Saturday, February 27, 2010
Enron began in 1985 selling natural gas to gas companies and businesses. In 1996, energy markets were changed so that the price of energy could now be decided by competition among energy companies instead of being fixed by government regulations. With this change, Enron began to function more as a middleman than a traditional energy supplier, trading in energy contracts instead of buying and selling natural gas. Enron's rapid growth created excitement among investors and drove the stock price up. As Enron grew, it expanded into other industries such as Internet services, and its financial contracts became more complicated.
In order to keep growing at this rate, Enron began to borrow money to invest in new projects. However, because this debt would make their earnings look less impressive, Enron began to create partnerships that would allow it to keep debt off of its books. One partnership created by Enron, Chewco Investments (named after the Star Wars character Chewbacca) allowed Enron to keep $600 million in debt off of the books it showed to the government and to people who own Enron stock. When this debt did not show up in Enron's reports, it made Enron seem much more successful than it actually was. In December 2000, Enron claimed to have tripled its profits in two years.
In August 2001, Enron vice president Sherron Watkins sent an anonymous letter to the CEO of Enron, Kenneth Lay, describing accounting methods that she felt could lead Enron to "implode in a wave of accounting scandals." Also in August, CEO Kenneth Lay sent e-mails to his employees saying that he expected Enron stock prices to go up. Meanwhile, he sold off his own stock in Enron.
On October 22nd, the Securities and Exchange Commission (SEC) announced that Enron was under investigation. On November 8th, Enron said that it has overstated earnings for the past four years by $586 million and that it owed over $6 billion in debt by next year.
With these announcements, Enron's stock price took a dive. This drop triggered certain agreements with investors that made it necessary for Enron to repay their money immediately. When Enron could not come up with the cash to repay its creditors, it declared for Chapter 11 bankruptcy.
--Certification of financial reports by chief executive officers and chief financial officers
--Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
--A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
--Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
--Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.
Wednesday, February 24, 2010
The occupational fraud committed by employees usually involves the theft of assets. Embezzlement has been the most often committed fraud for the last 30 years. Employees may be involved in kickback schemes, identity theft, or conversion of corporate assets for personal use. The forensic accountant couples observation of the suspected employees with physical examination of assets, invigilation, inspection of documents, and interviews of those involved. Experience on these types of engagements enables the forensic accountant to offer suggestions as to internal controls that owners could implement to reduce the likelihood of fraud.
At times, the forensic accountant may be hired by attorneys to investigate the financial trail of persons suspected of engaging in criminal activity. Information provided by the forensic accountant may be the most effective way of obtaining convictions. The forensic accountant may also be engaged by bankruptcy court when submitted financial information is suspect or if employees (including managers) are suspected of taking assets.
Opportunities for qualified forensic accounting professionals abound in private companies. CEOs must now certify that their financial statements are faithful representations of the financial position and results of operations of their companies and rely more heavily on internal controls to detect any misstatement that would otherwise be contained in these financials.
In addition to these activities, forensic accountants may be asked to determine the amount of the loss sustained by victims, testify in court as an expert witness and assist in the preparation of visual aids and written summaries for use in court.
Monday, February 22, 2010
Well, there is something you should realize. Working from home while using a wireless local area network (WLAN) may lead to theft of sensitive information and hacker or virus infiltration unless proper measures are taken. As WLANs send information over radio waves, someone with a receiver in your area could be picking up the transmission, thus gaining access to your computer. They could load viruses on to your laptop which could be transferred to the company's network when you go back to work.
Believe it or not! Up to 75 per cent of WLAN users do not have standard security features installed, while 20 per cent are left completely open as default configurations are not secured, but made for the users to have their network up and running ASAP. It is recommended that wireless router/access point setup be always done though a wired client.
You can setup your security by follow these steps:
1. Change default administrative password on wireless router/access point to a secured password.
2. Enable at least 128-bit WEP encryption on both card and access point. Change your WEP keys periodically. If equipment does not support at least 128-bit WEP encryption, consider replacing it. Although there are security issues with WEP, it represents minimum level of security, and it should be enabled.
3. Change the default SSID on your router/access point to a hard to guess name. Setup your computer device to connect to this SSID by default.
4. Setup router/access point not to broadcast the SSID. The same SSID needs to be setup on the client side manually. This feature may not be available on all equipment.
