial accounting presents the business’s performance.
  1. Cost accounting focuses on the internal aspects of a company. Financial accounting focuses on its external aspects. While cost accounting helps improve a company’s processes, financial accounting is profit-oriented.
  1. The use of cost accounting is not mandatory in all companies. Only those using manufacturing processes or activities must use cost accounting. Yet, the use of financial accounting is a must for all organizations.
  1. Cost accounting is not performed as per any particular period. Rather, it’s performed in a short interval of time as in the production of a unit or product. Financial accounting records an organization’s financial activity for a given financial period.
  1. Additionally, estimation is important in cost accounting. It helps determine the per-unit cost of sales. In contrast, every transaction in financial accounting is reporting based on actual data.
  1. Cost accounting uses tools to help improve the efficiency of business operations. These include the cost of sales, product margin, and selling price of products. Financial accounting uses financial statements, journals, ledgers, and trial balances.
  1. There are also differences in presentation between the two methods. Financial accounting requires specific format parameters. As for cost accounting, the format of reports can vary.

 

It’s clear that cost accounting and financial accounting are quite different. There are many benefits to using both approaches. Combining these methods is a powerful tool to propel your business to the next level.

Are you looking for accounting help? Contact us for a free consultation at (561) 842-1304.

Sources:

  • “The difference between cost accounting and financial accounting.” AccountingTools. Accessed January 06, 2018. https://www.accountingtools.com/articles/what-is-the-difference-between-cost-accounting-and-financial.html.
  • “The Difference Between Cost Accounting and Management …” Accessed January 6, 2018. http://www.bing.com/cr?IG=DC12E060B6F343D8881D72E81566233C&CID=26D6ADED7CBE6DE625CEA69D7D186C87&rd=1&h=_v5M4ek30sfZxx67H46YHkBpFKpSLonFUTndzw_8l7c&v=1&r=http%3a%2f%2fwww.businessessentials.co.za%2f2017%2f04%2f07%2fdifference-cost-accounting-management-accounting%2f&p=DevEx,5059.1.
  • Anjali «╬♥Áńĵáĺℐ♥╬«, — Follow. “Difference between financialaccounting and cost accounting.” LinkedIn SlideShare. February 18, 2017. Accessed January 06, 2018. https://www.slideshare.net/anjali106/difference-between-financialaccounting-and-cost-accounting-72297700.

 

How to Survive an IRS Tax Audit

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IRS tax audit, IRS Tax Help, accounting servicesTax time is already stressful enough without mentioning the incidence of tax audits. Both businesses and individuals are exposed to IRS tax audits, which ensure that the income and expense deductions are in compliance with tax laws.

While an IRS tax audit might be a scary prospect, it can be handled in a way that minimizes its negative impact. While you may still incur penalties and/or fines, understanding the process can help you prepare adequately.

The first step is to understand the type of IRS audit you are subjected to. In general, there are three types of audits the IRS may decide to use for you or your business:

  1. Audit by Correspondence: Through this type of audit, the IRS will be requesting supporting information through the mail. This is the most common and easiest type of audit and involves only one or two tax issues. Follow the instructions explicitly. Do not try to read between the lines, give them exactly (and only) what they ask for.
  1. Office Audit: This type of audit will require you to go to the IRS office for the audit to be performed. This is quite similar to the correspondence audit. It usually only deals with one or two items, and the IRS will provide you with a list of what they need. These audits are usually limited to a certain part of your taxes. While you may request for the meeting to take place at your business or home, it is preferable to conduct it at the IRS office.
  1. Field Audit: In this case, an IRS agent will be assigned to your case and will perform the audit on site at your business or location. This is a more serious type of audit, through which you will need the help of a tax professional. This is a serious deal, get help!

Here are a few steps you can follow to survive an IRS audit:

  • Understand the process

It’s important to understand the audit process. Usually, it is rather simple and includes a notification from the IRS, as well as the documentation to gather and submit by the appointment date or deadline. The IRS usually reviews the submitted documentation and information and determines a final decision.

  • Prepare adequately

Preparing for an audit and getting organized is crucial! Having a reliable accounting system like QuickBooks or Xero will help in preparing more adequately. It will also contribute to a smoother audit.

