Just-in-Time processing is a method used to produce products with high quality, low cost, and instant availability inventory. The method focuses on reducing time, cost, and removing poor quality products. The just-in-time are used by manufacturing companies that use raw materials to create a finished product.
The benefit of using Just-in-Time method reduces inventory, lead time, and setup time. It also improves product-oriented layouts, employee involvement, zero defects results, and supply chain management.
Reason why a company would change their manufacturing method is to increase their margins, increase productivity, and help them scale to produce more products dependent on demand.
Structuring is a method used to deposit large amount of cash into a bank account over time. Banks are required to notify the IRS when cash deposit is over $10,000.00.
It’s only illegal if you made the intent to deposit cash under $10,000.00 over a period of time to not get notice to be review for making large amount of cash deposit.
The purpose of this law is to stop illegal activities that make money and try to launder the money under companies that operate on a cash basis.
Example of companies that are cash basis instead of accrual are convenient stores, laundromats, or companies that decided to only handle cash transaction.
If your company get paid over $10,000.00 with one single payment. You will need to file for form 8300 to the IRS.
It is suggested to file form 8300 within 24 hours to the IRS to not get into a dispute of accusation for structuring.
The IRS can seize your money without arresting you, charging you, and being found not guiltily. Getting your money will be hard to get especially as a small business owner.
When your company has future operation that require purchases before the plan of operation is executed on the date that occurs in the month.
Putting in the prepaid expense on the balance sheet is the account you want to choose so it does not occurring in the month you purchase on the profit and lost statement.
Examples of transaction that would go into prepaid expense is:
When someone say that the number are in the black. It means that they have made a net profit in their income statement. This is what owner, managers, and investor would like to hear when they are talking about a company performance.
When someone say that the number are in the red. It means that they have made a net loss in their income statement. This is the opposite of black and is awful to hear when reports come out. This can be an issue that need to be address with spending and revenue.
Goodwill account is found on the balance sheet of a company because goodwill is considered an intangible asset. This means that money was spent to build a company reputation or its brand popularity. This happen when a company buys another company that is higher than the fair market value. The process usually happen when there is a merger and acquisitions between two companies.
A trial balance report is a document you use to check against your balance sheet and profit and loss statement match.
The trial balance adds up all of your debits and credits that both should have the same total amount at the bottom line.
If your balance sheet or profit and loss statement doesn’t match the trial balance report. There was a transaction or journal entry that was entered incorrectly.
The trial balance is used at the end of the fiscal year when you are closing out reports to be finalize. They are also used by auditors when they look at your company books.
Benefits of running a trial balance report is that it keeps your records accurate and catch mistakes that were made during the operation year.
When mistakes are found. All you have to do is go back to that transaction and correct it with an adjusted journal entry.
When human emotion come into play with budgeting for a new year. We can cause ourselves to make the budget to tight or loose. Also can create objectives that conflict with your goals that you are trying to achieve in the future.
When budget are set too tight. The goals are viewed unrealistic and unachievable, which, may cause discouragement. Setting a high goals is productive, but you don’t want to set it up to where you fail when setting a budget. Budget are meant to keep you in control of your future plans and strive to accomplish with the resources you have for the moment.
When budget are set too loose. The goals is attain easily creating the feeling of undesirable time wasted because it was not challenging and not satisfy with the time put in.
When goals conflict with you budget. It can become counter intuitive since your trying to achieve a goal in a different approach with your limited resources. For example, you decided to cut your car expense by using public transportation. Doing this will save you money on gas, insurance, and maintenance cost. The trade-off is that you have to be dependent on others for your transportation. It might take up more of your time to get the bus or train since you have to wake up earlier. There might be delays. Also you might need to attend meeting and other activities that are unplanned and might not make on time because of the schedule buses and trains have. If the results you are not getting for the change then you might to take another approach that will help achieve your goals from the budget you set up for yourself.
Insolvency is when a person or company can't meet their financial obligation to pay their bills on time.
When debt gets behind for the person or company; they would have likely had unforeseen expense, not handle cash properly, and made a mistake on cash flow projection.
When the person or company realize that bills will be past due. They have now became insolvent.
When this occur the best option to be upfront with your lenders and vendors of the situation.
It is better to be transparent with the people you do business with to keep goodwill in the relationship.
They can arrange a better way to adjust the debt to make it less of burden for you to pay off quickly in the long run. Short run they will have to wait to get paid.
Most people in business understand that hardship in finance happen. If you been paying bill consistently in the past. They will give you the time for you to turn your situation around to make payment on the debt.
Some might be reluctant, but will have to accept that cash will not be received any time soon.
Insolvency doesn't mean bankruptcy, but usually that is the path a person or company goes if the debt can't be paid off.
When the accounting period ends, some of the account balances in the ledger are reported in the financial statement without change. But there are accounts that required to be updated monthly, quarterly, or yearly depending on the nature of the transaction.
There four basic accounts that are require adjustment with journal entries:
1. Prepaid Expense: are advance payment of future expenses and are recorded as assets when cash is paid. It becomes expense over time or during normal operation.
2. Unearned Revenue: are advance receipt of future revenues and are recorded as liabilities when cash is received. Unearned revenue becomes earned revenue over time or during normal operations.
3. Accrued Revenue: are unrecorded revenues that have been earned and for which cash has yet to be received.
4. Accrued Expense: are unrecorded expenses that have been incurred and for which cash has yet to be paid.
Updating the account will keep the financial reports current with revenue and expenses during statement review.
A good way to make sure that all of the adjustment are done is by using the memorizing feature in QuickBooks. This helps make the process faster for adjustment and remind you of all the journal entries that need to be completed.
Suspense account in the books of an organization in which items are entered temporarily before allocation to the correct or final account.
