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Have you ever been baffled by accounting types telling you that a certain expense has been accrued? Some time ago I told someone about accrual of her expenses, and she was offended. I had to tell l her that to accrue something was not a horrible thing… Basically, to accrue an expense is to recognize a transaction before it has been paid or entered in the accounts payable system. In order to be accrued, an expense must have occurred during this period. If you used a service or purchased goods to be used now, then you recognize that expense now.

Accruals are usually made when books at closed, sometimes every month and for sure at year-end. Examples of accrued expenses could be:

* Payroll for work performed this period, but paid in the future — VERY COMMON

* Commission for sales that happened now, but will be paid in the future

* Utilities used this period, but paid in a following period

* Purchases for paper to be used this period, but paid in the future

* Expenses for an event that happened this period, but paid in the future

The point is to recognize the expense in the income statement, matching it with revenue for the same time period.

Oftentimes accountants estimate accrued expenses. This may happen when they don’t know how much these expenses will cost. Accountants usually look at accrued expenses of a prior period to make sure they don’t forget any transactions. If they notice expense accruals for insurance, for instance, then they know that they may have insurance expenses out there to be accrued.

Sometimes business people get confused between budget numbers and accruals. You do NOT accrue an expense just because you budgeted for it. You accrue an expense because the transaction actually happened during the period. This means that budget versus actual expenses variances may be explained by accrued expenses.

Technical Details

For the technically minded, below is the journal entry to book an accrued expense:

Debit — Different types of expenses reporting in the income statement

Credit — Liability accrued expense account, reporting in the balance sheet

When the accrued expense is paid, the journal entry is:

Debit — Liability account

Credit — Cash

A common problem is to book the expense in the accrual and again when the bill is entered in the accounts payable system. To avoid this double-booking, the original accrual entry is reversed as the bills are paid. This can be time-consuming and error-prone, but it is the traditional way to avoid recognizing the same expense twice.

By: Sheila Shanker

About the Author:

Kansieo.com

Start-Up companies do not need theoretical or impractical advice. They need tips and suggestions that they can easily and swiftly implement to improve their chances for success. In the spirit of this need, here are ten tips in the areas of accounting and finance that they should consider implementing in a hurry:

1. Entity selection – I am asked about this a lot. It is always wise from a cost-saving perspective to run as a sole-proprietor when you first get started. However, it is not wise to remain that way for too long. Some of the potential triggers to incorporate or organize an LLC include:

bringing on partners or investors gaining your first and subsequent customers adding employees and/or contractors protecting intellectual property and personal/other assets planning for taxes.

One other point to make in entity selection – creating an entity is about setting up a legal structure and, in my opinion, does not mean you have created a business. Getting customers to accept your promises and then receiving payments from those customers when you keep or deliver upon your promises constitutes a real business. Focus on getting customers, then you should spend more time worrying about your legal entity.

2. Record Keeping – There are plenty of software options for record-keeping, but we need to be clear about what we are after. Why are we bothering to keep records? Is it to be compliant with taxes, our bank, or some other entity, or is it so that we can review and use our financial performance strategically – to improve our performance and build competitive advantages?

A start-up must first focus on record keeping for compliance. This may mean an outsourced bookkeeper or your CPA looks over and corrects your information quarterly or annually. My recommendation is to move towards establishing your record keeping system for strategic reasons. You may need to have someone working on this information daily. Depending on your volume, number of transactions, and overall complexity, the most economical but highest impact structure can be designed for your business.

3. Banking – Yes, please set-up a separate bank account from the first day of the business, even if you are a sole-proprietor. This makes record-keeping much easier and it helps you initially manage your business cash flow better. I recommend a bank that has a high-level of online banking features to keep you or your staff from going to the bank very often. Once you set-up the bank account, you may not need to ever return. With remote deposits, online bill-pay, and so many other services available, your time can be focused on more important things, like getting your start-up going.

In addition, have a separate credit card for your business purchases. This simplifies tracking your expenses. You may also get a credit card in the name of your business, but it will based on your personal, not business, credit score and you will have to personally guarantee it.

