Back to Blog
A business can maintain either cash or accrual basis of accounting system. The difference between cash and accrual system is necessary to understand so that you can choose the right accounting system for your business. In the cash system, the entries are made in books only when either the money is received or spent. Whereas, in the accrual system, revenues are recorded even if cash has not been received or if expenses have been incurred but no cash payment has been made. Adjusting entries are used in accrual system of bookkeeping. These entries are used to convert a company's accounting records to the accrual basis of accounting. Here are few points that will help you answer the question, what are adjusting entries?
The Need for Adjusting Entries
What are adjusting entries? When do you need them? Well, accountants in Edmonton will say that you need adjusting entries in two situations. The two situations are:
Types of Adjusting Entries
Accountants in Edmonton will mention five types of adjusting entries. The types of adjusting entries are as follows:
As your business grows, cash based accounting won’t be the best option for you. Therefore, you would require accrual based accounting for which adjusting entries are important. For more information, make sure you get in touch with a professional bookkeeping firm in Edmonton. If you are unsure about adjusting entries, then accountants in Edmonton will assist you in analyzing your financial statements and prepare adjusting entries for you accordingly.
Back to Blog
An inaccurate record in bookkeeping can cost your company dearly. A silly mistake, such as entering an income which is not realized as yet, affects the profitability of the company. You may end up paying tax for an amount that you have not received. Apart from this, there are many such incidences which affect the smooth functioning of the company if you have inaccurate financial statements. Some of the dangers of an inaccurate financial reporting are as follows.
Incorrect financial position
One of the dangers of inaccurate financial reporting is that it reflects an incorrect report about your financial position. If an investor finds that the financial position of the company is unstable, he would not invest. This also happens in the case of getting loans from financial institutions. Thus, it affects the future plans of the company. Inaccurate financial statements, therefore, prevents a company from growing further.
Can cost the company
As mentioned earlier, an income which is not received and is recorded in the books shows an increase in profits. Similarly, underestimating profits can lead to penalties when an audit is conducted. Moreover, an error in miscalculating the number of years for depreciation of a fixed assets and expenses can result in payment of more taxes than you need to. Such dangers of inaccurate financial reporting can cost the company profits.
More tax payment
At times, due to inaccurate financial statements, you may not gain certain tax deductions that are applicable. For example, an expense on which tax deduction is applicable is lost in the process or not recorded leads you to payments of more taxes. If you had a professional accountant or an expert accounting firm who maintains your books, then such mistakes are avoided. The deduction may not seem too much, but if you are a small business, then it certainly affects your profitability
Negative brand image
When general public goes through your inaccurate financial statements, then it affects your brand image. Lack of professionalism and poor management are the common perceptions about such companies. Furthermore, people think that your company is manipulating the data and is unethical in its approach.
Affects the cash flows
Another common danger of inaccurate financial reporting is that it affects the cash flow of the business. Without a systematic bookkeeping format, it is difficult to know who owes you what amount. It becomes a time consuming process to organize and send the invoices. As a result, your business may end up receiving the amount at a much later time than the due date of receipt. This eventually affects the cash conversion cycle. So, your business may end up with fewer funds when payment to other parties or payments to your employees are due.
Therefore, now that you know the dangers of inaccurate financial reporting, you should maintain proper records. If you find it difficult or out of time to keep the records by yourself, get in touch with an expert accounting firm. Such firms will take good care of your records and you do not have to many any dangerous consequences.
Back to Blog
Maintaining correct records of your daily transaction is an essential task in any business organization. It is useful for managing finances, filing tax returns, and increasing profitability; to name a few. Therefore, it is critical to have an accounting system in your organization. If you do not have one, then it would be difficult to manage your finances and it can cause major problems for your business. Here are few bookkeeping tips that will assist you to keep your finance in order.
1. Separate Accounting for Business
One of the many basic accounting tips is to have a separate account for your business. Do not mix your personal and business expenses. At the same time, ensure you have a separate bank account for both. This will help you to avoid using business finances for personal use. It gives a clear understanding of the financial position of your business as well.
2. Keep an Accountant
In a small business, you may be able to manage your finances without much difficulty. However, as you begin to grow, it becomes burdensome to keep a track of each financial trail and transaction individually. This is when you should take the assistance of a professional to solve your problem. You can hire an accountant for your firm or ask a professional bookkeeping firm to prepare your accounts. A professional bookkeeping firm will also provide you with critical bookkeeping tips so that you can manage your accounts in an effective manner.
3. Plan Ahead
Planning on how you are going to use your finances in the future is another one of the numerous accounting tips you should not miss out on. When you plan your investments for the future, you can accordingly make arrangements in the present to have funds ready. Otherwise, a good opportunity may arise and you would not be in a position to utilize it. So planning is important. This also facilitates in figuring out ways to raise funds and the cost of capital. If you do not want to borrow funds, then you may think of increasing the revenue by increasing productivity, reducing costs or increasing the prices. It, therefore, helps you to keep your finances in order and use it when needed.
4. Conduct Periodic Review
Periodic review of the financial position of your company is critical. It acts as a control mechanism and avoids any deviation. Periodic reviews also give a clear understanding of how well the funds are being utilized, and if there is anything you can do better to get the maximum out of your business. An accountant or a professional bookkeeping firm will analyze your books well and provide you with accounting tips that will help you manage your funds better.
These were a few bookkeeping tips you would want to implement if you are a small business. Finances are the lifeline of any business. Therefore, a clear understanding of managing finances is critical. There are professional accountants who are well-versed in dealing with accounts and who will keep your finances in order. If you need any help, then it is advisable to consult a professional bookkeeping firm in Edmonton.