5. Block anonymous Internet requests or pings. On each computer having wireless network card, network connection properties should be configured to allow connection to Access Point Networks Only. Computer to Computer (peer to peer) Connection should not be allowed.
Enable MAC filtering. Deny association to wireless network for unspecified MAC addresses. Mac or Physical addresses are available through your computer device network connection setup and they are physically written on network cards. When adding new wireless cards / computer to the network, their MAC addresses should be registered with the router /access point. Network router should have firewall features enabled and demilitarized zone (DMZ) feature disabled.
All computers should have a properly configured personal firewall in addition to a hardware firewall. You should also update router/access point firmware when new versions become available. Locating router/access point away from strangers is also helpful so they cannot reset the router/access point to default settings. You can even try to locate router/access point in the middle of the building rather than near windows to limit signal coverage outside the building.
There is no guarantee of a full protection of your wireless network, but following these suggested tips can definitely lessen your risk of exposing to attackers aiming at insecure networks.
Saturday, February 20, 2010
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant's work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases.
Forensic accounting involves looking beyond the numbers and grasping the substance of situations. It's more than accounting...more than detective work...it's a combination that will be in demand for as long as human nature exists. Who wouldn't want a career that offers such stability, excitement, and financial rewards?
In short, forensic accounting requires the most important quality a person can possess: the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person's chances of success in life, thus increasing a person's worth in today's society. Why not consider becoming a forensic accountant on the Forensic Accounting Masters Degree link on the left-hand navigation bar.
Friday, February 19, 2010
Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing.
Internal auditors verify the accuracy of their organization's internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing. Internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations. There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation. Internal auditors also may recommend controls for their organization's computer system, to ensure the reliability of the system and the integrity of the data.
Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation. Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.
Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.
To accomplish its mission, the FASB acts to:
--Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;
--Keep standards current to reflect changes in methods of doing business and changes in the economic environment;
--Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process;
--Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and
--Improve the common understanding of the nature and purposes of information contained in financial reports.
The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues. The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.
On the Internet, companies come in every size, too, from a stand-alone ebook sales page with webmaster and owner all in one, to 300 pound gorilla like Amazon, with over a million pages, who requires the entire population of a small country to serve as webmaster.
If your site is a single page, it is its own network. But if your site is any bigger, and you have plans to grow, it is a network or is fast becoming one. You need network monitoring.
Most ecommerce webmasters are at least somewhat familiar with website monitoring. Many use a website monitoring service or software to keep track of "uptime" and "downtime".
At your local shopping mall, serious business requires more than just knowing when the front doors are open and when they are closed. Serious ecommerce needs to know more than just when the site is accessible. That is what network monitoring is all about.
Chances are, your e-business owns one of the following, or uses one of the following remotely:
DNS servers: These are used to translate your site name, like www.URL.com, to the numbers called "IP addresses" that computers understand. If DNS servers are not working properly, end-users will not be able to find your site and will get an error. Usually only an external or remote monitoring service will detect such a problem.
An FTP server: File Transfer Protocol servers are used to help you
exchange files with remote users. If you use FTP, a monitoring
service can make sure it is always up and running.
POP3 and SMTP servers: These are used for exchanging emails. If you are using email, chances are you are using SMTP and POP3. If your SMTP server is down, everyone who sends you email will receive an error, stating that your mail server is down and cannot accept incoming email. To say that the impression this leaves your customers is bad would be an understatement. If your POP3 server is down, you will be unable to retrieve email from your mailbox. Once again, only external monitoring will prevent such a problem.
Firewalls: Many businesses use firewalls to protect their internal network from un-authorized traffic, such as spyware, viruses and sabotage by competitors. Furthermore, a firewall is your first line of defense. If your firewall goes down, your whole network may actually become inaccessible from outside. In other words, if you host your own web site and mail servers, those will become
inaccessible to the outside world if your firewall goes down. Once again, remote network monitoring is required to detect that a problem exists and quickly get it repaired.
Internet connections: Users come to your network from multiple backbones, depending on the company they use to connect to the Internet and their location. It is important to insure that your connection performs well for each user. A remote monitoring service can ping your networks from multiple locations around the world, thus testing most major routes to your web server or network. Before hiring a network monitoring service, check to see that they have both your customer geography and the Internet backbone layout covered.
