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Bookkeeping Basics

Most people probably think of bookkeeping and accounting as the same thing, but bookkeeping is really one function of accounting, while accounting encompasses many functions involved in managing the financial affairs of a business. Accountants prepare reports based, in part, on the work of bookkeepers.

Bookkeepers perform all manner of record-keeping tasks. Some of them include the following:

They prepare what are referred to as source documents for all the operations of a business – the buying, selling, transferring, paying and collecting. The documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.

Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.

Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they’re as error-free as possible.

The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.

The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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Making a Profit 

Accountants are responsible for preparing three primary types of financial statements for a business. The income statement reports the profit-making activities of the business and the bottom-line profit or loss for a specified period. The balance sheets reports the financial position of the business at a specific point in time, ofteh the last day of the period. and the statement of cash flows reports how much cash was generated from profit what the business did with this money.

Everyone knows profit is a good thing. It’s what our economy is founded on. It doesn’t sound like such a big deal. Make more money than you spend to sell or manufacture products. But of course nothing’s ever really simple, is it? A profit report, or net income statement first identifies the business and the time period that is being summarized in the report.

You read an income statement from the top line to the bottom line. Every step of the income statement reports the deduction of an expense. The income statement also reports changes in assets and liabilities as well, so that if there’s a revenue increase, it’s either because there’s been an increase in assets or a decrease in a company’s liabilities. If there’s been an increase in the expense line, it’s because there’s been either a decrease in assets or an increase in liabilities.

Net worth is also referred to as owners’ equity in the business. They’re not exactly interchangeable. Net worth expresses the total of assets less the liabilities. Owners’ equity refers to who owns the assets after the liabilities are satisfied.

These shifts in assets and liabilities are important to owners and executives of a business because it’s their responsibility to manage and control such changes.  Making a profit in a business involves several variables, not just increasing the amount of cash that flows through a company, but management of other assets as well.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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Building Cash Reserves

Building a financial cushion for your business is never easy. Experts say that businesses should have anywhere from six to nine months worth of income safely stored away in the bank. If you’re a business grossing $250,000 per month, the mere thought of saving over $1.5 million dollars in a savings account will either have you collapsing from fits of laughter or from the paralyzing panic that has just set in. What may be a nice well-advised idea in theory can easily be tossed right out the window when you’re just barely making payroll each month. So how is a small business owner to even begin a prudent savings program for long-term success?

Realizing that your business needs a savings plan is the first step toward better management. The reasons for growing a financial nest egg are strong. Building savings allows you to plan for future growth in your business and have ready the investment capital necessary to launch those plans. Having a source of back-up income can often carry a business through a rough time.

When market fluctuations, such as the dramatic increase in gasoline and oil prices, start to affect your business, you may need to dip into your savings to keep operations running smoothly until the difficulties pass. Savings can also support seasonal businesses with the ability to purchase inventory and cover payroll until the flush of new cash arrives. Try to remember that you didn’t build your business overnight and you cannot build a savings account instantly either.

Review your books monthly and see where you can trim expenses and reroute the savings to a separate account. This will also help to keep you on track with cash flow and other financial issues. While it can be quite alarming to see your cash flowing outward with seemingly no end in sight, it’s better to see it happening and put corrective measures into place, rather than discovering your losses five or six months too late.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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Are You Ready For Tax Day?

Because deadlines are strict, and penalties will be given to late tax payments, you should make sure that you do not put off your “tax day.”  You should definitely start preparing your income tax return well before April 15. Whether you are doing your own income tax return or you are getting the help of a certified public accountant or firm to prepare your income tax return, you should get a few things together before you begin or meet with the CPA.

The main thing you will need for your income tax return is proof of the income you made and the taxes you paid in the previous year.  That includes income made through employers, interest from accounts, dividends from investments, income made through self-employment, income made as a subcontractor, and any other income.  Student loans and other types of loans may also be considered income for the purposes of income tax, as can winnings from a lottery, casino, or other contest. If you are unsure about what can be considered as income for tax purposes, you should contact a certified public accountant.

The other thing that is important is social security numbers for everyone you will claim on your income tax return.  That includes social security numbers for your spouse and any children you will claim. Without social security numbers, proof of residence, and birth dates, you cannot claim deductions on your income tax return for these individuals.

The next thing that you should gather is what you will need for deductions.  If you have a mortgage, your interest paid to the mortgage company may be tax-deductible.  If you use a vehicle for business purposes, you can claim a tax deduction for mileage. If you have children in daycare so that you can work, you can claim a tax deduction for that expense.  You can also claim tax deductions for excessive medical expenses and charitable contributions.  

