Accounting Basics: Businessperson

As a retired businessperson I always find it odd that freelance writers who've never had to make a payroll in their lives, other than paying their own living expenses seem to think it's okay for them to write on small business topics as if they are experts. There is a big difference between being a freelance writer and running a small business in the real world. Yes it's true that most freelance writers can spin a phrase, and most of the articles are topics of interest.
Still, I find some of the nonsense which is purported in some of these filler articles a little more than I can stomach. The advice is not all that good and they often miss the point and in doing so show just how little they really know about the subject. Not long ago I read an interesting article in the small business section of the Wall Street Journal titled; "Study Finds Certified Financial Statements Help Businesses Loan Prospects" by Angus Loten published on January 13, 2011.
What the article did not explain was whereas it would help a small business to have audited financial statements when they go to seek a loan to expand their business, "BUT" the reality is they need to take out a loan to get the audit in the first place. Ever since Sarbanes-Oxley the cost to get an audit has skyrocketed, and is well over four times the cost as it was before that law was in place. Worse there are even new financial laws now which will make things even tougher.
Often, I wonder if this Sarbanes-Oxley rules were actually written by accountants, or if Senator Sarbanes and Senator Oxley had relatives that were CPAs or accountants. After all, why on Earth would they create such an onerous set of regulations which would stifle the entire business community regardless of industry? Now the cost of 'errors and omissions insurance' has skyrocketed for accountants, and very few firms want to do audits. Meanwhile most CPAs and accountants are so busy, they don't wish to take the work or do peer reviews.
The whole thing is nothing less than a nightmare. The article tries to put some numbers to all these factors, and show that in the end the lower interest rate payments, and the loan itself will keep the small businesses in business, therefore it's worth the cost to get certified financial statements. In some cases this may be true, but if the cost of borrowing money is so expensive, and you have to pay professionals which are gatekeepers to that money, it becomes unviable, and a very uninviting prospect to say the least.
Needless to say, I know a thing or two about all this, since I'm retired franchisor. And with that said I'd like to remind you to be very careful what you read when looking through small business filler articles no matter what publication the article resides in. Indeed, I hope you will please consider this. If you have any comments or questions you may e-mail me and we can talk.

Article Source: http://EzineArticles.com/5826882

Examples of accounting

Examples of accounting services include services provided by accounts payable employees, accounts receivable employees, staff accountants, and the accounting manager or controller. Some specific services performed by these individuals include keying invoice information into an accounting program, processing timely payment of invoices, recording receipt of payment for products sold, reconciling inventory usage and receipts, and creating financial statements. Examples of auditing services include services performed by the internal audit staff and the external audit company, usually a CPA firm. Some specific services performed by these individuals include determining the reliability and credibility of accounting reports and financial statements, and assessing risk control in various areas.

Examples of assurance services include services performed by the external audit company. Some specific services performed by these individuals include determining the relevance and timeliness of accounting reports and financial statements, and reviewing company internal controls to assess the effectiveness of those controls. As previously mentioned, assurance services may or may not be associated with financial information. Assurance services that are associated with financial information include auditing internal controls or reviewing historical financial statements. Assurance services that are not associated with financial information include Nielsen television ratings and information about businesses that is provided by the Better Business Bureau.

Definitions Accounting

Definitions

Accounting services can be defined as the preparation and analysis of financial information which is reported to internal and external users via financial statements. Auditing services involve evaluating the reliability and credibility of financial information, as well as "the systems and processes responsible for recording and summarizing that information" (Messier, Jr., Glover, & Prawitt, 2006, p. 5-6). Assurance services can be defined as independent professional services that evaluate the reliability, credibility, relevance, and timeliness of information in order to improve the quality of information for decision makers (Messier, Jr. et al., 2006, p. 15). Assurance services may or may not be associated with financial information.

 

Relationship

The relationship between accounting and auditing can be compared to the relationship between an author and editor. Like the author, the accountant creates the material, in this case financial statements and reports. Like the editor, the auditor examines the material and suggests changes and corrections that must be made in order to meet the reliability and credibility requirements specified by the company and outside agencies, such as the Financial Accounting Standards Board (FASB). Assurance services take things one step further by examining the material to insure it meets relevance and timeliness requirements.

Accounting Basics: Current Assets - Accounts Receivable

 Almost as common a term as cash nowadays, accounts receivable is an accounting term meaning amounts owed to a business by other business or customers (individuals or otherwise). An accounts receivable arises anytime when goods are sold but cash is not received immediately; thus when you purchase something for cash at Walmart you are not creating an accounts receivable. If you commit to purchase something (say a lawnmower) and you are offered the option to pay next month, now you have created an accounts receivable on the retailers books.

Unlike a note receivable (to be discussed next), there is generally no signed agreement beyond an invoice for an accounts receivable. They are generally short term in nature (less than a year, if not only a couple months). Because of their short term nature, they are generally listed as a current asset on the balance sheet next after cash.

Accounting Basics: Current Assets - Cash

 Cash is normally the first item listed under Current Assets on the Balance Sheet. What does cash include? Cash includes any deposits available in the bank as well as anything on-hand which might include bills and checks or money orders to be deposited.

Accounting Basics: Current Assets

 We've previously discussed what Assets are. In an unclassified balance sheet where you only have 3 major classifiations (assets, liabilities and owners equity) that would be in the story. A much more useful report is the Classified Balance Sheet. Here, the three major categories are subdivided to provide readers of the financial statements with much more detailed information. The first such subdivision under assets is Current Assets.

Current Assets are defined as those assets which will either be converted into cash or otherwise 'used up' by the business in a relatively short period of time (generally one year or less). On the balance sheet, they are generally presented in order of liquidity; thus cash is generally listed first.

Other examples of current assets include accounts receivable, notes receivable (which often have a current and a non-current portion) and prepaid expenses. These will be examined in future entries.

Accounting Basics: Assets

 As hinted in my previous entry, the balance sheet is comprised of three basic sections: assets, liabilities and owners equity. Assets are resources or items of value owned by the business. They are items of value which can be used or exchanged in the production or delivery of services of the business.

Typically, the most common asset people think of is cash. Cash can be exchanged to purchase office supplies, raw materials used in production, pay employees, etc.; thus it is an asset of the business. Machinery is another asset; it is used in the production of the goods or services delivered by the business.

Substantial effort is made by accountants in valuing assets; some of which may not have a clear current value. For example, a piece of equipment purchased five years ago for $100,000 and used daily in the operation of the business is not worth $100,000 today (in the same way that a five year old car is not worth the price paid for it when it was new). In this instance, accountants use depreciation to adjust the value of a 'fixed asset' such as this (to be discussed later).