Accounting Practices

Many people who have jobs have no idea what goes on behind the scenes of the bookkeeping or accounting department. However it is important to know what is going on because they do the most important job in the company, they do your payroll. All of the money that you make and every tax that is filed and making sure that your paycheck is correct is the job of the bookkeeper. They ensure that your paperwork is done and they calculate you vacation time, your sick pay, and any medical benefits you may have. The best part about the bookkeeping team is that they are able to get you paid on time every week and keep the payroll department moving smoothly.

Another job of the bookkeeper is to record payments the company makes and income the company brings in. They will make sure that the right accounts are credited when monies come in, and they will bill customers to ensure payment is on its way. They manage how those funds are spent as well. They know where it is going, by keeping track of bills paid, sending money to vendors, and taking the money to the bank.

Bookkeepers then ensure that the taxes are paid, and that the clients are recieving their products, they also keep track of any assets that the company has such as equipment and property they have.

If you decide that you would like to go into the accounting industry, you will want to know what different fields are available. There are jobs such as the entry level bookeeper all the way up to the CFO (chief financial officer) of some major corportation. To be able to get to those high up positions and get those high salaries, you will need to get the education.

One thing you must do to become an accountant is to become a CPA or a certified public accountant. In order to do that you will need to go to college and major in accounting, then you will need to take and pass the CPA review. You will also need to pass the CPA examination. You may also need to get experience by spending some time learing in a CPA firm. Once you have done all of these things you will recieve your designation to be a CPA and you can now offer services to the general public.

Once you get into a office of accounting you will then want to move up to becoming the chief accountant which means he will control the flow of the whole business by staying on top of the current laws and by being responsible for how the financial statements are prepared. This person is also in charge of the financial planning and the budgeting of the business. When this accounting firm gets much bigger there may be several controllers to handle certain aspect of the firm. In addition the controller will handle the filing of taxes of the business and is involved in the budgeting for that business.

The next level is the Chief financial Officer who is responsible to create the growth and the profit of the company, he will design the right strategies that the company will need in order to get that growth.

If you are thinking about this type of career you should start today working in that direction.

When you recieve your audit report on your financial statement, it is usually meant to give your business that good opinion or to let you know whether it is healthy. On the other side of the table, your auditor can indicate that the statements found are misleading and cant be relied on. This type of audit report is known as the adverse opinion. That is the upper hand that your auditor has over your business is that they can give you an adverse opinion and make your business look bad. Having the threat of getting that adverse opinion makes more companies change their accounting practices and upgrade their disclosure techniques, which help them to avoid the problem of getting that adverse opinion. The SEC will suspend the trading of a business if the auditor gives that company an adverse opinion.

If a company recieves a report from the CPA company doing the audit, that says they doubts the capabilities of that business to maintain its status as a going concern ( note: a going concern is a company that has the financial means and the momentum to go on operating in the future and that they will be able to turn the bad situation around without defaulting on any of its current liabilities). In this case you may find that some companies may be showing distress but will still be a going concern, unless of course the auditor finds reason to believe it is not. If your company doesnt look good on paper you will need to start working today to ensure your accounting standards and your disclosure is up to par before you get that adverse opinion.

When you have a business, you may find yourself in need of an independent auditor. This CPA will come in and go over your accounting and give you and your business a report, this is usually a part of the financial statement of your business. If the company is publicly owned it is more likely that you will use one of the independent auditor firms to have the reports done as this helps lend credibility to your financial reports.

Your auditor will also ensure that the accounting system that you are using is one that is allowed by GAAP (generally accepted accounting principles). If everything is good and in place the financial report will show this and your company will look good. However if the auditor flag your companies financial records that means that there may be some potentially harmful trouble brewing and may indicate that this company's ability to run effectively is in doubt. These problems may be that there is low cash balances, it may show a lot of unpaid or overdue liabilities or even that the company is in the middle of lawsuits which they may not have the money to cover.

The auditor will be unbiased and skeptical, they should be ready to challenge whether the company has a good or bad systme and they should also adhere to the accounting standards that are not misleading. They should ensure that the reports are presented in a fair manner, and they must be tough with the customer to ensure that they don't make mistakes that could cost their company in the long run.  