If you are self-employed, you will need to also gather your receipts for tax-deductible expenses.  A tax-deductible business expense is any expense that is used solely or primarily for the business you are involved in.  The tax-deductible expense must be documented in order to claim it, so any receipts you have, usage logs for computers and vehicles, etc. should be gathered so that you can take the highest deduction possible.  If you have any doubts about what is tax-deductible for your business, you should contact a certified public accountant to assist you in your income tax preparation.

Once you have gathered all of the necessary tax documents, you must determine which tax forms you need to file.  If you are an individual with a few tax-deductible items, you can file a simple tax return. However, if you are self-employed you must also file a tax form called Schedule C.  If you have a lot of tax-deductible items, you will want to file a more complex tax return to itemize your tax deductions. If you are unsure what tax forms you need to file, you should contact a certified public accountant to assist you in your income tax return preparation.

Tax Day can be a stressful time, but it doesn’t have to be.  Gather all of your required tax documents as early as possible, and don’t put off the inevitable.  Contact a certified public accountant as soon as you can if you are unsure what tax forms you need to file, or what tax deductions you can take.  And, most importantly, don’t panic on tax day!

 

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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All About UK Accountancy

UK accountancy is somewhat different from American accountancy, in that there are more regulatory standards for accounting in the UK than in America.  In America, companies must follow the Generally Accepted Accounting Principles (GAAP) set down by the Financial Accounting Standards Board. The UK uses the generally accepted accounting principles as a standard for accounting in UK companies.  However, there are other guidelines accountants in the UK must consider.

UK accountants must also consider the International Financial Reporting Standards (IFRS) set forth by the European Union (EU).  These international financial reporting standards were developed in an attempt to streamline the financial reports from UK companies as well as companies in other European nations.  This makes financial reporting easier to understand by everyone. The international financial reporting standards also allow UK businesses to more easily compare their financial statements to those of companies in other nations for the purpose of determining competition and industry standards.

In addition to the generally accepted accounting principles (GAAP) and the international financial reporting standards (IFRS), UK businesses must also adhere to UK law, such as the Companies Act 1985, as amended by the Companies Act 1989. These UK laws incorporate both the GAAP and the IFRS, as well as other European laws. The UK Companies Act 1985 also requires UK companies to file their accounts with the Registrar of Companies, which makes the financial reports available to the UK and worldwide public.

The Companies Act 1985 will soon be superseded by the Companies Act 2006, which is not yet in effect in the UK.  This UK Companies Act 2006 will restate in varying fashions the provisions laid down in the Companies Act 1985, and the amendments of the Companies Act 1989.  However, changes are being made to incorporate the European Union’s takeover of financial standards, and the laws regarding international trade and financial reporting that are now necessary for UK companies to follow.  It will also put into codified law the UK common law that was previously used in regards to UK companies and accountancy.

Any UK accountancy issues that require immediate attention but are not covered by the generally accepted accounting principles (GAAP), international financial reporting standards (IFRS), or Companies Act 1989 are brought before the Urgent Issues Task Force.  This group determines solutions to issues of UK accountancy, and publish Abstracts which are binding immediately for UK companies. These additional standards must also be followed by UK companies.

As you can see, accountancy in the UK is much more complex than that of the United States of America.  There are many UK laws, European Laws, and accounting standards to follow for UK companies. While Americans must only adhere to the generally accepted accounting principles (GAAP) set down by the Financial Accounting Standards Board (FASB), UK companies must adhere also to the International Financial Reporting Standards (IFRS) set down by the European Union.  If you have any question about standard accounting practices for UK companies, you should contact an accountant to help you with your UK accountancy as soon as possible

 

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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All About Tax Planning

Tax planning is very important if you want to make sure that your income tax return is filed quickly, effectively, accurately, and painlessly.  Through careful tax planning, you can have everything you need to file your income tax return at your fingertips whenever you are ready to file.  Tax planning is also helpful in the case that your income tax return is brought up for audit by the Internal Revenue Service.

Tax planning is essentially tracking your income tax-deductible items as they come up, and keeping records organized and handy in case they are needed.  The most important tool for tax planning is a small filing cabinet. You can use this filing cabinet to file your tax planning documents and receipts, as well as keep track of previous tax returns filed and other important documents such as birth certificates and social security cards.  The file cabinet you get to use for your tax planning should be fireproof and have a lock. That way your tax planning documents are safe in almost any disaster and other people cannot easily gain access to your tax planning and other important documents.

