Personal Finance guide

Outsourcing today has evolved as a powerful tool which aids in the transformation of any conceivable business operation. However, there are a few myths still present when one considers the different aspects while outsourcing bookkeeping jobs to a specialist company. But the reality has dawned, even though late, that it is absolutely viable for small businesses too and presents tremendous possibilities in terms of cost saving as well as business strategies.

Myth : Only big corporate houses can afford to Outsource.
Outsourcing the bookkeeping functions used to be the prerogative of big business houses. With the winds of change sweeping the world, small business too have joined the fray and are outsourcing their bookkeeping functions in order to acquire increased efficiency and profitability in their respective business domains. Companies with a full-time bookkeeper can save about $30,000 a year by availing bookkeeping services of highly competent and competitive service providers in India. By outsourcing non-core business activities like Bookkeeping to destinations like India, China and Philippines, small business organizations .In the developed nations like the US and countries in Europe can save substantially by taking advantage of the difference in the foreign exchange rates.

Myth : Bookkeeping Outsourcing is not reliable.
No offshore service provider would risk their business prospects by unauthorized use of accounting data of the client company. Using secure FTP soft wares, offshore companies send the documents securely into the client server. Using customer-specified soft wares the firm finishes the assigned tasks and send the accounting files back to the customer’s server securely. The clients then import the accounting files into their accounting soft ware. Thus the possibility of any breach of data security is ruled out.

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The corporate world seems to be going through a unique phase and this has definitely created a sea change in the way companies conduct their businesses. Even though the size and nature of each business vary, one area that has always assumed importance is the accounting or the bookkeeping department. This special section is one of the most prominent parts of an organization and holds an important say in determining the financial decisions and their implications pertaining to the company.

Given the kind of importance that this department has in any organization, it is natural that people working in this department are expected to be intelligent and highly efficient. They are usually well-versed in the various aspects of accounting and financial planning. However, as per the recent trend, businesses find it worthwhile to take up bookkeeping assistance from an outside firm. This has happened because the cost of hiring such people is on the rise and has become a drag on the company resources. Such circumstances have led to steps like outsourcing accounting services to reputed bookkeeping firms.

Outsourcing the bookkeeping functions implies that you are hiring another firm to keep a tab of your company transactions. In other words, you are delegating the responsibility of up-keeping your financial records to an outside agency instead of having your own staff do the job. By following this practice, companies have been able to substantially reduce their costs. Though many may have shied away from this practice for fear of third party misuse of the information they provide, many companies have of late, joined the bandwagon.

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For smaller companies, changes in economic activity are especially unwelcome as SMEs are more susceptible and have less control over their business environment than do bigger enterprises. Every action the company, its customers or suppliers take in an uncertain situation, may create a risk to the very survival of its business.

In an economic climate such as our current one, the pressure on companies to reduce staff costs is overwhelming, especially as more companies face extinction. The first cutback business owners and managers tend to make, will involve reducing payroll as that seems to have a more immediate effect than do other measures. The danger however, is that in desperation, companies will make rash permanent decisions to save costs even when this results in such an unfortunate situation as under-resourcing. The consequence of this is that business opportunities from prospects or existing clients may be missed; administration gets behind, reporting gets delayed- all resulting in further unwelcome pressures on the business.

So why isn’t under-resourcing an option – or, technically not an acceptable option? There are many risks to having insufficient capacity to deal with current orders or potential increase in demand. The business opportunity that may be lost might well have provided the cashflow needed to eradicate the cut back in the first place. Also additional costs often arise through fines, penalties, uncollected debts and other results of not having enough manpower.

With this in mind, most businesses are in favor of an option that has become acceptable in today’s business world. Outsourcing and insourcing – entrusting another company with your finances and other strategic assets has become a viable lifeline, even an essential business model. The advantage is that companies can afford to plug the gap in staffing as and when required, usually on a flexible payment platform, and often at a lower cost than full time employment.

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Different firms have radically different business models and, as such, have different bookkeeping needs and requirements.A firm with the primary business of buying and selling monetary instruments needs to have a very clear picture of the company accounts. This is because the very core of the business is predicated on controlling and influencing the flow of money and this is something that needs to conform very strictly to state laws and regulations. The accounts in this sort of situation need to be crystal clear so they can be used at any point in time to illustrate that no illegal transactions have occurred.

In direct opposition to this situation is the example of a firm that deals in a much more tangible product, namely shoes. A shoe company does not necessarily need to have a complete, microscopic view of the company accounts. In this scenario, there is a focus on knowing the inflow and outflow of revenue, value of assets and stock and so on.

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Author: John Leslie

Article Source: MiNeeds.com, where consumers get competitive bids from Accountants/CPA’s. Read reviews, compare offers & save. It’s free!

Article Link: http://www.mineeds.com/Lakeside/Leslie-and-Associates-Inc/Articles/What-is-Bookkeeping-an-article-everyone-can-understand

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When starting a business, owners have so much to accomplish; completing legal forms, finding a location, hiring employees, business structure and marketing. What most start up businesses tend to neglect is the most important structure of running a business, money management. Business owners start spending money for all sorts of products, material and equipment to get the business started. While doing so they tend to use their personal funds and personal credit cards. Once the business has become established and you need to compile these receipts for your record keeping, using personal funds for business purchases can turn out to be a nightmare in determining which purchases were for business and which are personal.