Lastly they should be able to blow the lid off a company that is engaging in fraudulent and deceptive behaviors. They will also want to be very particular because in some court cases the company is engaging in some kind of fraud and the auditors are missing this fraudulent behavior, as seen by the Enron case.

The Independent auditor serves an interesting purpose, he gives a report that tells about the financial stability of the company, and give it credibility. However they are also very critical and will point out potential problems that your company's accounting system is having and how to fix them before the company goes under.

For those who have never heard of the terms accounting fraud, just the sound of it means it can't be good. Accounting fraud is when one or more company members deliberately manipulate how sales and expenses are doing in order to make the company look like it is doing well, when in truth it is not.

Some companies may be doing a number of activities which may be considered fraudulent such as failing to list expenses they prepaid or assets that are incidental, they may fail to show asset liability classifictions as well as the collapse of their short term debt and thier long term debt into a single account instead of two seperate accounts.

Other companies may commit accounting fraud by over-recording of thier revenues from sales. This company may even go as far as shipping products to customers who never ordered. When they do this it looks as if they may have made actual sales until the returns start coming in. They may even try a scheme called "channel stuffing" this is where they send large orders of product to dealers that the customer did not order, then they do a side deal for the product with discounts and incentives, which keeps the customer from complaining about the product they did not want. Also businesses have been known to keep from recording returned products until after the end of the year records have closed.

Another act of accounting fraud includes under-recording of the company's expenses especially the expense for depreciation. In some cases the company may not give a complete accounting of the "cost of goods sold" expense account for the period. This makes the overall gross margin a lot higher because the assets still include products that are no longer a part of the inventory because they have been sent out to customers.

In addition, the company may overstate or understate many other accounts as well, however this is accounting fraud. If you are thinking about trying any of these things. Think again, accounting fraud has some pretty steep penalties.

If you have no idea what to do to track how much money your business is bringing in, chances are you dont know if your business is successful. You wont know how well your marketing schemes are working or how much profit you are making. You will need to know more than just how many sales you have made or how much your gross revenue is, you will need to have an idea of what your company's net profit looks like so that you can do whatever it takes to increase this number.

For those who want a successful business, it is important to know what your bottom line is, to do this you will need to have a solid financial plan and keep up with how well you are doing on a monthly basis, then should you find that you are having problems, you will need to be ready to fix them immediately so that your business is always ahead of the game.

Here are just a few tips to ensure that your bottom line is where you want it to be.

• Make sure that you have a solid financial plan. Be sure to estimate how much money (revenue) you think you will bring in on a monthly basis, and also how much money (expenses) you think will be going out every month as well.
  
• Keep in mind that once you lose profits that you can't get them back. Some business owners assume that they can make up losses later, the truth is that you can't. You will need to figure out how to lower your expenses and increase your profits.
  
• You need to be on top of the adjustments that you will need to make to your bottom line immediately. If you are noticing that your revenues are lower that your originally projected, then you need to find ways to increase sales by making changes to your marketing techniques. If you find that costs are extremely high, then take the time to make some cut backs so that you can lower the amount going out and keep more of the money coming in.
  
• Be sure to be frugal about your spending habits, just be sure that if you are taking on new expenses that you know what the chances of making enough money to cover them is in the cards.
  
• Make a monthly evaluation about how your company is doing, focus on the profits you are bringing in and not just the amount of revenues you have coming in. It really doesn't matter if you are bringing in a lot of money, if your expenses are too high, it is going back out the same way it came in. Instead you need to focus on the money that you are able to keep. So spend time being on top of your profits.

When you get yourself a bank account, especially a checking account, you will need to learn how balancing of your checkbook works. This job of balancing your accounts is just one of the terms I mean when I use “personal accounting.”

When the bank send you your statement every month, the first thing you will need to do when you get it is look it over, and if it is online print out a copy so that you can do this quickly. One thing to remember as well, if you are one of those people who are not so good with personal accounting and watching your money, online banking allows you to see what is going on everyday so that if you have trouble you can catch it quickly, before you start bouncing checks.

