Quick Look At The Standard Accounting System

It's been said by numerous eminent academics that the primary function of accountancy is to facilitate the maintenance of economic activity. This particular functionality is best realized in 2 main ways. One is by calculating and showing economic information. The other is through communicating the outcomes of this procedure to people who want to use them for different needs.

To illustrate, a business's accountants routinely appraise the net profit for a calendar month, a quarter or even a financial year and document these results in a statement of profit and loss that's called earnings statement or profit and loss accounts. These statements incorporate components along the lines of accounts receivable or what's owed to the business and accounts payable or what the firm owes to its creditors. This may also get pretty complicated with themes like retained earnings and accelerated depreciation. This is often at the greater levels of accounting and in the firm.

Much of accountancy mind is also associated with primary bookkeeping. This is the usual procedure that records every single transaction; each and every bill paid out, each dollar due, every single dollar and cent paid and accrued. Book keeping, although very much unappreciated by many individuals is of great relevance in the accountancy practice. This is due to the fact bookkeeping is the base by which accounting information are created. Subsequently, where the right book keeping is missing the job of accounting turns into next to impossible.

However the those who own the firm, which is usually private entrepreneurs or countless shareholders, are generally most concerned with the actual summaries of transactions, included within the accounting statement. The accounting statement summarizes a corporate entity's assets, liabilities in addition to results for any given period. Any value of an asset is really what it cost when it was first obtained. The financial statement at the same time documents exactly what the sources of the resources had been. Many assets are generally in the way of fluid assets and can very quickly convert into money. A fantastic example is trade debtors or simply put dollars payable to a business by its clients via its normal trading activities. Profits are as well an asset of the business enterprise.

In what's known as double-entry bookkeeping, all of the financial obligations will also be summarized. Certainly, a firm wishes to present a larger amount of assets in order to cancel out the financial obligations as well as show a nice gain. The control over these two parts is the essence of accountancy.

There exists a real model designed for executing this; not every firm or character may formulate their own systems for accounting. If they did, the consequence would be chaos! This structure is typically called accounting principles. They're the concept which control the correct way revenue in a given accounting period should be calculated and the way assets and liabilities of a company is generally recorded.

Managing Cash Flow for Company Growth

In any business, cash is the lifeblood that keeps all afloat. If your money is poorly managed, your company will not only fail to progress, but it might implode and become one of the high percentages of failed businesses. One cash flow problem in business is the time between paying suppliers and employees and the time you're collecting most from your customers.

In four relatively simple steps, you can work to keep better track of your cash flow and streamline the process to aid in company growth.

Step One: Cash Measurement

It might be tedious, but it's important to work on cash flow projections. You should not only project cash for the year, but go further into the process and project earnings by the quarter or even by the week.

Why? This will help you get a glimpse of the future. This process is different than other statistical analysis you'll do. This isn't the almighty crystal ball; it's just a tool to help you make an educated guess.

Add your cash on-hand, the projected cash to be received, and gather input from service reps, creditors, salespeople and others in your finance department. The question you're trying to answer is just how much cash you'll receive in total.

Next, you'll need to accurately project how much of the income will be spent. You'll have to know what the money is being spent on, why it's being spent, and how much will be left (profit). This includes rent, taxes, inventory, salaries, benefits, equipment, utilities, and other bills and expenses.

Step Two: Improve on your Company's Receivables

You're not always getting quick cash for every product sold in business. Basically, you want to use the information from your projections to help to streamline the money you'll receive i.e. you want to get paid quicker.

You can turn your receivables into quicker cash by offering discounts to customers paying up front. You could also require deposits, credit checks, and track the accounts of slow-paying customers.

Then the idea is to shore up your cash flow by getting rid of old inventory as quickly as you can. If this means discounting the lot, then go for it. You want your business running fluently so it can grow.

Step Three: Improve on your Company's Payables

Increasing sales and growing your business isn't enough to sustain the growth. You also have to keep a watchful eye on all of your expenses. Expanding and streamlining your business will most likely result in areas with fast-growing expenses. It's imperative you recognize this and put a stop to it.

One of the first things you can do is stay in line with your creditors' terms. Some people like to jump the gun when they have cash. They'll pay after two weeks instead of after a month. Use the full month to your advantage here and do not pay until a payment is due.

You should also learn to use technology to your advantage at every step. If you can pay your bills electronically, then set a tight schedule for payment and take care of it quickly.

As with most aspects of business, communication is important. Build up trust in your business relationship by informing all suppliers and creditors of your financial situation.

You can also start to discount shop once you've streamlined this process. Of course, you don't want to go around purchasing the cheapest products available, but looking closely at discounted or wholesale rates is a wise move.