4. Billing & Collections – Be very careful to whom and under which terms you extend credit to your customers. Resist the temptation to extend your customers an extra 30 days to pay at their request. You are running a business and your cash flow is your life-blood.

Establish your invoicing practices under the premise of receiving payments from your customers as early as possible, even before you deliver your products or services, if possible. Why do you think so many monthly subscription companies are willing to discount their subscription fees if you pay for an entire year in advance? Because they know that cash flow is the life-blood of their business and 10 months of subscription cash in their hands today is worth more than receiving small monthly subscriptions over the next 12 months.

If your customers are delinquent, cut them off from your product or services. This is hard to do, especially if they are a large and/or very profitable customer. However, the risk of not getting paid is potentially far more damaging than trying to keep that customer happy. Stick to your guns. If they still don’t pay, then charge them late fees and send them to collections. Yes, collection agencies are expensive, but they will report the delinquency to the credit bureaus as well as give you your best chance of getting paid. All of this implies having a policy and procedure for invoicing and collections.

5. Payroll- Do you have employees or independent contractors? If you answered yes to the independent contractor part, then you need to know about a potential liability you have. Are they really independent contractors? I will not go into detail here, but I have seen companies assessed penalties in excess of $200,000 for improperly classifying their contractors.

Payroll compliance is complex and, in many instances, it makes sense to outsource it. First, you need to be aware of it. I know several companies that, when they started, were unfamiliar with the payroll tax laws and codes. It did not take long before they got in trouble and one of them went out of business because they could not cash flow the back-payments, penalties, and interest. The IRS is the worst and most expensive potential creditor for your business. Second, there are many on and off-line companies capable of the task for reasonable fees. If you run payroll in your company, I recommend you seriously consider outsourcing this task.

6. Taxes- Most start-up companies have losses initially. While a start-up experiences losses for tax purposes, it is beneficial to have those losses off-set income from the highest tax bracket possible. This may be beneficial to you, or it may be able to benefit someone else, like a close relative, even more. There are some strategies worth exploring in the early days of your start-up.

Once the business becomes profitable, a few issues arise. First, how you and the other owners are paid. You can be paid through payroll, profit-taking (aka distributions, dividends, draws), and reimbursements. There are critical tax consequences to each, and they should be explored to keep as much cash in the business as possible. Second, the entity type will become crucial to taxation. And third, business deductions and credits should be maximized that might include: home-business deductions, section 179 for equipment purchases, R&D credits, hiring credits (thanks to President Obama), and many others.

7. Staff – I have written in detail before on staffing the accounting/finance department from start-up to medium-sized company. Outsourcing usually makes sense at first, and then every start-up reaches a point in growth, volume, and complexity that merits bringing the function in-house and building it into a core strategic competency. Every business has to deal with this, and when it is handled correctly, it can be a tremendous competitive advantage.

8. Professionals – You will need a good tax CPA, a business attorney, and other professionals to help you be compliant. You will also need professionals to help you strategically grow and succeed in your firm. One example of professional services are the CFO services we offer to our clients. I recommend three things for you to consider as you engage and work with professionals in your business. First, interview at least two or three to find the right fit for your business. Do they have experience in your industry? Do they have contacts or other connections that could help your business? Do you get along with them? Do they listen well and help you understand things in a way with which you are comfortable? Interview and find the one you like.

Second, remember that you are their boss, and not the other way around. They work for you and you pay their bill. You need to question their recommendations and, ultimately, the buck will stop with you even if something bad happens because you followed their advice.

Third, you want to work with professionals who have the right blend of hunger, experience, empathy, energy, initiative, and honesty. This is tough to find, but they are out there.

9. Financing – The very best way to finance your business is to bootstrap it and use your internally-generated cash. Besides watching expenses, you can improve cash flow through vendor credit/trade terms, customer pre-payments, and other strategies. If you do not have enough cash and you are sustaining operating losses, you will need to finance those losses with personal credit cards and signature loans/HECLs or equity. When the business needs to make capital expenditures, these can be financed with leases and loans secured by the equipment. If the company needs capital to fund an aggressive growth trajectory, then some debt and most equity instruments will do the trick. Remember that most forms of debt require a personal guarantee from the owner(s).