If you haven’t been using a good accounting system, it is possible to reconstruct your transaction history. You can do this by contacting vendors and financial institutions, using the online platforms of your banks, or gathering your receipts and invoices.

An additional tip is to make copies of your original documentation and organize your supporting information well. This will help the audit be more organized and yield more positive results.

  • Get reliable professional advice

If your audit is either a field or office audit, you may want to consult a professional. A Certified Public Accountant (CPA), tax attorney, or Enrolled Agent (EA) can help you prepare your case, get organized, and negotiate a just resolution. The right tax professional can even help you minimize the negative impact of a tax audit.

In conclusion, keep in mind that IRS tax audits are common occurrences that can be managed effectively. Having the proper understanding, organization, and strategies can make the difference between a successful case and a failing one.

Contact us if you need any help with your taxes or with preparing for an audit. We’re here to help!

 Sources:

  • Laurence, J.D. Beth. “Checklist: How to Survive a Tax Audit.” Www.nolo.com. Accessed January 06, 2018. https://www.nolo.com/legal-encyclopedia/survive-irs-tax-audit-29478.html.
  • Murray, Jean. “How to Survive an IRS Tax Audit of Your Business.” The Balance. Accessed January 06, 2018. https://www.thebalance.com/how-to-survive-an-irs-tax-audit-of-your-business-398979.
  • Taulli, Tom. “4 Ways To Survive A Dreaded IRS Audit.” Forbes. August 06, 2017. Accessed January 06, 2018. https://www.forbes.com/sites/tomtaulli/2016/11/26/4-ways-to-survive-a-dreaded-irs-audit/#5dd.

 

 

 

 

 

 

 

 

 

Differences Between Bookkeepers, Accountants, Certified Public Accountant (CPAs), and Enrolled Agents (EA)

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taxaccounting, bookkeeping, tax services

 

You may have heard about the terms bookkeeper, accountant and Certified Public Accountant (CPA), but you may not have heard about Enrolled Agents (EAs). You may also have noticed that these terms often get used interchangeably. Yet, there are some significant differences between them.

1. Bookkeepers

Traditional bookkeepers don’t need to have a college degree. Their main tasks revolve around day-to-day recording of business transactions and monthly accounting cycles. Their duties consist in entering transactions into bookkeeping journals and preparing monthly reports.

In some cases, bookkeepers are also responsible for Accounts Payable or Accounts Receivable. Some of their other responsibilities may include payroll, collection activities and bank deposits.

More experienced or certified bookkeepers grow in their careers to become accountants. In many instances, bookkeepers may work closely with accountants. In terms of salaries, bookkeepers may be less costly to a business than accountants or Certified Public Accountant (CPA).

The Enrolled Agent (EA) will make use of the bookkeepers records to prepare the business’ taxes.

2. Accountants

Unlike bookkeepers, most accountants have college degrees in accounting or 120 to 150 college credits. Their duties generally involve more complex transactions, and adjustments to a company’s books. These include computing the allowance for accounts receivable or depreciation. They are also more likely to work for larger companies.

Bookkeepers record financial transactions. Accountants interpret and classify financial data.

They may also prepare financial statements and perform tax planning activities.

3. Certified Public Accountants (CPA)

Besides a college degree, CPAs also have an extra 30 hours of college coursework. They take a standardized exam to earn their state licenses.

CPAs can handle a variety of complex tasks for businesses and individuals. They perform activities such as tax preparation, financial planning, and investment planning. They may also be in charge of preparing and maintaining financial statements. They can also be involved in audits.

Many careers are available to CPAs in public or corporate accounting. Many CPAs get promoted to high-level executive positions as controllers, for instance. They also give advice in areas like internal and external auditing and forensic accounting.

4. Enrolled Agents (EA)

Enrolled Agent a federally authorized tax professional, who has technical expertise in the field of taxation and is empowered by the US Department of the Treasury to represent taxpayers before all administrative levels — examination, collection and appeals — of the IRS.

Like the CPA they must pass a 3-part exam, all based on tax and tax laws. EAs must complete 72 hours of continuing education every 3 years. They also adhere to strict ethical standards.

When Should Bookkeepers, Accountants, CPAs and/or EAs be hired?