Step Four: Shortfall Survival is Key

Even the best businesses falter at times and end up on the short end of the stick without enough new money to pay off bills. The best way you can survive a shortfall is to follow the rest of the process carefully.

Hopefully, you'll predict the shortfall coming at least a week in advance by handling your projections properly. This will allow you to get the funding from good sources.

Nobody wants to lend money to a panicked businessperson needing the money right away. Contrarily, a businessperson who predicts the shortfall and seeks out help through a bank or a supplier is taken seriously and is usually given help.

If you follow these four steps, cash flow shouldn't be a problem at all. Even the worst storms won't tear the house down if you're always thinking ahead in the process.

Invoice Example - Free Downloads and 5 Things You Must Know

If you are using a limited company as your payment structure you will need to raise invoices for the services you provide or goods that you sell, this article explains how to prepare one with an example, the best practices you need to know, double taxes case example, proforma invoice example and in the end I will give you tips about how to find a good invoice example online, I will also include a couple of invoice example free download in Microsoft Word and Excel format for you to use.

1. How to prepare an invoice - examples and introduction

Information that should be included in an invoice includes:

A generic invoice should contain: The word "invoice" A unique reference number (in case of correspondence about the invoice) Date of the invoice Name and contact details of the seller Tax or company registration details of seller (if relevant) Name and contact details of the buyer/ customer - Purchaser's name or firm name Date that the product was sent or delivered or the service or services rendered,or the work that was done. Purchase order number (or similar tracking numbers requested by the buyer to be mentioned on the invoice) Description of the product(s) -(sales invoice) or of the services ( service invoice) Unit price(s) of the product(s) (if relevant) Total amount charged (optionally with breakdown of taxes, if relevant) Payment terms (including method of payment, date of payment, and details about charges late payment) Discount,total before discount,and total after discount. (if relevant) Tax,total before tax,and total after tax. (if relevant) Shipping details if different from buyer details.The US D efense Logistics Agency requires an employer identification number on invoices.

If you are permitted to submit your invoice via email then it is useful to convert the invoice into PDF format so that it cannot be altered. There is a free PDF creator which you can use at PDFCreator. This creates a PDF file from any application which can then be emailed to the client.

Better off, if you can use a software system, it will automatically generate invoice in PFD format, you can also email it straight away from within the a software program.

2. Invoice examples and best practices

Invoices are just part of the picture that mirrors the company's image and business standing. A successful business will have a good template that has all the details. The important details are of the company, the buyer and the shipment. There should be the logo and contact details of the company on the very top of an invoice. This should be followed by details of the buyer and the destination of the shipment. The details of the shipment should clearly outline what it consists of, the quantities as well as the unit cost of each item. This should be followed by the cost of the purchase, other costs, any tax that has been included and lastly the total cost of the shipment.

Your invoice should be prompt, so that you can get paid by your clients on time, while invoicing is not a fun task, it's a necessary one: by keeping clients informed of your expectations, you will get paid punctually and reinforce your professionalism.

After going over some best practices for creating invoices, I will review some great (and not so great) invoicing practices, so that you can spend less time creating invoices and more time doing the things you love!

So here are some general guidelines, best practices and examples that will help you make sure your invoices are up to specification.

a.Their Details and Yours - must be complete This is basic stuff, but you can't afford to forget it. In addition to the client's address, make sure to include the name of the client's contact person who handles your account! A company with three employees can figure out what you're doing; but in big companies, invoices get misplaced, especially if there's confusion over who belongs to which project.

You'll also need your company name, your name, address, telephone number and email address. If they have any questions about the charges, contacting you should be as easy as possible.

b.Itemized List of Services - must be specific People want to know what they've paid for. Most people will not pay for something described merely as "Design." Tell them exactly what they have received: e.g. "Design of three-page static website for Sporting Goods Department." Be as specific as possible. In five years, would both you and the client know what you meant by your description? Also, specify whether the charge is project-based or hourly.

c. Include Your Terms - must be clear When do you expect the client to pay you? What happens if they miss the deadline? To be able to send follow-up or overdue notices or to charge interest, you need a rock-solid paper trail that no one can argue with.

d. Let Them Know How to Pay You - must be easy Do you want a cheque mailed to you, a money transfer, flowers? Be explicitly clear about what you expect and in what form. It is usually best to discuss with the client beforehand their preferred method or to come to an agreement about a method you both like.

If you want a money transfer, provide all the necessary information. Foreign transfers need more than your account number: in some countries, you need your International Bank Account Number (IBAN) or a Bank Identifier Code (BIC). International transfers also double-charge you: the client's bank might charge you $20, and your own bank might charge you another $15 to accept the payment. Make it clear which of you will absorb these charges, and talk it out with them. PayPal is another option, but you still get charged a percentage of the transaction.

e. Numbers and Numbers and Records and Books - must be trackable Referring to "invoice #9048," rather than "That invoice I sent you last month, I think on a Tuesday," is much easier to track for both you and your client.

