by JunCTionS

Why You Need An Accountant

People are no longer looking for the bog-standard Accountant; they want one that can help, not only support, but grow their business as well. So; here are some reasons why you need an Accountant.

Pre-start-up business advice – An Accountant, or at least one with experience, can give you expert advice on all areas of starting a new business, from Tax advice, to how to kick-start your company, as well as forecasting your finances.
Give advice on raising finance – The way in which you finance your business has an important effect on profitability. An Accountant can advise you on such things as whether new equipment should be leased or purchased, whether it would be best to issue more shares, take out a loan or increase your overdraft, and how to invest any spare cash.
Give advice on running and managing a business – This is especially useful if you are a recently started business, or you are thinking of starting one. An Accountant can advise you on what would work best for you in your current situation, drawing on previous experience with clients in a similar position to yourself.
Look after the finances and tax – Good record keeping is an essential requirement for monitoring the financial health of your business. An Accountant will suggest the most efficient and practical way for you to keep your financial records in order. An Accountant will also do for you;
VAT Returns (If you’re registered for VAT)
Year-end Accounts, calculate how much tax & NI is owed
Minimise your business tax by making full use of                                                                                            your allowable expenses.
Handle any enquiries with HMRC on your behalf
Planning and managing growth – An Accountant will be able to help you grow your business, whilst cutting back on expenses. They can look at your financial records, and pinpoint exactly where you are spending too much money. Most Accountants would stop here, but if you find a really good one, they will also advise you how you can use this extra financing to grow your business.
Undertake annual audits – If your annual turnover is more than £5.6m, you are, by law, required to have a formal audit of your company finances. If your turnover is significant, but below this threshold, you may wish to enquire into what auditing services your Accountant offers; it can be beneficial to have a formal, independent, and un-biased review of your business.

by Nemo’s great uncle

The Basics of Accounting and Personal Finance

In today’s financial climate, personal fiscal responsibility is more important than ever.  Knowing how much money you have, the liquidity of your assets and being able to successfully manage you assets is essential.  However, it seems that these are not skills that our educational institutions place much value upon.  While math and science courses are staples and graduation requirements in our high school curricula, arguably more applicable personal finance courses are not.  Perhaps that is why many students are feeling increasingly unprepared to make the crucial financial decisions that they face upon graduation.  A key aspect of understanding personal finance is comprehending the basics of accounting.  Therefore, it is my opinion that at least one basic accounting course should be a requirement for all high school students.  Below I will briefly outline several basic concepts that should help give interested readers an overview of accounting.

The most fundamental tenet of accounting is the concept of debits and credits.  Every company (or individual) tracks their flow of assets and liabilities through the use of debits and credits.  When cash is involved in a transaction, a basic rule of thumb applies.  If the amount of cash on hand is increasing, then the cash account is “debited.”  Likewise, if the amount of cash on hand is decreasing, the cash account is “credited.”  It is that simple.  The concept of a “journal entry,” is also essential in understanding the mechanics of debits and credits.  Simply put, whenever a transaction takes place, a corresponding journal entry, or written record of the transaction must be completed.  Journal entries spell out in prose which account is being debited and which is being credited.  To further illustrate this concept, consider the following example:

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A business (Company D), purchases 20 tickets to a local sporting event at each for a grand total of 0.  Therefore Company D has spent 0 of its cash on hand.  Company D’s “Cash” account would be credited for 0.  Likewise, one of Company Ds “Expense” accounts would be debited for 0.  A corresponding journal entry would be written to notate this.  While this example has been greatly simplified, the conceptual aspect is sound.

Keeping track of your personal finances may only require a few entries per month, depending on the number of significant financial transactions you perform.  However, businesses are in a much different scenario.  Due to the scope of their operations and the sheer number of different accounts they maintain, it is vital they organize their transactions in an easy-to-view format.  The format of choice is a “T-account.”  A t-account looks just as its name may indicate – a “T.”  The name of the account serves as a header while debits occupy the left side of the “T” and credits occupy the right.  This allows auditors as well as company accountants to quickly find transactions and follow the flow of money throughout the company.  For every account that a company maintains, a corresponding t-account is created.

These t-accounts are then grouped into three major categories; “assets,” “liabilities,” and “stock holders’ equity.”  These categories make up a fundamental equation that all accountants must know; ASSETS = LIABILITIES + STOCK HOLDERS’ EQUITY.  Accounts that are grouped under the “assets” label include cash, accounts receivable and equipment.  Accounts payable, accrued expenses and wages payable are some of the “liability” accounts, while retained earnings and capital stock are the main “equity” accounts.

The final piece of the accounting puzzle for a company is the preparation of financial statements.  These statements are made up of every account and calculation that has been previously mentioned.  A balance sheet is specifically comprised of the “assets = liabilities + equity” equation.  An income statement contains information regarding the revenues and expenses of a company.  In short, every financial statement builds on the data contained in the previous one, just like accounts and journal entries are derived from each other.  If you are looking for visual examples of these statements, I highly recommend searching for them with “Google Images.”  While perhaps an obvious answer, a visual aid is often crucial in truly comprehending a subject.

In closing, I am hopeful that this overview has given you a basic understanding of some of the building blocks of accounting.  As I have demonstrated above, a basic grasp of accounting is essential, not only to understanding the functions of modern day businesses, but to understand personal finance as well.  Finally, if this piece has inspired any of you to seek out further education in the accounting field then I have fulfilled my purpose.

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