These days there are millions of businesses. Every business involves a good amount of accounting and bookkeeping. These are some of the main aspects of having a business. The aim of having a business is to attain profit and may be to some people respect and fame. There are different kinds of people who are into business some who actually are into what they are dealing with and some who are doing it just for the money. I would always say that if some one ever starts a business they should always like what they are doing and more than anything they should be passionate about it.
Every business needs a good accounting system. It is more important to spend money on the accounting system then anything else in a company or business. If there is no proper accounting system in the firm the business will know whether it is going in a profit or a loss. For the accounts to be in perfect order there has to be a chartered accountant or accountant who is seeing into the ups and downs of the company. He or she is the one who will tell you how much less or more the business needs to be increased or decreased or also he might have ways in which it can be monitored.
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The Federal Election was held in Australia on 21st of August 2010. During the rather boring election campaign there were questions raised by the major parties and everyone else for that matter, on how the elected government would go about accounting for the very large amounts of money they receive and spend. These people talk in billions of dollars. It is rather mind-boggling but the accounting system they use can also be applied to small business and personal finances.
Most households require some form of accounting to deal with their personal financial matters. You are probably aware of the saying that the only thing that is certain in this life is death and taxes. I think that it is fair to say that accounting affects the lives of everyone in some way in a modern society.
I have always thought of an accountant as someone who processed the financial data prepared for them and submitted my annual income tax return required by the Australian Taxation Office (ATO). Their value was measured by the amount of money they could magically retrieve from the ATO by minimizing the amount of tax I was required to pay. This view is shared by many who see accountants as nothing more than bookkeepers, ‘number crunchers’ or ‘bean counters’. Unfortunately accountants are not magicians and the reports they prepare must stand up to the scrutiny of the ATO. The accountant should therefore be perceived as a professional who is able to minimize income tax by applying his talent and know-how acquired through years of study and experience
The accounting must abide by the rules. There are no two ways about that. The terms of reference are spelt out in:
* Income Tax Assessment Act 1936 and 1997.
* Corporation Act 2001.
If the accountant fails to follow the laws made by our society, he/she will be punished. Accounting is a discipline and is extremely important to any financially healthy entity. Inadequate records normally accompanies business failure and in some cases bankruptcy. Accountants provide information to the owners and managers of a business or company so that appropriate decisions can be made on purchases and investments. This is achieved by processing records, interpreting these records and reporting the findings from these records to these decision-makers in monetary terms.
The role of the accountant is always changing due to legislation changes and technological developments. Accountants are spoilt for choice when choosing an area in which to specialize. There are many opportunities in private business, government bodies or institutions. Some examples of the career paths an accountant may choose to pursue include:
* Cost Accounting
* Management Advisory Services
* Financial Planning
* Forensic Accounting.
There are professional accounting associations available with entry qualifications and the aim of these associations is to keep its members up to date with new developments. In Australia the longest established associations are the:
* Institute of Chartered Accountants (ICA)
* CPA (formerly known as the Australian Society Of Accountants)
* The National Institute of Accountants (NIA) incorporating The Association Of Accounting Technicians (AAT).
These associations have had a significant effect on the development of accounting in Australia. Its members are expected to abide by the pronouncements made by these associations as good accounting practices. Members are also expected to undertake a certain amount of professional development each year as it is vital that accounting keeps pace with the needs of those it serves.
The increase in the size of organizations means that it is impossible for a manager to keep in touch with all that is going on. This is the reason for the development of the role of an accountant in a management team. The growth of collective ownership rather than individual ownership has meant that the function of the accountant has been extended to preparing financial reports for shareholders and people outside of the businesses they are involved in. Fortunately, computer technology has enabled the saving of a lot of time and energy and the production of more accurate and detailed information.
Accounting is continually affected by legislation, technology, economic conditions and professional associations. It is these changes that has molded this profession into the sometimes nerve racking but essentially rewarding profession it is today.
Analyzing or reading a balance sheet sounds like a rather intimidating job best left to bank managers and stock analysts. Here are some key points that should be able to help you read and understand a balance sheet properly. It is important to be familiar with this document as it a very important business tool.
Preparing Financial Statements that are Accurate
The first thing is that, it is necessary to procure accurate statements of finance for a business. This is not a simple task. Most business owners find that a major complaint they have is of incorrect balance sheets. Preparing accurate and precise statements of finance requires a fair amount of accounting knowledge.
How the Balance Sheet is read:
All balance sheets have a few main categories; equity, liabilities and assets. All this is actually very intuitive and logical. Whatever is owned by the business comes under assets. The obligations and debts of the company are included in liabilities, this category basically contains everything the company owes or has to pay. Any residual value is called equity. The liabilities and assets can be further divided into long term and short term categories.
These are a few examples of current assets (short-term): marketable securities, inventory, receivable accounts and cash. A few examples of assets (long term) are: equipment and plant, property, buildings, land, vehicles and equipment. Intangible assets would be trademarks and goodwill.
Current liabilities would be: payable accounts, unearned revenues, accrued wages, payable taxes and interest on loans. Liabilities (long term) would be: bonds payable and notes payable.
Under the equity section we have the following: retained earnings, net earnings and common stock. This section differs as it depends on the organization’s legal structure.
A vertical analysis is the best way of doing things if only one period is being discussed. Ratios are of great help while analyzing.