10. Benchmarking- In my recent blog post 5 Ways Entrepreneurs Improve Cash Flow with Benchmarking, I identify that benchmarking is usually free but few business owners utilize this powerful concept. Compare your performance to yourself, your industry, and to other businesses as well. The accounting/finance function usually facilitates this, but in a start-up it is usually the owner that initiates and follows-through on benchmarking. Your benchmarking should include both quantitative and qualitative data. Make this a regular part of your business, and you will quickly find competitive advantages to improve your cash flow and profitability.

11. Payment Priorities – BONUS TIP! I recently spoke with a man who started his business 26 years ago. He has been through many cash flow “valleys” wherein he did not have enough cash to meet the financial demands of payroll, vendors, etc. He taught me his payment priorities when such emergencies come. First, he pays his employees. Second, he pays the government. Third, he pays the landlords of all of his locations. And finally, he pays all other loan payments, vendors, suppliers, and others – including himself. This is not a bad way to prioritize.

Do you have any other suggestions?

By: Ken Kaufman

About the Author:

Accounting

Nowadays horizons are expanding and cities are becoming bigger. Commutation and transportation takes a lot of time away from people. Public transportation has its own limitations. Having your own means of transportation is the best way to deal with these problems. With many banks and Financial Institutions (FIs) ready to offer auto loans, owning an automobile is not too difficult.

Just check if you fulfil the following conditions and once you do, you can be a proud owner of your favorite vehicle very soon.

1. The Equated Monthly Installments (EMI) of the proposed loan should not exceed your Net Monthly Income (NMI). NMI is net of all taxes and other liabilities.

2. The loan is repayable in a minimum period of six months to usually 60 months and in special cases 84 to 120 months in the case of high-end vehicles (here again the NMI-EMI rule of point 1 is applicable).

3. Usually maximum loan eligible is 75% of the cost of the automobile (In special cases, it may go up to 90% subject to NMI-EMI rule).

4. The vehicle should be completely insured and due hypothecation charges are marked in favor of the bank/FI.

5. The loan amount plus your margin brought in are paid directly to the dealer/supplier.

6. In case of default in serving the loan, the automobile will be confiscated and sold in auction by the bank/FI.

The above conditions are for new vehicles. In case you are interested in used vehicles, you can still avail auto loan for the second car/used car subject to some additional conditions besides those applicable for new ones.

By: Dilip V Mohan

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Caffeinated Content – Members-Only Content for WordPress

Business alliances are often overlooked or not given much consideration by small businesses, yet they can be vital in helping a company grow and prosper. All too often, small businesses think alliances are just for big businesses; as a result, they neither explore nor pursue them. However, they can be just as beneficial for small businesses as they are for large corporations. If a small business is serious about gaining access to new markets, capitalizing on technology, growing profits using shared resources, they should consider a business alliance.

It’s no secret, businesses that share resources can create greater efficiencies and become more profitable. Business alliances can increase synergies and mitigate potential risk, while allowing companies to work together toward common goals as they maintain their individuality. There are several types of business alliances, each with its unique attributes.

Now is the time to assess what your business brings to the table. What assets, either tangible or intangible, does your business possess that when leveraged with another company can unlock greater potential for each business?

Alliance opportunities can be developed with suppliers, customers, investors, complementary businesses and friendly competitors. Some alliances are natural matches, while others require some creative thinking. I’ve listed the different types of alliances below, along with a description and example of each. When reading through them, think about how your business can create the benefits of a win-win proposition with another company.

JOINT VENTURE

A joint venture is a contractual arrangement whereby a separate entity is created to carry on a trade or business on its own, separate from the core business of the participating companies. Businesses often come together to share knowledge, markets, funds and profits. In some cases, a large company can decide to form a joint venture with a smaller business in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain. Companies with identical products and services can also join forces to penetrate markets they wouldn’t or couldn’t consider without investing a tremendous amount of resources. Separation is often inevitable because JVs generally have a limited life and purpose.