Very few websites of any size and functionality are anything less than a complete network, and many networks rely on servers in different parts of the world.
A good network monitoring service can ensure, as a base, that all servers are properly functioning, that data can be sent to and received from each server, and that each function sharing the server responds as required. An advanced network monitoring service can even remotely monitor the temperature of your servers.
What you need to monitor depends on how extensive your network is. A network monitoring expert can help you determine what needs monitoring. If you own the servers, or are remotely hosted on dedicated servers, you most likely need everything monitored. If your site is hosted on shared servers, you might need fewer functions monitored.
Wednesday, February 17, 2010
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems. Here are the steps you should take:
* Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
* Remember that lost profits can't be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month profits are too low is a month that is gone forever.
* Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
* Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
* Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them.
Tuesday, February 16, 2010
All versions of Quasar offer comprehensive inventory controls. In its most basic use, the inventory module allows a business owner to track the locations and quantities of all inventory items. Additionally, the inventory capabilities go beyond simple record-keeping. Manufacturers and wholesalers can assemble kits using component items; whenever a kit is assembled, the inventory representing its component items are adjusted accordingly. Items can be grouped into various categories and the groups can be nested many levels deep. Vendor purchase orders can be generated for items whose quantities are below a preset level. Costs and selling prices for items can be set and discounted in a myriad of different ways. Finally, these items can be reported upon to show such things as profits, margins, and sales per item.
Sales and purchasing are another strength of Quasar. Customer quotes can be easily converted to invoices to be paid. Promotions can be created and discounts can be given based on date, customer, or store location. Margins can be reported upon for traits such as individual items, individual customers, or individual salesperson. Likewise, a purchase order can be created and converted to a vendor invoice, which can be paid in a number of different ways, including printing a check. Quasar can keep track of miscellaneous fees such as container deposits, freight charges, and franchise fees.
The intelligent design of Quasar's user interface allows for quick and easy data entry. Some programs you may encounter are not optimized for keyboard use. These programs require you to move your hand to the mouse to select frequently needed options. While some of Quasar's menu options are only mouse-accessible, the bulk of Quasar's user interface is designed in such a way that you can keep you hands on the keyboard by using special shortcuts. This allows for faster data entry, which can save time (and therefore money) in the long run.
Monday, February 15, 2010
Realizing that your business needs a savings plan is the first step toward better management. The reasons for growing a financial nest egg are strong. Building savings allows you to plan for future growth in your business and have ready the investment capital necessary to launch those plans. Having a source of back-up income can often carry a business through a rough time.
When market fluctuations, such as the dramatic increase in gasoline and oil prices, start to affect your business, you may need to dip into your savings to keep operations running smoothly until the difficulties pass. Savings can also support seasonal businesses with the ability to purchase inventory and cover payroll until the flush of new cash arrives. Try to remember that you didn't build your business overnight and you cannot build a savings account instantly either.
Review your books monthly and see where you can trim expenses and reroute the savings to a separate account. This will also help to keep you on track with cash flow and other financial issues. While it can be quite alarming to see your cash flowing outward with seemingly no end in sight, it's better to see it happening and put corrective measures into place, rather than discovering your losses five or six months too late.
Sunday, February 14, 2010
The biggest concern seems to come with the ability to search and share multiple computers with one account. In other words, you could use a single desktop search account to search, index and allow you to share files between your desktop and laptop for example.
But are these concerns grounded in truth? Is there really a privacy issue here?
I downloaded and installed the new Desktop Search beta the other day. It has some interesting new features such as the ability to remove panels from the sidebar and dock them anywhere you like on your desktop.
And there are several more panels available to let you do anything from manage what is indexed, to passing time by playing games.
One of the coolest features is its ability to reach beyond the desktop it is on to do a variety of things. Now, I can play tic tac toe with co-workers, or even friends around the world.
But the biggest, and most troubling update to some is the ability to remotely index files, as well as share them using Google servers to temporarily store the items.
By turning this feature on you give Google the right to store your files for up to 30 days. Therein lies the crux of the issue – there seems to be no way around this 30 day requirement.
All I have to say is 'so what?'
So what if you have to give Google this ability? Google will encrypt the data so that no one else can access it. And even if there is some sort of DOJ subpoena requiring access to these files I don't think it would stand up in court.