Bookkeepers perform technical transactions requiring less proficiency and training than accountants. The more complex the operations or the organization is, the more important it is to hire an accountant with more expertise.

Accountants or CPAs may perform more technical accounting tasks requiring more expertise. Companies also hire them to provide managerial advice.

Enrolled Agents (EAs) are used for their tax expertise and their ability to represent clients before the IRS.

Are you wondering about the differences between bookkeepers, accountants, CPAs, and EAs? Contact us for a free consultation at (561) 842-1304.

 

Sources:

“The Differences Between Bookkeepers Vs. Accountants Vs. CPAs.” The Finance Base. Accessed August 26, 2017. http://thefinancebase.com/differences-between-bookkeepers-vs-accountants-vs-cpas-4980.html.

Staff, Investopedia. “Certified Public Accountant – CPA.” Investopedia. November 19, 2003. Accessed August 26, 2017. http://www.investopedia.com/terms/c/cpa.asp.

CPA VS Accountant. Accessed August 26, 2017. http://www.accountingedu.org/cpa-vs-accountant.html.

“What’s the Difference Between a Bookkeeper and an Accountant?” QuickBooks. May 19, 2017. Accessed August 26, 2017. https://quickbooks.intuit.com/r/bookkeeping/whats-the-difference-between-a-bookkeeper-and-an-accountant/.

 

An Accountant Can Help You and Your Small Business Prevent Bankruptcy

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An Accountant Can Help You and Your Small Business Prevent Bankruptcy Small business owners can often be heard saying that hiring an accountant is a waste of money. Accountant is just there just to fill out forms and keep the government happy by having you pay more taxes. However, bookkeeping services are more than that. You will save time and money if you hire the right accountant. 

 How an accountant can help prevent a small business owner’s bankruptcy?

 Taxes

Bookkeeping services should be aware of the latest tax rules and government legalities related to small business. In addition to that, a reliable accountant must be aware of significant tax breaks that may be available for small businesses.

 Saving you Time

Other small business owners may think that they can’t afford an accountant. But think about how long it would take you or one of your staff to do certain tax related tasks. Is it really a good use of your time or would you rather focus on other revenue generating tasks?

 Saving you Money

Let’s assume that time is not an issue for you. Perhaps you bought a computer program that will do all the accounting for you. Just completing the tax forms is one thing. However, completing them in a way that only an accountant can do will save you the most money. Accountants will help you take advantage of all legal ways to minimize your tax bill.

 Business Advice

A reliable bookkeeping service has a great amount of experience in the small business industry. They can provide suggestions based on their experience to help keep your business afloat. Furthermore, they can also calculate and predict financial reports based on your business moves and decisions. Finding a reliable bookkeeping service is essential to your success as a small business owner.

 The question to ask yourself is not, can you afford to hire an accountant. The real question is, can you afford not to hire an accountant? To learn more about how one of our friendly and reliable accountants can help your business, please contact us now for free consultation.

 

Resources:

Chih-Fong Tsa. Feature selection in bankruptcy prediction

Narayan Vaish. Book-keeping and Accounts

M.Jambunthan. Book-keeping and Principles of Commerce

Newton, Grant. Bankruptcy and Insolvency Accounting, Practice and Procedure. 2009

Turner, Leslie. Accounting Information Systems: Controls and Processes. 2008

 

Read More >

The Top 3 Online Accounting Software Apps for Small Businesses 2016

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Online Accounting Software Apps for Small Businesses (2)Joyce Berryman, in Survey of the Literature, labels poor and careless financial management as the biggest cause of small business failure. Accounting software can be extremely helpful for small businesses, as it can organize and handle your finances.

How Online Accounting Software Beneficial for Small Businesses

  • Saves time with automated and fast processes.

  • Accurate and efficient because of its automatic calculations and centralized accounting data to work off of.

  • Enables better decision making through instant reporting and analysis to help you see the big picture. 

  • Helps you organize and keep meticulous records of financial data.

What Features are Offered in Excellent Accounting Software?

  • Many accounting applications can quickly create professional-looking invoices with your logo and branding.

  • Most provide appropriate billing solutions to easily manage cash flow.