Assign numbers to your invoices systematically, consistently and chronologically. Some people number their invoices by year (for example, 2009043 would be the 43rd invoice of 2009). You could also specify a code for the project. For example, ABC06 would be the 6th invoice for the ABC project that you're currently working on. Having an invoice and project numbering system keeps everything in line.

f. Thank Them, and Ask Them to Thank You - must be sincere Money is often a touchy subject, so politeness about it is a good idea. Your clients are paying you money that they've earned with blood, sweat and tears, so let them know you appreciate it. You should also invite them to contact you if they have any questions and, more importantly, make it clear that you appreciate their present (and future) business.

Some people also welcome testimonials; for example, by adding, "Let us know how we did. Write a testimonial and sent to... " If you're building your website's testimonials page or want to complete the feedback loop, this is a great way to get clients to give feedback on your work. If they have suggestions for making the process smoother, it's also a great opportunity for you to improve.

g. Don't Forget: You're a Designer - must be professional Imagine this, you're at an expensive restaurant. Every detail is perfect: the food was fantastic, the service excellent and the atmosphere rich and plush. Then, you receive the bill, which is printed on cheap paper with low-quality ink. What would you remember about this experience?

Most people spend hours on their website design, business cards and resumes but then use a template for their invoice. The invoice is your last contact with your client, and it should share the attention to detail, branding and style of your other elements. By creating a beautiful, clear invoice, you are saying that you care about the little details.

Most importantly, make sure you have all the necessary information. Make sure there are no spelling mistakes and that your spacing is consistent. Customize your invoice as much as you can. Your logo is a must, but colors and a style that match your other branding items will make it a joy to pay (well, as much as is possible).

3.Invoice example With GST & PST An invoice not only shows the customer or client how much money is due but provides tax information, in some countries multiple taxes may apply, for example in Canada it is required to put the Supplier's identification numbers for GST and QST taxes purposes. Whenever a taxable sale is made, the customer must be informed that GST and QST are added to the selling price. As there are no standard invoices required by law for this purpose, you must indicate the amount of the taxes on the cash register receipt; on the invoice or contract remitted to the customer. If you choose to indicate the GST and the QST, the amounts must be stated clearly.The European Union requires a VAT (value added tax) identification number on invoices between entities registered for VAT.

There are certain pieces of information that have to be on your invoices if you are charging GST, HST and/or PST. Your invoice must include:

•your business name

•the date of the invoice

•your Business Number (also known as the GST Registration Number)

•the purchaser's name

•a brief description of the goods or services performed

•the total amount paid or payable

•the terms of payment

•an indication of items subject to GST at 5% or HST at the appropriate provincial rate, or that the items are exempt, and either the total amount of GST/HST charged, or a statement that the GST/HST is included and the total rate of tax

•if applicable, an indication of items subject to PST (also known as RST) at the provincial rate, or that the items are exempt, and either the total amount of PST charged, or a statement that the PST is included and the total rate of tax.

4.About proforma invoice

A Proforma invoice is an invoice provided by a supplier in advance of providing the goods or service. A quotation in the form of an invoice prepared by the seller that details items which would appear on a commercial invoice if an order results. It is more of a customs declaration form used in international trade that describes the parties involved in the shipping transaction, the goods being transported, and the value of the goods. It is the primary document to declare value for customs. It is not a true invoice, because the seller does not record a pro forma invoice as an accounts receivable and the buyer does not record a pro forma invoice as an accounts payable.

Proforma invoices basically contain much of the same information as the formal quotation, and in many cases can be used in place of one. It should give the buyer as much information about the order as possible so arrangements can be made efficiently. The invoices inform the buyer and the appropriate import government authorities details of the future shipment; changes should not be made without the buyer's consent.

As mentioned for the quotation, the points to be included in the proforma are:

1.Seller's name and address 2.Buyer's name and address 3.Buyer's reference 4.Items quoted 5.Prices of items: per unit and extended totals 6.Weights and dimensions of quoted products 7.Discounts, if applicable 8.Terms of sale (include delivery point) 9.Terms of payment 10.Estimated shipping date 11.Validity date

When a buyer asks for a quotation the seller should always provide a pro-forma invoice. A pro-forma invoice is an invoice sent in advance of the commercial invoice, which is the final bill that the buyer agrees to pay. Some of the advantages of pro-forma invoice to the importer include to show to his government for foreign currency allocation, opening letters of credit and most importantly, to have a detailed information on the transaction that can help him plan. An accurate and professionally submitted pro forma-invoice can help buyers to make a decision and agree to the quotation.