Example: You’ve developed a product but have a limited distribution base. Another company has the distribution system in place with a sizable market and wants to expand its company’s product offerings. You form a joint venture with the other company to jointly promote the product. It’s a win-win because you don’t have to fund the costs of reaching the potential customers and the other company expands its value and product offering to its current distribution base without having to fund the research and development costs of a new product. A contract would be signed detailing the aspects of the agreement.

STRATEGIC ALLIANCE

A strategic alliance is generally an arrangement whereby a separate entity is not created. Participants engage in joint activities but do not create an entity that would carry on trade or business on its own. The strategic alliance partners may provide resources such as products, distribution channels, manufacturing capabilities, capital equipment, knowledge, expertise, or intellectual property. Each party in the alliance maintains autonomy.

Example: A business management consultant wants to expand his services. He currently offers coaching, marketing, financial and operational consulting. He has noticed an increase demand for HR and diversity consulting from his clientele. He currently has no desire to hire additional personnel with the degrees and certifications required to offer these services. He seeks a strategic alliance with a HR and diversity consulting firm. The new firm agrees to work with his firm when opportunities arise for their services and a percentage of the revenue generated from the services provided will be returned to his firm.

PARTNERSHIP

A partnership is a legal agreement between two parties wherein both the parties agree to share profits and losses of a common business with no anticipated end date.

Example: A company whose primary function is to sell ads and produce unique coupon circulars to promote a variety of small businesses to the residential community had a substantial printing bill monthly. The company sought a partnership with a small printing company. The printing company had the expertise but limited printing volume. It required purchasing equipment that the printer didn’t have but saw a need for. A contract was signed establishing the new company; cost of the equipment was split between the two entities. The coupon circular producer sent all its business to the new venture at a substantial discount. The profits from the new venture were divided among the coupon circular company and the printing company. Each kept their original businesses separate from the new business.

MARKETING ALLIANCE

A marketing alliance is an agreement involving two or more companies to share cost and resources to promote each of the companies within the group. The target markets of the companies within the alliance usually share similar characteristics. The alliance can be a formal or an informal agreement.

Example: A group of locally owned and operated restaurants band together to form a marketing alliance. The alliance, similar to groups throughout the nation, promotes the uniqueness of their cuisines in an effort to stand out against the national chains. The group pools their resources to run ads and produce a direct mail guide to promote their menus, while offering discounts. They pay an upfront fee and then contribute several hundred dollars in gift certificates every quarter. Those certificates are sold online at a discount to help fund their marketing efforts. Donating gift certificates help keep the cost down for the participating restaurateurs.

COLLABORATION

A collaboration is when two or more businesses come together to share resources to create greater efficiencies such as the sharing of employees, equipment, shipping cost, rent, products and etc. Collaborations are generally for specific time periods and resources.

Example: As a small business you may have a difficult time throwing a first class holiday party for your employees. You want to show them just how much they are appreciated but the economy is tight and company funds are even tighter. Pooling your resources to have a party with a complementary company, saves money for both companies and could potentially pay off in new business opportunities and networking.

Managing the Alliances

Each company should bring a balance set of strengths to the alliance but there are other considerations as well. You must manage the alliance to ensure it contributes to the success of each company. Listed below are few of the things you should consider to produce a successful alliance:

1. Alliances should be made with the decision maker. You must have the support and commitment from the business owner and not just a manager.

2. Communication is a key ingredient. Clearly communicate the goals and objectives of the alliance in the beginning.

3. Develop the metrics the alliance will be measured against. Determine how the performance of each of the companies will be measured.

4. Allocate proper resources to the alliance. Don’t get half way through the project before you determine the proper resources were not allocated to the venture.

5. Ensure that all participating employees are committed to the success of the alliance. You need buy-in from everyone involved, not just a few select people.

6. Detail the responsibilities of each of the participating companies. Be explicit in what the expectations are for each of the companies in the alliance.

7. Just like all things, nothing is perfect. Be prepared to make changes if something is not working.

8. Stay committed and focused on the benefits of the alliance rather than the inconveniences the alliance may cause.

Each party must benefit from the alliance for it to be successful. Otherwise, like a marriage, the relationship will go from honeymoon to divorce court quickly and all parties will suffer.