This is because Google has set up a network whereby all your Google activities are tied to one Google account. Your personalized home page, gmail, google analytics, adwords and adsense accounts all share the same Google account. Therefore, it would be difficult for anyone to get a subpoena to review information pertaining to only part of that account.
Legalities aside, if you are that concerned about the privacy being surrendered to Google in order to use this system then don't sign up for it.
You can still download and use the new Desktop Search with most of its new features, but you don't have to use the file sharing.
But what if you want to share files between computers?
Well, do what I did – go to your favorite electronics store and buy a flash drive. I just bought a USB flash drive with over 2 gigs of storage for under $100. Now I can easily transfer anything between any computer with no worry of some government agency wanting to know what's on it.
As I said, I do have the new Google Desktop installed, and I did look at the settings for the search and file sharing, but I didn't turn them on. I have no need to be able to search my home computer from work and vice versa, nor do I need to share files between the two computers.
And if I did, I'll simply use the FTP site I have set up on a computer at home or the aforementioned flash drive.
Really, when it comes to all the other ways that Google captures your personal data, from search history to Gmail, should we be all that concerned that some files may end up being stored on a Google server somewhere?
I think we should have other concerns. For example, I think we should be concerned about what Google already knows about us via those services I mentioned earlier.
I think business owners should be concerned that such a service would allow employees to easily steal and transfer data to and from work.
I think if you are that scared of the US government infringing on your privacy then you shouldn't have a Google account, nor Google Desktop Search nor a Gmail account. In fact I don't think you should have any Internet accounts because quite honestly everyone is a target for the DOJ. Further, I can almost guarantee you that your local ISP will fold and hand over the data much easier than Google will.
So before you start complaining about how Google could infringe your privacy, remember that YOU have the ability to stop it from happening. It's just a matter of choosing to do so.
With proliferation of wireless networking and communication equipment it is oh-so-tempting to cut the cord and save a significant sum of money in the process. But is everything that a regular computer networking user needs can be done using just wireless network? Let’s take a look at some pros and contras:
1. One important advantage of having a cabled network is the available bandwidth or simply speed. At the present point in time the speed of connection via a simple and inexpensive CAT5E cable can be 1000Mbit/sec, whereas the best that IEEE802.11g (one of the many flavors of Wi-Fi) can offer is only 54Mbit/sec. It may not seem so significant if you think you are only browsing Internet, and the DSL speed available to you is 1.5Mbit/sec. However, if you need to print via your network connection on a remote printer, you should realize that the print jobs, depending on the amount of graphic data in them, can easily reach dozens and even hundreds megabytes. Since 1Byte=8bit one 100MByte print job will take 15 seconds (and in reality this time can be much longer) to transmit via a Wi-Fi wireless connection, and this time shrinks to mere 1 sec or less on wired 1000MBit/s Ethernet connection. Same principal applies to transferring files, backing up files on other computers in the network etc.
2. It is not possible today and with all probability will not be possible in the future to transmit power needed for your networking device via the wireless link. Unless, of course, you would be willing to be subjected to very high levels of microwave radiation. Thus a device that was marketed to you as “un-tethered” will in fact be very much tethered via the power cord or will have to be re-charged every so often. The power requirements are increasingly important for devices that are expected to be always online, such as phone sets. Therefore it is best to have it connected via a cable that can deliver both power and the communication signal at the same time.
3. Wireless communications are very much proprietary and require whole gamut of conversion equipment to transmit multi-media signals. The same CAT5E cable can without any modification support phone, computer network, balanced line level audio signal, baseband video signal as well as host of other, more specialized, control applications’ signals. With inexpensive adapters called “baluns” the same cable can carry significant number of channels of broadband television or carry a baseband video, such as security camera output, through great distances. All of those applications, except the computer network of course, will require specialized expensive conversion equipment if they needed to be transmitted via a Wi-Fi link.