Part of tax planning is making sure that you are aware of what expenses are tax-deductible.  You cannot engage in tax planning and track tax-deductible expenses if you don’t know what you should be tracking!  The Internal Revenue Service offers many publications on this subject. However, if you have any questions about income tax-deductible items you should contact a qualified, certified, and licensed tax professional.

Once you know what tax-deductible expenses you will need to track for the coming tax year, you need to set up a tax planning record-keeping system.  This can be a simple receipt book, expanding file, index cards, envelopes, or any other method that makes sense to you. Keep in mind, however, as you engage in tax planning, that your tax planning record keeping system should not only make sense to you but also make sense to your income tax preparer and the Internal Revenue Service if necessary.

At the end of each month, you can add up the totals for the different types of income tax-deductible expenses you recorded in your tax planning records for that month.  This way, all you have to do to discover your tax-deductible amount is add up the totals for each month. The other records you collect and track through your tax planning are simply for proof that you can claim these income tax deductions, and are not really needed for preparing your income tax return if you have all of your totals in order.

On the surface, income tax planning may seem complicated and difficult.  But with proper organization, tax planning is really quite easy. Not only that, but when you engage in income tax planning, you better your chances for that larger income tax refund that you need and deserve.  If you have any questions about tax planning, you should contact a tax planning professional tax accountant today!

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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All About Tax Deductions

Income tax time can be a dreadful season if you are not aware of all of the income tax breaks you can get through income tax deductions.  It is important to understand what is tax-deductible so that you can get as large of a tax refund as possible.

Probably the most well-known income tax deduction is the Earned Income Credit.  The earned income tax credit is available to those who make a minimum amount of money and can file tax as single, married, or head of household.  The more money you made, the more your earned income tax credit is until you hit the peak, which is around $30,000. Once you hit that peak, the earned income tax credit goes down until you reach the maximum income allowed to receive the earned income tax credit.

The second well-known income tax deduction is the Child Tax Credit.  The child tax credit is available to you if you have two or more children in the home for more than six months out of the year for which you are filing tax, and if you have a tax liability.  Through the child tax credit, you receive around $1000 per child. This total amount is then applied to your tax liability, and any amount of child tax credit left over is made a part of your income tax refund.

Another income tax deduction is for child daycare when the child daycare is needed in order for one or both parents to work outside the home.  This daycare income tax credit is equal to a percentage, up to a maximum amount, of the actual daycare expenses paid for that tax year.  

Other expenses can also be tax-deductible.  Interest paid on a mortgage for the primary residence can be claimed as an income tax deduction.  Medical expenses can also be claimed as an income tax deduction, although this is not very helpful unless you have an excessive amount of medical expenses to deduct on your income tax return.  Tax paid to another state can be used as an income tax deduction in the state that you live in. Donations and contributions to charities, fundraisers, churches, etc. can also be tax-deductible.  

If you are self-employed, you can also claim business expenses as income tax deductions.  This includes any expenses directly related to running your business. You can take a mileage income tax deduction for any miles you put on your vehicle for business purposes.  You can also take an income tax deduction for your office space in your home if it is used only for business purposes in the form of a portion of your rent, utilities, and phone bills.  You can also take an income tax deduction for your personal computer, printer supplies, and other office supplies as long as you have the receipts for the tax-deductible expenses, and usage logs for the personal computer and other equipment to show that it is used primarily for business.

As you can see, there are many income tax deductions available to you.  If you have any questions about what is tax-deductible, you should contact a qualified, certified, licensed tax accountant today.

 

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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Accounting Education and How it will Help You

Are you very much interested in accounting? Well, if you are, you should take up accounting education. By doing so, you will gain systematic knowledge about the different practices and skills involved in accountancy and business. 

What is the meaning of accounting? It is defined as the art of systematic recording and analyzing of financial business transactions. The history of acounting dates back many years ago. Accounting is already an essential part of modern education. Every nation needs accounting because it is the key to economic development. 

If you want to pursue an accounting course, you should first choose a university or college. There are local universities and colleges that you can enroll in for an accounting course. If you prefer attending college abroad, you may do so. But make sure that you choose the university or college wisely. You also have to determine where you will stay when you’re already there; you can either stay at the dormitory or you can rent an apartment. Expenses are a great consideration as well. 

Accounting has four general areas, namely – public, government, internal auditing, and management accounting. If you choose an accounting course, you will learn how to prepare and organize financial reports that include collation or calculation of a range of figures, analyses, tax, and even projections. 

