Back to Blog
An accountant is important for your business as you need to maintain the book of accounts to get a true and fair view of the status of your business. A professional accountant requires a high degree of precision and level-headedness. Also, if any figure is misplaced or wrongly entered, it can affect your decision making. Therefore, hiring a wrong accountant will have a negative impact on your business. So, if you want to hire an accountant, then here are a few qualities of a good accountant you should look for.
1) Knowledge about Latest Tax Laws
It is important for an accountant to stay updated with any change in the tax laws as well as any industry’s generally accepted accounting policies. An accountant should have specialized knowledge about tax returns and policies.
2) Accurate and Detail Oriented
Accountants need to be extremely accurate and detail oriented. This means they have to make sure that they double check their work. Errors should be avoided and they should provide accurate information in the books of account.
3) Client Oriented
An accountant should not only be good with numbers but also be able to understand his clients and establish good communication with them. When an accountant has an understanding of his client’s business, he will be able to work better as per the client’s business goals and requirements. The accountant will help you with analysis of your financial statements and assist you in making proper business decisions.
4) Communication Skills
An accountant should be able to communicate accounting terms to a person in an easier way. Having the ability to explain complex accounting terms in an easier manner is a major skill that you should look for in your accountant.
An accountant is expected to meet the needs of his clients. Also, he should be able to meet his client deadlines. Moreover, an accountant has to keep his cool while dealing with his clients as all of them will not be the same. Therefore, flexibility is an important quality that an accountant should possess. He has to embrace every challenge and effectively respond to changes in work environment.
An accountant deals with confidential information and thus, they need to develop client’s trust. Being able to manage client’s information increases his trustworthiness and helps him gain more clients in the future.
It is essential for an accountant to have the correct ethics and morals in his professional as well as personal life. By being a law abiding person you know that your accountant will do the right job for you and it will definitely show in your books of accounts.
These are a few qualities of a good accountant. When you hire an accountant you would want him to have these qualities. If you are not sure whether you will hire the right accountant, it is recommended that you consult a professional accounting firm.
Back to Blog
Classifying capital and revenue expenditures can be a difficult task. These expenditures directly affect in creating an accurate balance sheet and thus, you need to know how to classify them in the correct manner.
Examples of capital expenditure include the purchase of an asset or any repairs done to the asset in order to increase its life and productivity.
Examples of revenue expenditure include wages and salary, printing and stationery, electricity, repairs and maintenance, inventory, postage, insurance, taxes, etc.
To help you understand capital and revenue expenditure, here are a few points that distinguish the two expenses.
Capital expenditure is any amount spent by a company on an asset which provides long-term benefits (usually for more than 12 months). Capital expenditures are generally listed as assets in the balance sheet.
Revenue Expenditure is an expense which is incurred in the current accounting year and the benefits of that expense are also enjoyed during the same time period. Therefore, revenue expenditure is applicable only for the current accounting period. Revenue expenditures are listed as expenses on the debit side of profit and loss account.
Capital expenditure is non-recurring (expenses incurred once in a few years) in nature. This means the benefits to your organization is for a longer period of time.
Revenue expenditure is recurring in nature which means you need to spend on a periodic basis to derive any benefits from it. The company is not benefitted by revenue expenditures beyond the current accounting period. For maintaining the existing productivity, a company has to incur revenue expenditures. For example, electricity bill paid for the current year cannot be benefited from in the next year. Revenue expenditure seeks to maintain the current earning capacity of the company.
Capital expenditure includes purchasing of fixed assets such as land and building, plant and machinery, etc. The benefits of these are enjoyed by a period of years. Buying a new motor vehicle is a capital expenditure because the vehicle will be used over a period of years depending on its usage. Capital expenditure seeks to improve earning capacity of the company in the future.
The benefits of revenue expenditure are enjoyed for a short time (less than 12 months).
Capital expenditure involves huge costs as the value of assets and investments are large amounts. Revenue expenditure is rent paid, wages and salaries etc. Hence, there is less money spent as compared to capital expenditures. A transaction is only classified as capital expenditure if it crosses a certain limit. It differs from organization to organization to classify what expense will be capital or revenue.
However, certain expenses are termed as deferred revenue expenditures. A deferred revenue expenditure is a kind of expenditure which is revenue in nature but its benefits last for a number of accounting periods. Examples of deferred revenue expenses are the discount on issue of shares, research and development expenses, heavy advertising expenses for promotion of a new product, etc.
You can charge depreciation amount based on capital expenditures as per your company policies. Depreciation for capital expenditures is charged over a long period of time. There is no depreciation charged to revenue expenditure since these expenses are charged in the current period or shortly thereafter. Hence, it is important to know what to classify as capital and revenue expenditure to get a true and fair view of your expenses.