The reason for balancing a checkbook is to ensure that any additional charges not listed in your check book. Many people like me tend to forget to write down the two dollar fee at the ATM, so if you need to write in additional charges that you did not originally write down, this is when you do it. By balancing your checkbook you will be able to keep a good total that keeps you from writing bad checks.

When you are dealing with the accounting practices that pertain to measuring costs, it is very important to have some idea of the types of costs you will run accross.

1. Direct Costs: These are costs that are directly related to your product. Ex: If you have a automobile that is being produced the stering wheal, the tires and the radio.
   
2. Indirect Costs: Indirect cost are those that deal directly with the product but not any product in particular. Such as, if you have employees who build the cars they are directly responsible but not responsible completely with any one product or in this case car.
   
3. Fixed Costs: These are the costs that are always the same or close to the same amount taken out every month. These are normal monthly expenses that come to your business whether you make a sale or not.
   
4. Variable Costs: These are costs that increase or decrease with the volume of sales that you have.
   
5. Relevant Costs: These are costs that are needed when you take a different stategic move. If you decide you want to produce more cars and the tires go up in price then then that cost is relevant to your production.
   
6. Irrelevant Costs: These can be costs that decide on a future couse of action and are disregarded until that time comes as they may make you make mistakes in the here and now. Or they may be some cost that happened in the past and now are irrelevant cause that money is now gone.

These are some of the different types of Costs you will incur throughout the course of your business.

One of the most important accounting practices your company accountant is responsible for is measuring costs. The costs are very important to how your business is managed and it makes all the difference in the world to your company's ultimate bottom line.

If your company is in the business of making sales you will need an idea of the costs of making your product and you should have a method for any indirect production cost you may have as well. You may wan to check with GAAP (generally accepted accounting principles) to get the specific rules and regulations for measuring costs.

Here is a list of some of the costs your accounting must meaure:

• departmental needs
• supply costs
• retirement plans
• advertising
• marketing
• restructuring your company
• restructuring
• recalling products
• and many more

When a corporation changes their information or hides their facts in order to give the impression of financial health, it is called corporate fraud. When this is done to look as though they are successful to the shareholders, it is called shareholder fraud. This fraud scheme can be done by a few individuals within the corporation or it can be a far reaching scheme committed by many participants. Some of the head managers may change financial accounting information or may even disquise spending that is inappropriate. Fraudulent accounting practices can be devistating to shareholders and employess who may have invested in the company.

There have been a few corporate scandals that have rocked the fabric of our financial society and created chaos for people concerned with their personal finances.

Here are a few such financial scandals:

Some people hear the term forensic accounting and wonder what this could possibly mean. This means that this practice is when you use accounting, investigation and auditing for a company's legal problems. It covers supporting litigation for the company, investigation, and for handling the resolution of disputes. The professional handling this is a Forensic Accountant, they must qualify damages that are experienced by parties in a lawsuit, they help with people who have disputes, and if that dispute should go to court the accountant will have to testify in court as a witness (expert witness usually). Additionally they may be called upon to investigate employee theft, identity theft, securities fraud and insurance fraud. You will find that he will also be part of the investigation for civil matters such as finding out the actual asset amount during divorce procedings.

If you should decide you want to be an accounting professional who does this kind of work, you should know that you will be doing more than accounting and more than general detective work, you will be helping people find solutions to the problems that plague them and helping them find solutions to problems.

One of the things your accountant will be concerned with is the depreciation of your companies assets (fixed) such as its computer, its equipment, tools, the vehicles, its furniture, and its buildings. This is imporant because it is counted on your accounting paperwork as an expense. When you have assets it is important that you know that every single thing that you buy for your business (fixed assets) have a certain amount of "useful life", this is how long you can use these items before they will be of any use to your company. The use of depreciation shows the total cost of that asset in its present year of use as it is used by your business to generate more income. Every year, your company will be able to recoup some part of the cost that you invested in your fixed assets.