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Essential Business Accounting

To manage your business, the following essential business accounting processes are important to achieve accurate record keeping, to be tax compliant, to have the ability to monitor growth and the opportunity to make informed decisions:

Reconciliation

Bank reconciliation/credit card reconciliation - Compares the numbers in the Bank statement of payments and deposits vs what you have in your records (like in QuickBooks). If there’s a difference a report is created, for example of what checks are pending for the next month.

Petty Cash Analysis

Refers to all the money spent through the petty cash fund. A report is created of how much was spent and how much was left, short or missing and you include what’s pending for next month.

Accounts Receivable and Accounts Payable Reconciliation

Refers to vendors and customers. Each one of them has a statement. This is the comparison of the information they have, the invoices or statements that are pending of money owed or money to be received. It’s what is owed and what is paid, receipts vs checks issued.

Inventory analysis

It’s basically to compare the physical inventory with the inventory reflected in QuickBooks. If there are discrepancies then we need to explain the discrepancies (items as samples, damaged, etcetera). Checks that the items that are for sale have been received, the average cost coincides with what was purchased. Checks if there’s a negative item, an item sold that was purchased for a higher price than what it was bought for.

Fixed Assets Schedule

Identifies items like computers, office furniture, equipment and anything that is considered fixed assets and adds the new items purchased every month to prepare a depreciation schedule. Accountants have to look at the initial cost of the item, depreciate it according to the expected useful life of the asset and to analyze that this information is correctly reflected on the books. Depending on the kind of fixed asset is the type of analysis that needs to be done.

Other Receivables and Payables analysis

Refers to loans made or received to/by third parties different from customers or vendors, for example owners of the company loaned money or somebody got an advance.

Quarterly (Monthly) Management Financial Statement

After doing the general ledger analysis and everything else specified in the services to the client by the CPA firm, the compilation is done, this is the analysis and the report to management. A letter will be issued stating that the financial statements were prepared according the to the current accounting principles. A report signed by the CPA will also be provided stating that the numbers being reporting are correct according to the information provided by the client. This report includes two documents:

Balance Sheet

A Report that shows the status of a company at any date. A picture of the financial position of the company illustrating assets, liabilities and capital accounts.

Profit and Loss

Total of income and expenses in a certain period that shows the result ( profits or losses) of that specific period of time.

General Ledger Analysis

You have the chart of accounts which is the list of accounts. The general ledger has the movement of each account that was used during the year or the period we are looking at, bank, the rent, accounts to be paid, etc. When we talk about the analysis of the general ledger or reconciliation of the general ledger, we’re talking about taking each one of the accounts (the bank, the accounts to be paid, the accounts to be received) and verifying that the movement in the account is truly what happened.

The Management Financial Statement is a picture of the business and the good thing about this picture is that you can compare it to previous years because it’s going to show you the behavior during those years. You can also do an analysis monthly because perhaps not all the 12 months of the year are good, this analysis provides a point of comparison of where the peak of the business is and where the lowest part is so that the right decisions can be made to maximize the effect of the good months and decrease the negative impact of the low months.

Financial Statement Closing

At the end of the fiscal year, working with all the accounts of income and expenses, you come up with a net between the income and the expenses and any profit or loss is closed and that net value will pass to the balance of the company, increasing the capital of the investors or if there’s a loss, decreasing it. That is the financial statement closing, so that next year that income and expenses start from zero and a new period starts to run.

This period is when business owners may come and ask questions regarding the accounting point of view to see if something can be improved. For instance, if they experienced a loss perhaps they want recommendations to reduce certain expenses and determine in which item or items they are spending more. In other words, it’s a picture of the state of the business which provides you more basis for analysis for the following year. Without an accurate picture, business owners may have a distorted image and run the risk of making the wrong decisions like ignoring where money is going or where they could make improvements.

Accruals & prepaid entries

Refers to payments made ahead of time, like insurance. For instance, if you made a $600 dollar payment for 6 months of insurance you don’t put them for the month of October, you have to divide them the in 6 months of insurance coverage paid. These are the prepaid expenses. Another example could be paying several months of rent or lease.

Adjustments via Journal Entries

An entry in financial reporting that occurs at the end of a reporting period to record any unrecognized income or expenses for the period. ...Adjusting journal entries can also refer to financial reporting that corrects a mistake made previously in the accounting period.

Fixed Assets and Depreciation Schedule

Identifies items like computers, office furniture, equipment and anything that is considered fixed assets and adds the new items purchased every month to prepare a depreciation schedule. Accountants have to look at the initial cost of the item, depreciate it according to the expected useful life of the asset and to analyze that this information is correctly reflected on the books. Depending on the kind of fixed asset is the type of analysis that needs to be done.

Annual Financial Statement

This is a report issued by the CPA saying that the attached financial statements (the balance and the profit and loss) were prepared according to the GAAP rules (Generally accepted accounting principles) and which correspond to the information analyzed by us and provided by the client.

Federal Income Tax Returns 1120, 1120s, 1065.

It’s the form that companies send to the IRS with their report of income and expenses, profits and losses and the taxes that they have to pay depending on their fiscal situation. This is where businesses can maximize the benefit of having their accounting done right because by taking advantage of the deductions, credits so that they can decrease the tax impact as allowed by the law while being in compliance.

The form used for the tax return depends on structure of the business. If it’s a corporation they could be doing an 1120 or an 1120s, if it’s a partnership then it’s a 1065 form.

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