  • Accounting software often has a built-in payroll system or has one available as an add-on, so you can pay your employees properly and on time, while also taking into consideration tax issues.

  • Many accounting suites will help you manage expenses and vendors Payments.

  • If you are traveling most of the time, opt for an accounting software package with incorporated mobile apps. It enables you to check financial matters wherever you are.

Top 3 Accounting Software Offerings for Small Businesses in 2016

Intuit QuickBooks Online is believed to be the best accounting software for small businesses. Intuit QuickBooks offers the most optimal, economical paid packages and services. The cheapest plan costs just $9.99 per month, but doesn’t compromise on key features that small businesses need to manage their finances. QuickBooks is very convenient to use and add new information to. Bank accounts and credit cards can be connected right from the dashboard.

  • Makes accounting efficient and less stressful by automating tasks.

  • Possesses all the features that accountant consider critical for small businesses.

Xero Accounting stands second in the best accounting software rankings. Popularly known as the “QuickBooks alternative,” Xero:

It is one of the easiest and most affordable accounting software;

  • Offers better returns for your money. For example, it starts at just $9 per month and includes features like 1099s, billing and expense reports, which cost extra on QuickBooks; and,

  • Provides a cost-effective payroll solution for $30 per month, while on QuickBooks it is around $75.

FreshBooks is the best mobile accounting app for small businesses. Freshbooks:

  • Is affordable and easy to use;

  • Easily creates professional-looking invoices;

  • Helps you track expenses from anywhere you work or travel to; and,

  • Supports several payment modes, such as PayPal, Stripe, and Authorize.Net.

Maxine Taylor, the power behind The Balance Sheet, Inc. has an odd passion for all things accounting. “I don’t advocate a non-accounting person processing the payroll,” she noted. “You are dealing with other people’s money and it has to be correct. And mistakes are not always the easiest to fix. Plus, there are reporting returns that go with payroll.”

Have questions about accounting for small businesses? Contact us – The Balance Sheet, Tax accounting bookkeeping company Florida.

Top 5 Items to Know about Small Business Accounting

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Small Business AccountingStrategic accounting is the crux of a successful business. Small business owners must be aware of the basics of accounting, especially if they have limited resources and a long way to go.

1. Start off right: Selecting the appropriate accounting system for your business is very important in order to organize and record your business transactions. You can choose between accrual and cash-basis methods of accounting. Some tips:

  • Most businesses opt for accrual-basis accounting; it is the most accurate method.  All   your income and expenses are recorded at the time they are earned or incurred. In cash accounting, you record transactions when cash is actually received and expenses actually paid.

  • The cash method of accounting is simpler and can be appropriate for very small businesses.

  • For businesses with no inventory or those which predominantly deal in cash, cash basis accounting can sometimes misinterpret financial results over time.

2. Organized Financial Records are Critical: The greatest reason behind small business failures is mishandling of accounts and finances. Therefore, it is crucial to monitor the financial records of your business to ensure forthright management and control of this information. Keeping track of financial records through diligent business accounting helps you assess your business and make decisions related to important issues such as

  • How much money is owed to your business;

  • How much money you owe;

  • Recognizing financial problems at the very onset;

  • Preparing your tax returns accurately; and,

  • Informing bankers and investors about the financial status of your business.

3. Precise Financial Information is Vital for Strategic Management: Sound financial information is critical in order to understand the financial health of your business. A successful business necessitates diligent management decisions taken after considering concrete data such as

  • How much your accounts receivable are worth;

  • How old each account is;

  • How fast your inventory is turning over;

  • When debts are due; and,

  • How much your business owes in taxes and FICA (Social Security taxes).

4. Banking and Tax Requirements: Organizing the information related to your financial statements, is  required for preparing accurate tax returns. If the Internal Revenue Service audits your business, you will need to produce the relevant accounting records and statements.

4. Never Ignore Accounting: Accurate accounting is indispensable for a successful business. Ignoring challenging financial information or confusing accounts will lead to substantial problems like

  • Spending money that doesn’t really belong to you; and,

  • Missing out on tax payments and tax refunds.

Irrespective of how great your product or service is, careless accounting can ruin your business.