Solution:

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When a small business owner purchases stock or services from a vendor, it is standard practice that the vendor will offer them credit. This will then create part of the businesses Accounts Payable. This is an advantage as you will not have to pay for any purchases and services you ask for until the credit period has lapsed. Your creditor forwards you an invoice which you file until it’s scheduled for payment. Accounting for your debtors and paying your invoices on time are the duties of an Accounts Payable function. Your bookkeeper must carry out numerous important activities to ensure that your Accounts Payable is managed competently.

Purchase Orders

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Depreciation in accounting is used to spread an asset’s cost over the number of years it will be useful to the entity. It is used to reflect the decreasing value of the asset over time due to wear-and-tear, usage, technological outdating, etc… The original purchase affects the entity’s cash account one time. For the remaining useful life of the item, the assets are affected on the balance sheet as accumulated depreciation and the expenses are affected on the income statement as depreciation expenses. Depreciation is a way to spread the expense of an asset over the span of its useful life, as long as that span is longer than one accounting period. Many different types of assets are depreciable including tangible assets (buildings, equipment, machinery) and intangible assets (software, patents, copyrights). There are several types of depreciation methods used in bookkeeping today. A few are outlined below.

Straight-line depreciation method is graphically exactly what the name implies. It is a straight, horizontal line on a graph of annual depreciation expense versus years of life. It is one pre-determined standard amount that is divided over the estimated useful life span of the asset. This expense is then recorded once per year for the appropriate length of time. This can be calculated by taking the difference of the original cost minus the salvage value (or the amount that the item can be sold for at the end of its useful life to the entity) divided by the useful life. This calculation will give you the amount to be recorded as depreciation each year. For example, if an asset is purchased for $125,000, it’s salvage value is $5,000 ($125,000 – $5,000 = $120,000), and it is estimated to last the entity 6 years ($120,000/ 6 years = $20,000/year) an accumulated depreciation of $20,000 should be recorded each year for the next 6 years.

Related to straight-line depreciation is units-of-production depreciation. Instead of spreading the total asset depreciation over a span of time, it is spread over the amount of units it is expected to produce in its useful life. The depreciation is constant for each unit produced, but if some years are more fruitful in production than others, the amount recorded as depreciation will vary. This is most relevant with an asset that has a useful life closely related to its output. For example, if the same asset listed above was estimated to be able to produce 60,000 units of product in its lifetime ($120,000/60,000) each unit produced should be recorded as an accumulated depreciation of $2. If in 2007 the entity was able to produce 12,000 units, $24,000 should be recorded as accumulated depreciation. Likewise if in 2008 the entity was able to produce 16,000 units, an accumulated depreciation of $32,000 should be recorded for that year.

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If you are someone who has just started working or works for a small to medium sized business, there are some important things you should know in regards to accounting services. As is often the case, smaller businesses usually only employ a core staff of individuals who are all engaged in doing the same work, namely that of creating the unique service or product offered by the company. What this means is that oftentimes individuals within the company end up performing additional roles they are not completely comfortable with. The end result of this is a situation where there is the potential for harm to the company as well as the overworked employee.

This is especially true in the case of maintaining the company accounts, as this is something that requires a lot of time, knowledge and effort. Most small businesses think that engaging in this sort of practise is necessary in order to cut costs and remain competitive. However, this does not necessarily have to be the case. There are many low-cost accounting services that can be used in the larger Melbourne area. Using one of these firms for your organisation’s accounting needs will not place a large strain on your resources and will ensure that the job is done correctly.

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For many people, the job titles of accountant and bookkeeper are interchangeable. After all, doesn’t a bookkeeper maintain the accounts of a business by tracking accounts receivable, accounts payable, rent expense, payroll, etc.? The answer is yes, a bookkeeper does perform all of these accounting functions. So why does an accountant get paid so much more than a bookkeeper? Aren’t they one in the same?

To answer this question, we can first think back to geometry. To say that a bookkeeper is equivalent to an accountant is like saying a square is equivalent to a quadrilateral. Both are shapes with four sides. But a square is a specific type of quadrilateral with all four sides equal in length and four right angles. A quadrilateral, on the other hand, is more encompassing. A rectangle, a square and a trapezoid all are quadrilaterals. All have four sides, but it is the length of those sides and the angles between them that differentiate these shapes. The same holds true for accounting. Bookkeeping is a very specific part of accounting which looks at the tracking of money being spent and earned. We all do bookkeeping by (hopefully) balancing our checkbooks. But accounting, like a quadrilateral, is much more encompassing. Accountants use a technique called matching, which goes way beyond standard bookkeeping. Beyond basic bookkeeping, accountants must make decisions regarding the “how, when and why” of documenting a businesses finances. Matching is a principle used to allocate debits and credits to certain accounting periods and reconcile across types of financial statements. Although there are strict laws governing accounting, there is a certain amount of flexibility that allows accountants to have some control over the outcomes of their financial statements.

As a more specific example, let’s compare straight-line and double-declining balance depreciation. To oversimplify, in straight-line depreciation the cost of the equipment is divided by the number of years of its “useful life” (less the salvage cost, or final “worth,” of the equipment once it has reached the end of its useful life). This gives a depreciation amount that is the same year one as it is year ten. It is a very neat and reliable method to use, as there is no variation in the fixed amount.

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