4. The cost benefit of not running wires around the house is not as simple as issue as it seems. Having installed a wireless network at home you have only eliminated the need to wire for a single application – computer network. A modern home, however, requires all kinds of wiring to run even without regard to computers. The power and phones are obvious examples, as well as thermostats and security systems. Pre-wired speakers are common and most homes today have intercom systems as a desirable option, and those also require extensive wiring. It is very likely that the same contractor running the intercom or security cables is qualified to run computer cables – CAT5E or better. If you are building a home, you should definitely check if computer cabling option is available in your new home, and our advice is to go ahead and purchase it before the walls close. It is going to be a pretty involved and expensive procedure to install the cables later. As an added cost benefit of a wired computer network you will find that all modern computers ship with wired Ethernet network interface card included, and the latest models ship with 1000MBit/sec cards that are essentially free for the computer’s owner.
There are multiple sources of information available on proper planning and design of a residential cabling for voice, data, audio, video and other applications. One of the best sources is the TIA/EIA-570B standard, most resent release of which has been published in 2004. The standard outlines recommended types of the cables, principals of cable distribution in a single- and multi-dwelling units as well as recommended amount of cables to be installed based on the size of the house.
In conclusion, cutting the wire seems like a step forward, some sort of liberation of computer from the bonds of the infrastructure. I would caution the reader, however, to take a more balanced and informed approach before joining the wireless revolution. There are still (and will remain in foreseen future) sound reasons to include properly designed cabling system into the list of your dream home options.
Having wireless internet on your laptop allows the user to conduct their business in a timely and easy manner. Having a wifi internet connection on the laptop for example, makes conducting business much easier. It is becoming increasingly popular as well. Being able to connect to the internet while traveling allows the user to check emails constantly and therefore keep contacts, to have access to information like checking figures, and enhance their productivity. To be able to connect to the internet using a laptop, the computer must have the wireless capability to connect to a router. It is imperative that the laptop must have the right network card with a WiFi connector. There are many public spaces that allow for WiFi connections in every western city. The quality of the connection differs from place to place since it depends on a variety of factors. In general, the quality of the connection depends on the quality of the wireless signal that your laptop receives. Being closer or further from the source of the signal in the end will determine the strength and therefore the quality and possibly the speed of your connection. A WiFi network allows for constant connectivity in all hours of the day and every day of the week.
Currently, computer and consequently laptop manufactures are investing time and money in enhancing their products networking capabilities and speeds. In the past few years, wireless connectivity has come a long way in terms of quality and strength. When the portable computers were introduced a few years back the notion of the mobile network already existed. Nevertheless, it was not perfected and had many flaws. Over the years however, wireless capabilities have expanded, they have been bettered allowing for greater connectivity, stronger networks, and higher productivity. As a result, and due to the constant technological advancements, laptop users these days can buy the computer and never have to worry about finding a modem, or a router or those inconvenient cables. Just turn on the computer and start surfing the web. Due to the increasing popularity o wireless internet public spaces have been accommodating for this new trend. Public libraries, airports, or even specific businesses provide wireless internet for their customers. In many city centres in North America, there are so many wireless networks functioning at the same place that it is virtually impossible not to find an internet connection to log on to. The only down side to wireless computing is that it might be associated with health risks that we are not yet aware of. Overall, however wireless computing is the way to go for the business professional, the student or every other avid computer user.
Saturday, February 13, 2010
Like individuals, companies at times have to finance its acquisitions when its internal cash flow isn't enough to finance business growth. financing refers to a business raising capital from debt and quity sources, by borrowing money from banks and other sources willing to loan money to the business and by its owners putting additional money in the business. The term also includes the other side, making payments on debt and returning capital to owners. it includes cash distributions by the business from profit to its owners.
Most business borrow money for both short terms and long terms. Most cash flow statements report only the net increase or decrease in short-term debt, not the total amounts borrowed and total payments on the debt. When reporting long-term debt, however, both the total amounts and the repayments on long-term debt during a year are generally reported in the statement of cash flows. These are reported as gross figures, rather than net.
Thursday, February 11, 2010
Part of the total sales revenue of a business includes recover of cost invested in its fixed assets. In a real sense a business sells some of its fixed assets in the sales prices that it charges it customers. For example, when you go to a grocery store, a small portion of the price you pay for eggs or bread goes toward the cost of the buildings, the machinery, bread ovens, etc. Each reporting period, a business recoups part of the cost invested in its fixed assets.
It's not enough for the accountant to add back depreciation for the year to bottom-line profit. The changes in other assets, as well as the changes in liabilities, also affect cash flow from profit. The competent accountant will factor in all the changes that determine cash flow from profit. Depreciation is only one of many adjustments to the net income of a business to determine cash flow from operating activities. Amortization of intangible assets is another expense that is recorded against a business's assets for year. It's different in that it doesn't require cash outlay in the year being charged with the expense. That occurred when the business invested in those tangible assets.