Since 1993 The Balance Sheet, Inc. has been a reputed provider of accounting, bookkeeping and tax services in West Palm Beach, Florida. Contact Maxine Taylor for a free consultation on how The Balance Sheet might benefit your business.

Please feel free to call us on (561) 842-1304 or fill out our online message from The Balance Sheet Tax Accounting Bookkeeping Company in Florida.

Why You Need a Professional Accountant to Help with Your Business Tax Preparation

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Professional AccountantIt’s one of the most dreaded and unavoidable words in business… Taxes. Even for a fledgling company, tax rules and procedures can be overwhelming, and many new business owners don’t want to hire a professional accountant. They see it as just another cost in the long line of expenses that are draining their bank account. BUT the right tax accountant can actually save a business money, not to mention a whole lot of trouble.

A Professional Accountant Practically Pays for Themselves

Many business owners don’t realize that they can deduct accounting fees from their taxes. The irony is, a professional accountant could give them that information, as well as other ways to minimize their taxes. Because of their extensive, specialized knowledge, having a professional help with business tax preparation almost always results in a reduction in tax fees.

Save Money, Time, and Trouble on Business Tax Preparation

The old saying, ‘time is money’ is especially true when it comes to the small business owner, who is likely juggling multiple roles. Business tax preparation is time-consuming and confusing. Having a professional tax accountant saves the business owner time and frustration. It also provides a resource to go to with tax questions, rather than spending hours poring over the dry legalese of the tax code, and, a tax professional can deal with the IRS in the case of audits.  It always helps to have a back-up!

Find the Right Professional Accountant

Since it is so beneficial to have a proficient tax professional helping your business, you need to take the time to find the right accountant. This is a time to be picky and shop around. Look for someone who is knowledgeable but also listens to you and makes you feel comfortable. One of your most important business relationships will be the one you have with your professional accountant. 

The professionals at The Balance Sheet are dedicated to creating lasting relationships with their clients.  With years of experience and knowledge, Maxine Taylor and her team will help you save the most with your business tax preparation. View our tax services and schedule a consultation today.

Great Accounting Services for Small Businesses to Exceed the Basics

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Many entrepreneurs wear multiple hats, from managing marketing to managing employees; the responsibilities can quickly add up. One task they should pass on to an expert is the company’s accounting. Hiring an accountant specialized in small business accounting provides security and ensures that your finances are in order. They can also keep your personal finances on track. Your local small business accountant can easily become a trusted advisor and your go-to person for accounting, allowing you to focus more on the growth of your business.

How Do I Create a Relationship with my Accountant to make them a Trusted Advisor in my Business?

Your accountant should be:

  • Dedicated to your business
  • Trustworthy
  • Able to provide effective advice
  • Consistent
  • Able to provide full disclosure in their decision making process
  • Be a good listener

All of these traits help lay the groundwork to build a long-lasting business relationship.bs2

Once you feel you have a trustworthy and professional accountant, it’s important to sit with them and discuss what’s important to you and your business. Discuss what type of working relationship you would like to have. Your small business accountant will appreciate your openness and will likely become someone that you can trust with your accounting needs.

How Can my Accountant Help Balance my Personal and Business Finances?

As a small business owner, it’s very important to separate your personal and business finances. Blurring the lines between the two can result in muddy finances. Different rules apply to each entity and staying up-to-date with business regulations and requirements is much easier when your business doesn’t have to compete with your household. Your trusted accountant will be able to help you handle each of them.

What Does this Mean for my Bottom Line?

Handing over your personal and business finances to a small business accountant provides many benefits:

  • Saves money
  • Saves valuable time
  • Ensures proper completion of paperwork
  • Provides confidence that local laws and timelines are adhered to
  • Aligns business and personal goals and actions

For your personal and small business accounting needs in the Palm Beach area, contact The Balance Sheet today for your free consultation by visiting their website or by calling (561) 842-1304.bs3

Sources:

Dyer, L.M., Ross. C.A. (2007). Advising the small business client. Thousand Oaks, CA: Sage Publications. Retrieved 14 August 2015 from http://bit.ly/1hmmIQj.

Mole, K. (2002). Business advisers’ impact on SMEs: an agency theory approach. Thousand Oaks, CA: Sage Publications. Retrieved 14 August 2015 from http://bit.ly/1NrB0uL