Traditionally, the study of accounting focused mainly in the technical skills. The traditional methods in the study of accounting include teaching the basic principles and concepts of accounting. The present accounting practices haven’t adapted yet to the various changes in business, regulatory environment, and economics. There are now modern methodologies used in accounting education. These methodologies are based mainly on accounting communication, decision-making, ethics, analytical skills, and the internal auditing principles. 

Educational programs in accounting have the same objectives and one is to teach the students about the various accounting principles. Aside from that, the students will also learn to develop their skills through various accounting practices. Professional accountants today have greatly benefited from modern accounting education. Accounting education also functions as an effective management tool for business executives. 

The educational components of an accounting education are specialized accounting, general accounting, and professional accounting. These days, accounting students can also take advantage of doctoral programs and other continuing educational programs. 

Is accounting education right for you? Before you finally enroll in an accounting course, you have to be very sure that you like business matters. You see, accounting is more on business matters and mathematical computations. It also involves a lot of analyzing tasks. 

Once you’ve decided that an accounting course if the best for you, find a university or college now; you can either go to college abroad or you can attend school locally. Every step involves making decisions. So make sure that you make the best decisions because your future lies with it. 

Once you start your accounting classes, you have to study all your lessons and know them by heart. This is the only way to become a successful professional someday. And of course, you need to pass all your exams so that you will soon hold your diploma. 

There are many career opportunities for accounting graduates. Again, if you think that an accounting course is the best for you, enroll now. Study hard and master the principles and concepts of accounting. Only by then can you say that you’re an effective and efficient accountant.

At Peavy and Associates, PC we can assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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Accounting Terms – Profit Loss, and Other Terms

Different fields of study make use of certain terms that are not easily understood by others. If you’re an accounting student or a professional accountant, you know the different terms used in accounting. One very popular term is profit & loss. 

So, do you know what the term means? To start with, you have to determine what profit means. Profit can be referred to as net earnings or net income. Businesses can either sell services or even products. Profit will come from the sales of these services and products. If the costs of running a business are controlled, it can add up to the profits. 

Profits are also called ROI or return on investment. However, this term is often limited to securities like bonds or stocks. But still, some companies use ROI to mean short or long term business outcomes. Taxable income is another term for profit. 

The profit & loss of a certain company is determined by finance professionals through accounting. They can determine what created the profits as well as the losses. Accountants form some sort of business equation so justify the profits & losses of a business. By doing so, they can easily tell a company’s net worth. 

It seems that by simply starting to define one accounting term, it eventually leads to defining other terms as well. Net worth is another term that is quite difficult to understand. It refers to the resulting amount after deducting the liabilities of a company from the assets. Private companies refer to net worth as owner’s equity.

Why owner’s equity? Well, after deducting all the liabilities, what’s left basically belongs to the owner. In the case of public companies, the profit of the business is returned as dividends to shareholders. As you can see, before owner or shareholders of a company can take hold of the profits, all liabilities must be deducted first. 

Every business aims to get a good and positive figure because that would mean profit to them; if not, the business is at a loss. Societies and economies are built on profit. However, there are times when a certain business incurs losses. Consumer behaviors and economic trends change. Because of this fact, it is not possible to foresee the company’s future performance at all times. 

How can you tell if a business is at a loss? That is understandable and even those who have no background in accounting know what it means. All liabilities will be deducted from the assets and if results to a negative amount, then the business is at a loss. The accounting staff of the company can still pursue effective measures to revive the business. If the business has efficient and effective accounting staffs, the business can improve in the near future. 

It cannot be argued that an accounting staff is needed to ensure the company’s success. Without them, the success of the business is not guaranteed. So the owner of the business should choose the best accounting staff. That way, all the financial transactions and decisions are noted and studied. Only then can the company gain profits. 

Profit & loss is just a simple accounting term. Aside from the term, you also learned about net earnings, net income, net worth, dividends, etc.

At Peavy and Associates, PC we can assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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Understanding and Using Accounting Principles

If everyone involved in the process of accounting followed their own system, or no system at all, there’s be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.

If GAAP are not the principles used for preparing financial statements, then a business needs to make clear which other form of accounting they’re used and are bound to avoid using titles in its financial statements that could mislead the person examining it.  

GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises. 

GAAP are not cut and dried, however. They’re guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You’ve surely heard the phrase “creative accounting” and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.

At Peavy and Associates, PC we can assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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