Depreciation applies only to fixed assets that you actually buy, not those you rent or lease. Depreciation is a real expense, but not necessarily a cash outlay expense in the year it's recorded. The cash outlay does actually occur when the fixed asset is acquired, but is recorded over a period of time.
Depreciation is different from other expenses. It is deducted from sales revenue to determine profit, but the depreciation expense recorded in a reporting period doesn't require any true cash outlay during that period. Depreciation expense is that portion of the total cost of a business's fixed assets that is allocated to the period to record the cost of using the assets during period. The higher the total cost of a business's fixed assets, then the higher its depreciation expense.
the prepaid expenses asset account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in prepaid expenses are usually much smaller than changes in those other two asset accounts.
The beginning balance of prepaid expenses is charged to expense in the current year, but the cash was actually paid out last year. this period, the business pays cash for next period's prepaid expenses, which affects this period's cash flow, but doesn't affect net income until the next period. Simple, right?
As a business grows, it needs to increase its prepaid expenses for such things as fire insurance premiums, which have to be paid in advance of the insurance coverage, and its stocks of office supplies. Increases in accounts receivable, inventory and prepaid expenses are the cash flow price a business has to pay for growth. Rarely do you find a business that can increase its sales revenue without increasing these assets.
The lagging behind effect of cash flow is the price of business growth. Managers and investors need to understand that increasing sales without increasing accounts receivable isn't a realistic scenario for growth. In the real business world, you generally can't enjoy growth in revenue without incurring additional expenses.
Wednesday, February 10, 2010
An accounts receivable asset shows how much money customers who bought products on credit still owe the business. It's a promise of case that the business will receive. Basically, accounts receivable is the amount of uncollected sales revenue at the end of the accounting period. Cash does not increase until the business actually collects this money from its business customers. However, the amount of money in accounts receivable is included in the total sales revenue for that same period. The business did make the sales, even if it hasn't acquired all the money from the sales yet. Sales revenue, then isn't equal to the amount of cash that the business accumulated.
To get actual cash flow, the accountant must subtract the amount of credit sales not collected from the sales revenue in cash. Then add in the amount of cash that was collected for the credit sales that were made in the preceding reporting period. If the amount of credit sales a business made during the reporting period is greater than what was collected from customers, then the accounts receivable account increased over the period and the business has to subtract from net income that difference.
If the amount they collected during the reporting period is greater than the credit sales made, then the accounts receivable decreased over the reporting period, and the accountant needs to add to net income that difference between the receivables at the beginning of the reporting period and the receivables at the end of the same period.
Tuesday, February 9, 2010
Profit making activities are reported in the income statement; financing and investing activities are found in the statement of cash flows. In other words, two different financial statements are prepared for the two different types of transactions. The statement of cash flows also reports the cash increase or decrease from profit during the year as opposed to the amount of profit that is reported in the income statement.
The balance sheet is different from the income and cash flow statements which report, as it says, income of cash and outgoing cash. The balance sheet represents the balances, or amounts, or a company's assets, liabilities and owners' equity at an instant in time. The word balance has different meanings at different times. As it's used in the term balance sheet, it refers to the balance of the two opposite sides of a business, total assets on one side and total liabilities on the other. However, the balance of an account, such as the asset, liability, revenue and expense accounts, refers to the amount in the account after recording increases and decreases in the account, just like the balance in your checking account. Accountants can prepare a balance sheet any time that a manager requests it. But they're generally prepared at the end of each month, quarter and year. It's always prepared at the close of business on the last day of the profit period.
In other circumstances, a business might decide to discontinue certain product lines. Western Union, for example, recently delivered its very last telegram. The nature of communication has changed so drastically, with email, cell phones and other forms, that telegrams have been rendered obsolete. When you no longer sell enough of a product at a high enough profit to make the costs of manufacturing it worthwhile, then it's time to change your product mix.
Lawsuits and other legal actions can cause extraordinary losses or gains as well. If you win damages in a lawsuit against others, then you've incurred an extraordinary gain. Likewise if your own legal fees and damages or fines are excessive, then these can significantly impact the income statement.