By: Dee Harbut

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Caffeinated Content

If your main interest is information on tax fraud or any other, such as tax relief 2008, Tennessee extension bill property taxes or the expansion of the economy incentives for relief from taxes on income This article can be useful.

Reduction of sentence is another method of tax relief which you may qualify for, especially if their non-payment of taxes and the resulting sanctions were due to the events you had no power. These are usually in the form of serious illness, death, natural disasters such as earthquakes, floods and fires; On the other hand, problems such as poor reception of tax advice or even errors made by the IRS and the sudden shift in tax laws.

Benefits under the Law include the elimination of tax liabilities, reducing tax rates on income, capital gains and dividend income, the simplification of the rules of retirement plan and pension plans, increased credit for dependent children and child care, the depreciation of assets, and more.

Tax relief can also be beneficial through checks mailed to taxpayers by federal or state tax authorities to reduce the burden of taxes. These controls can also be in the form of refund checks received from the tax authorities of tax paid in advance when it was found that excess taxes paid by the taxpayer after calculating the tax assessment of the current or previous assessment of the year.

You must remember that if this article has not provided an accurate tax information scam, you can use any of the major Internet search engines, like Ask com, to find the exact tax relief scam information you need.

This form of tax relief is available only to the original purchaser of the hybrids or advanced lean burn technology, vehicle. However, if the vehicle is leased the credit is passed to the leasing company. Once 60,000 vehicles in particular have been sold, will benefit from this tax relief will be reduced and eventually be eliminated. Its full tax credit may be claimed until the end of the 3rd month after the quarter in which the manufacturer sells its 60000th vehicle.

Tax time is one of those terrible events in the U.S. for many people each year. If you have fallen behind in their taxes will have to find some relief from the tax debt. One of the keys to the alleviation of the tax debt is to act quickly before the cargo is so large that it can not escape. This article was hanging in some potential for debt relief tax solutions for you.

While the recruitment of tax relief aid can not be cheap, not realizing that letting his tax debt with the growth of all sanctions and the imminent rise in interest actually cost much more and be harder to solve, even for a longer time.

For your information, we found that many people who were searching for a tax scam also searched online for Indiana property tax relief, state tax forms, and even Wisconsin property tax relief.

By: Stacey Tan

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Website content

The key business strategy is simple and it changes everything. You need to make time every single day to plan and implement ideas and strategies for developing your thinking to grow your businesses. More specifically, you need to make time every single day to take an honest look at where you are being blocked in your thinking or mindset. Are you self-sabotaging and finding excuses not to do follow up and call your clients? Or are you afraid to ask for the money when working with clients? I say to my coaching clients that if they do just this part of working ‘on’ their businesses mindset, their Law of Attraction success in attracting more clients and business is inevitable.

Not applying this simple business strategy everyday can have severe consequences in the growth you see. Quite possibly your income will be the same as it has been for the last several years, or even drop. You start to notice that your colleagues are rapidly moving forward and gaining market share. Your energy and enthusiasm drops and you start to wonder why in the world you went into business anyways.

Yes, applying this simple business strategy is well worth the conscious effort it will take on your part. One of the small business owners I coach has more than tripled her clients in less than three months – using just this one aspect of working ‘on’ her inner business mindset. A top coach in health and wellness, she has hired another virtual assistant, and another fitness trainer, to reduce much of the work she previously did ‘in’ her business. This gave her time to work on removing any unseen limits and builds her client attraction muscles – to gain inner confidence – and to create a strategy on where she wants to go next in her business and bigger thinking.

The results were immediate and amazing! And the key to her continuing successes are some simple steps that I encourage you to implement. She chose one ‘limiting belief’ a day that was self-sabotaging her business success – worked on removing it – and chose another one every single day. When she started, she worried that she would be unable to remove all of her limiting beliefs, blocks and barriers to be able to ask for the money or make follow up calls to her clients. Instead she discovered that once she started removing her limiting beliefs her confidence and courage is expanding in all areas of her business. Now, she is comfortable asking for the money that she deserves, making follow up calls, and her client attraction and the Law of Attraction is in full speed. Let me Repeat: Do this and your success is inevitable!

By: Beverly Boston

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