5.How to Find a Good Invoice Example Online

If you are a new businesses and need to issue official business documents like invoices, receipts, purchase orders and the like. It is not easy to come up with an appropriate format or template in a few minutes. Fortunately, the internet has been providing information such as finding a good invoice example.

As long you are looking for something online, you have to be prepared to face some hurdles. There are numerous hurdles that you will encounter and the top on the list are scams. Although you may find an invoice format or template that you think is good, you may be made to pay a lot of money for it. It is thus important to look for trustworthy sites that will not use up a huge chunk of the company funds.

One such site is the Microsoft site. The site offers businesses different templates for all the forms and documents needed to keep a company running. It is also the best place to find an invoice example, which will look perfect and above all official and professional.

The following are a few types of Microsoft Word and Excel invoice example I had developed which you can download and use freely from my blog link at the bottom of this article.

Excel invoice example - InvoiceTemplate_DescriptionOnly Excel invoice example - InvoiceTemplate_WithShipTo Excel invoice example - InvoiceTemplate_DoubleTaxes Excel invoice example - InvoiceTemplate_SingleTax Excel invoice example - InvoiceTemplate_HourlyRated

Inventory Accounting Methods

Companies such as resellers or manufacturers often needs to keep products or raw materials in stock. This stock of items is called as inventory. Inventories makes up the most valuable current asset for such companies so it is important to determine and keep track of their costs. Inventory accounting is the process to do that. There are various methods for inventory accounting. Generally accepted accounting principles (GAAP) has defined such accounting methods. Four most common GAAP accounting methods are - Specific Identification Method, Weighted Average Method, FIFO Method, and LIFO Method. Choosing an appropriate method is very important because it can impact earnings and current assets of a company. A particular method can be well suited for some business types than others. Companies can choose any of these methods irrespective of how actually their inventories are sold. They must adhere to guidelines from IRS in this matter.

Specific Identification Method:

In this method companies records cost to acquire goods as well as cost of goods sold for each inventory item individually. This method is most suitable for companies which has limited inventory, cost per unit of inventory items are high and items are relatively unique. Jewelers, car dealers, art galleries etc. are the examples of businesses where this method is suitable. It is a most precise way of determining inventory prices but is too cumbersome for companies with large or medium-sized inventories.

Weighted Average Method:

In Weighted Average Method companies determines the weighted average cost of the inventory. This method is suitable for companies that maintain a large inventory of uniform items such as fuels or grains.

FIFO Method:

FIFO stands for First In First Out. In FIFO method it is assumed that the oldest inventory or the inventory which was purchased first is sold first. Inventory from recent purchases are sold later. This method is suitable for companies selling perishable goods such as food or drugs.

LIFO Method:

LIFO stands for Last In First Out. In LIFO it is assumed that the most recent purchased inventory is sold first. Prior or old inventory is sold later. A company in coal business is a good example where LIFO method is obvious. Coal on top of the coal pile is always going to be sold first.

Comparison of above methods:

Lets understand difference between above four methods through example. Assume that a company purchases four identical items at different times during accounting period (For Specific Identification method assume items are unique).

1st item is purchased at a cost of $15 2nd item is purchased at a cost of $18 3rd item is purchased at a cost of $20 4th item is purchased at a cost of $22

Assume that a company now sells one item of this inventory at $25. The cost of goods sold, profit and ending inventory balance will differ depending on the choice of accounting method.

If 2nd item is sold using Specific Identification method then the cost of goods sold would be $18, profit would be $7, and ending inventory balance would be $57 ($15+$20+$22).

Using FIFO method the cost of goods sold would be $15, profit would be $10, and ending inventory balance would be $60 ($18+$20+$22).

Using LIFO method the cost of goods sold would be $22, profit would be $3, and ending inventory balance would be $53 ($15+$18+$20).

Using Weighted Average method the cost of goods sold would be $18.75 (($15+$18+$20+$22) / 4), profit would be $6.25, and ending inventory balance would be $56.25 ($18.75 x 3 remaining items).

Specific Identification method's numbers are not comparable against numbers from other methods because of uniqueness of its items in inventory. It is evident from the numbers of remaining three methods that FIFO has the lowest cost of goods sold, the highest profit, and the highest ending inventory balance. Companies following FIFO method pays higher taxes because of higher profits. LIFO is just opposite and offers substantial tax savings due to lower profits and lower inventories. It is important to note that in example cost of item was inflated at each purchase. If the cost of purchase is reversed in order i. e. deflated then the effects of FIFO and LIFO will be just opposite. The Weighted Average method falls in between FIFO and LIFO methods.

Since choice of inventory accounting method has significant effect on company's income statement and balance sheet it is very important to consult knowledgeable resource such as an accountant or CPA.