Occasionally a business will change accounting methods or need to correct any errors that had been made in previous financial reports. Generally Accepted Accounting Procedures (GAAP) require that businesses make any one-time losses or gains very visible in their income statement.
The accountant records the sales revenue and the cost of goods sold for these sales in the year in which the sales were made and the products delivered to the customer. This is called accrual based accounting, which records revenue when sales are made and records expenses when they're incurred as well. When sales are made on credit, the accounts receivable asset account is increased. When cash is received from the customer, then the cash account is increased and the accounts receivable account is decreased.
The cost of goods sold is one of the major expenses of businesses that sell goods, products or services. Even a service involves expenses. It means exactly what it says in that it's the cost that a business pays for the products it sells to customers. A business makes its profit by selling its products at prices high enough to cover the cost of producing them, the costs of running the business, the interest on any money they've borrowed and income taxes, with money left over for profit.
When the business acquires products, the cost of them goes into what's called an inventory asset account. The cost is deducted from the cash account, or added to the accounts payable liability account, depending on whether the business has paid with cash or credit.
Monday, February 8, 2010
Everyone knows profit is a good thing. It's what our economy is founded on. It doesn't sound like such a big deal. Make more money than you spend to sell or manufacture products. But of course nothing's ever really simple, is it? A profit report, or net income statement first identifies the business and the time period that is being summarized in the report.
You read an income statement from the top line to the bottom line. Every step of the income statement reports the deduction of an expense. The income statement also reports changes in assets and liabilities as well, so that if there's a revenue increase, it's either because there's been an increase in assets or a decrease in a company's liabilities. If there's been an increase in the expense line, it's because there's been either a decrease in assets or an increase in liabilities.
Net worth is also referred to as owners' equity in the business. They're not exactly interchangeable. Net worth expresses the total of assets less the liabilities. Owners' equity refers to who owns the assets after the liabilities are satisfied.
These shifts in assets and liabilities are important to owners and executives of a business because it's their responsibility to manage and control such changes. Making a profit in a business involves several variable, not just increasing the amount of cash that flows through a company, but management of other assets as well.
Saturday, February 6, 2010
You balance your checkbook to note any charges in your checking account that you haven't recorded in your checkbook. Some of these can include ATM fees, overdraft fees, special transaction fees or low balance fees, if you're required to keep a minimum balance in your account. You also balance your checkbook to record any credits that you haven't noted previously. They might include automatic deposits, or refunds or other electronic deposits. Your checking account might be an interest-bearing account and you want to record any interest that it's earned.
You also need to discover if you've made any errors in your recordkeeping or if the bank has made any errors.
Another form of accounting that we all dread is the filing of annual federal income tax returns. Many people use a CPA to do their returns; others do it themselves. Most forms include the following items:
Income - any money you've earned from working or owning assets, unless there are specific exemptions from income tax.
Personal exemptions - this is a certain amount of income that is excused from tax.
Standard deduction - some personal expenditures or business expenses can be deducted from your income to reduce the taxable amount of income. These expenses include items such as interest paid on your home mortgage, charitable contributions and property taxes.
Taxable income - This is the balance of income that's subject to taxes after personal exemptions and deductions are factored in.
Bookkeepers perform all manner of record-keeping tasks. Some of them include the following:
-They prepare what are referred to as source documents for all the operations of a business - the buying, selling, transferring, paying and collecting. The documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.
-Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.
-Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they're as error-free as possible.
-The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.
-The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized.
Friday, February 5, 2010
It's the job of the accounting and finance professionals to assess the profits and losses of a company. They have to know what created both and what the results of both sides of the business equation are. They determine what the net worth of a company is. Net worth is the resulting dollar amount from deducting a company's liabilities from its assets. In a privately held company, this is also called owner's equity, since anything that's left over after all the bills are paid, to put it simply, belongs to the owners. In a publicly held company, this profit is returned to the shareholders in the form of dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that's left over is profit. It's not derived from one element or another. Net worth is determined after all the liabilities are deducted from all the assets, including cash and property.
Showing a profit, or a positive figure on the balance sheet, is of course the aim of every business. It's what our economy and society are built on. It doesn't always work out that way. Economic trends and consumer behaviors change and it's not always possible to predict these and what income they'll have on a company's performance.