The suspense account is used because the proper account could not be determined at the time that the transaction was recorded.
A suspense account is normally located in the general ledger. Any amount that is posted to the suspense account should be there on a temporary basis only, as this amount needs to be investigated and posted to the correct account.
Most accounting systems contain a suspense in their chart of accounts, but this is something that you should avoid using unless there are no other options.
Deferred Revenue is when a customer pays for services or goods in advance. They work has not been performed, but will be done a later date that is set by the business owner and customer.
Since the company has received payment, but has not done the work. The cash received is a liability on the balance sheet under deferred revenue.
The cash in deferred revenue is recorded as a sale only after the work has been done. The amount would be deducted from deferred revenue on the balance sheet and recorded as a sale in the profit and lost statement for the month that the work was done.
This helps keep sales accurate for company that received payments earlier than expected.
An issue with deferred revenue can be that you spend the money before doing the work. If the customer decided to cancel the service or good. The money would need to be paid back and if the money is already spent. This can cause cash flow issue in the business operation.
Two factors can go wrong that makes manager and companies do unethical practices.
1. Failure of Individual Character:
An ethical manager and accountant is honest and fair. However, mangers and accountants often face pressures from supervisors to meet company and investor expectations. In many cases, manager and accountant justify small ethical violations to avoid such pressure. These small ethical violations can build up to big violations as the company financial problem start to emerge.
2. Culture of Greed and Ethical Indifference:
By their behavior ad attitude, senior mangers set the company culture. Senior mangers create the culture that is influence through out the organization. If the senior manager is corrupt by greed and indifference. There influence will set the tone of behavior with there coworkers in the workplace.
Reconciliation Discrepancy is a transaction that has been deleted or altered after the account for the month, quarter, or year has been reconcile (closed).
Usually the discrepancy occurs when the withdraws and deposits in the accounting system match the bank account withdraws and deposits and the balance of difference is still off.
This should be an indication that there is a discrepancy in the account. If your accounting system is able to generate a reconciliation discrepancy report it will be easy to find the exact amount off for the transaction.
If your accounting system doesn’t have the option to generate a reconciliation discrepancy report. You will have to manually look at each transaction in the general ledger to find the discrepancy that is missing from the bank statement.
Once you find the discrepancy you will have to undo the reconciliation from the previous period and redo the reconciliation process to able to move forward and close the month, quarter, or year in the future.
Having no reconciliation discrepancy will make it easier to track on transaction, so that reports are accurate, easier to reconcile during the period you are closing, and have no duplicate transactions.
The objective of accounting is to provide relevant, timely information for user decision making. Accountant must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making.
Managers and employees must also behave in an ethical manner in managing and operating a business. Otherwise, no one will be willing to invest in or loan money to the business.
Ethics are moral principles that guide the conduct of individuals. Unfortunately, business managers and accountants sometimes behave in an unethical manner.
As an Owner of a Business delegating task to other can be more efficient and effect to help grow the business. Focusing on the most important aspect of the business where it more crucial than the other small task that you have to deal with might be time consuming.
When you assigned task to other you need their trust and confidence in their ability to complete the objective. When it comes to the bookkeeping of the business. You should create procedures and control to make sure that a bookkeeper doesn't commit fraud. Because you give the bookkeeper access to financial records that doesn't mean you can just forget the small details because you don't handle it any more.
Here are a few tips to help prevent fraud from bookkeepers that might try to get away with it:
Accounting is needed in every business, which, effect the aspect of the operation and reporting to keep the business up float in the current market.
When it comes to Financial Accounting; the process of recording, summarizing and reporting a great number of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement that become the company's operating performance over a specified period.
Some of the benefits of Financial Accounting are:
Managerial Accounting is the process of identifying, measuring, analyzing, interpreting and communicating information for the pursuit of an organization's goals. This branch of accounting is also known as cost accounting. Managerial accounting handles margin analysis, the amount of profit or cash flow generated by the sale from a specific product, customer, store or region. Managerial accounting also manages constraints within a production line or sales process.
Benefits for Managerial Accounting are:
In bookkeeping, a bank reconciliation is a process that explains the difference on a specified date between the bank balance shown in an organization’s bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own accounting records.
Benefits for Reconciling Account:
Amortization is the process of allocating the cost of an asset over a period of time. It also refers to the repayment of loan principal over time. Typically amortization is used when you are requiring an asset that has a big price tag that you would pay over time. For example, if you were going to take out new machinery for your business or something personal like taking out a mortgaging for a house.
An Amortization Schedule shows the beginning and ending balances of the loan and the amount of payment that is applied to the principal and interest during each payment period. The amortization schedule would show the amount that the loan would be paid off during an amount of time. Each installment goes toward a portion of the loan’s interest and its principal.
Some benefits of using amortization schedule when considering making a big purchase are:
Shoebox bookkeeping is a process of throwing all financial information into a ‘shoebox’ and that at the end of the year this is given to an accountant to record for taxes. All information is thrown in that might be important to the accounting process in a box. Simply dumping the paperwork into a single place and deciding that they will address it at a later date, at which time it will likely be too late to fix problems that might arise.
A good accounting system is critical to getting good financial information. So why don’t people always have one in place for their business? Excuses include:
No, shoebox accounting is not a good way to run the Profit end of your business. This can make it a hassle to finish and time consuming to complete.
Creating a budget for yourself or business to give you a projection of how much money you’re making and spending throughout the year can give your insight on how to maximum your cash flow and keep cost low.
Why having a budget is useful:
To make sure that you have stay within the numbers of you budget you have created. I created a template to keep track of your income and expense. I made it simple to put in income and expense for each week to produce the report for each month and end of year.
You can also use it without the budget just to keep track of your income and expense. Some of the benefits of keeping track of your income and expense is:
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