These are just a few differences between capital and revenue expenditure. If you have any difficulty in classifying capital and revenue expenditure or need any help with respect to maintaining your accounts, it is recommended to consult a professional accounting firm.
Back to Blog
There are multiple transactions that take place during the year therefore, it is important to have a record of those transactions. Financial accounting helps internal and external stakeholders make better business decisions. Without financial accounting, decision-making can have a negative impact on the company’s performance. Here’s why the importance of financial accounting cannot be neglected.
Maintaining Financial Transactions
Every business needs to keep a record of the transactions it makes irrespective of its volume. Accounting uses a double entry system which means there are always two accounting entries for a transaction. A double entry system records both sides of a transaction which have two equal and opposite effects in at least two different accounts.
For example, if you purchase a machine in cash (for $10000), you debit machinery account and credit the cash account.
Get More Funding
When a bank issues a loan, it requires the financial statement to know whether the company is in a condition to repay the loan. Banks make sure that the company has repaid previous loans on time, their assets to liabilities ratio, and other important elements are considered before providing loans. Investors, on the other hand, look for what business the company is in, the profitability of the company, company’s competitors, company’s past earnings, what is the status of the company’s stock in the market, etc. Hence, financial accounting eases the process of getting loans and investments for your business.
Comparing Statements Between Two Financial Years
Financial statement of the current year can be compared with previous years. Small business owners can take a look at their figures for the year and identify the differences between the two. This helps to take better decisions for the future.
For example, you can compare the costs between the two financial years. If the costs of the current year are more, you need to determine ways to reduce the costs.
Fulfilling Tax Obligations
Maintaining books of accounts makes it easier to pay tax. The reason being, all bills, and other transactions are recorded and kept in one place. You do not need to make corrections at the last moment. Thus, an organized Balance Sheet, Cash Flow Statement and Profit and Loss Statement can benefit in planning tax returns.
Planning for the Future
Financial statements help to know where the company stands currently in terms of profitability. For example, reserves and surplus account tell you how much funds are available with the company. This helps you to know whether the company has sufficient funds to expand or diversify. Hence, financial accounting helps in making decisions for the future.
There are many more reasons why financial accounting is important, these are just a few. It is advisable to consider taking professional help if you have any doubts regarding your financial accounts or need any accounting tips to help you maintain your books. Financial accounting is a must for the smooth functioning of your business. You need to maintain the right books and make sure that the accounting is up to date.
Back to Blog
Accounting for business financial statements is a common function of all businesses. But ever wondered why your business needs financial statements? Whatever the type of your business, you need to be aware of its financial status on a regular basis. Apart from this, as a business owner, you need to comply with certain regulations and provide financial information as required by statutory and taxation authorities. These vital tasks can be obliged to by maintaining business financial statements. Financial statements allow you to analyze company status, make vital decisions, and oblige to requirements by taxing authorities. Hence, there are several reasons to maintain business financial statements. Here are a few.
Measuring Business Growth
As a business owner, it is your responsibility to keep a track of the business’ financial status. You must know where your company stands financially on a regular basis. Financial statements provide answers to questions like are you making profits, are there enough resources to fund your goals, are you meeting deadlines, are you achieving set targets, etc. It also helps you manage your income and expense efficiently. Without financial statements, you will have no control over the efficiency of business operations and financial management. Moreover, you may miss out on regulatory compliance and taxation benefits without proper maintenance of financial statements. Having regularly updated financial statements allows you to evaluate your financial condition, make strategic decisions and track growth and performance.
For Obtaining Funds
Another reason why up-to-date financial statements are necessary is funding and credibility. Businesses need funding from time to time. Lending institutions and banks refrain from funding companies who do not have updated financial statements. Moreover, statements full of debts and losses are not considered by funding institutions. Investors and shareholders also assess the management’s potential through financial statements. Having good credibility is especially important for small businesses seeking expansion. Good credibility equals market reputation and ease in securing funds. Well-maintained financial statements help you with effective finance management. This will help you increase credibility and secure funding.
Taxation and Compliance
Taxation is another vital function of every business. You need to oblige to tax requirements set by provincial and federal authorities. Financial statements are an essential part of your preparations for the tax season. The tax season includes calculating taxable income, identifying payable taxes, and potential deductions and credits. Tax calculations and deducting potential expenses become easier with updated financial statements. Moreover, you need to oblige to requirements set by statutory authorities like Canadian Revenue Agency (CRA). The CRA has specifically set out a requirement for corporations to produce financial statements. Hence, for an efficient tax season, reduce the tax burden, and regulatory compliance maintaining financial statements is necessary.
These reasons sum up the need for business financial statements. As a business owner, accounting for day to day transactions and maintaining financial statements on a daily basis is a task. It is best to outsource your accounting and bookkeeping to experts for efficient financial management.