One of the primary milestones in any accountant's career is to become a Certified Public Accountant or CPA. To become a CPA you have to go to college with a major in accounting. You also have to pass a national CPA exam. There's also some employment experience required in a CPA firm. This is generally one to two years, although this varies from state to state. Once you satisfy all those requirements, you get a certificate that designates you as a CPA and you're allowed to offer your services to the public.
Many CPAs consider this just one stepping stone to their careers. The chief accountant in many offices is called the controller. The controller is in charge of managing the entire accounting system in a business stays on top of accounting and tax laws to keep the company legal and is responsible for preparing the financial statements.
The controller is also in charge of financial planning and budgeting. Some companies have only one accounting professional who's essentially the chief cook and bottle washer and does everything. As a business grows in size and complexity, then additional layers of personnel are required to handle the volume of work that comes from growth. Other areas in the company are also impacted by growth, and it's part of the controller's job to determine just how many more salaries the company can pay for additional people without negatively impacting growth and profits.
The controller also is responsible for preparing tax returns for the business; a much more involved and complex task than completing personal income tax forms! In larger organizations, the controller can report to a vice president of finance who reports to the chief financial officer, who is responsible for the broad objectives for growth and profit and implementing the appropriate strategies to achieve the objectives.
Well, one thing they do that's terribly important to everyone working there is Payroll. All the salaries and taxes earned and paid by every employee every pay period have to be recorded. The payroll department has to ensure that the appropriate federal, state and local taxes are being deducted. The pay stub attached to your paycheck records these taxes. They usually include income tax, social security taxes pous employment taxes that have to be paid to federal and state government. Other deductions include personal ones, such as for retirement, vacation, sick pay or medical benefits. It's a critical function. Some companies have their own payroll departments; others outsource it to specialists.
The accounting department receives and records any payments or cash received from customers or clients of the business or service. The accounting department has to make sure that the money is sourced accurately and deposited in the appropriate accounts. They also manage where the money goes; how much of it is kept on-hand for areas such as payroll, or how much of it goes out to pay what the company owes its banks, vendors and other obligations. Some should also be invested.
The other side of the receivables business is the payables area, or cash disbursements. A company writes a lot of checks during the course of year to pay for purchases, supplies, salaries, taxes, loans and services. The accounting department prepares all these checks and records to whom they were disbursed, how much and for what. Accounting departments also keep track of purchase orders placed for inventory, such as products that will be sold to customers or clients. They also keep track of assets such as a business's property and equipment. This can include the office building, furniture, computers, even the smallest items such as pencils and pens.
If GAAP are not the principles used for preparing financial statements, then a business needs to make clear which other form of accounting they're used and are bound to avoid using titles in its financial statements that could mislead the person examining it.
GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.
GAAP are not cut and dried, however. They're guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.
As an example, a company's accountants periodically measure the profit and loss for a month, a quarter or a fiscal year and publish these results in a statement of profit and loss that's called an income statement. These statements include elements such as accounts receivable (what's owed to the company) and accounts payable (what the company owes). It can also get pretty complicated with subjects like retained earnings and accelerated depreciation. This at the higher levels of accounting and in the organization.
Much of accounting though, is also concerned with basic bookkeeping. This is the process that records every transaction; every bill paid, every dime owed, every dollar and cent spent and accumulated.
But the owners of the company, which can be individual owners or millions of shareholders are most concerned with the summaries of these transactions, contained in the financial statement. The financial statement summarizes a company's assets. A value of an asset is what it cost when it was first acquired. The financial statement also records what the sources of the assets were. Some assets are in the form of loans that have to be paid back. Profits are also an asset of the business.
In what's called double-entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to show a higher amount of assets to offset the liabilities and show a profit. The management of these two elements is the essence of accounting.
There is a system for doing this; not every company or individual can devise their own systems for accounting; the result would be chaos!
Thursday, February 4, 2010
No matter what business you're in, even if all you do is balance a checkbook, that's still accounting. It's part of even a kid's life. Saving an allowance, spending it all at once - these are accounting principles.
What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it's a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.
Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their business. Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you're smart. Not doing so can mean anything from a bounced check or posting a loss to a company's shareholders. Both scenarios can be equally devastating.
Accounting is basically information, and this information is published periodically in business as a profit and loss statement, or an income statement.