When submitting tax figures to the IRS, there are 2 types of accounting methods to use. The 2 accepted methods are the accrual and cash methods. The business is responsible for choosing which method the company will use.
Many issues can be factored into the decision or the selection can be as easy as a personal desire. Bigger companies usually take more procedures into account like volume of sales, how much inventory is stored, number of sales, the past experiences of an accountant, and the list keeps going.
The cash method of tax accounting records all transactions and income at the time of payment. Even if the sale was made the previous year, according to the tax accounting books, the income is recorded when the payment is physically received.
For small businesses that may not pay a secretary or have an accounting staff, the cash method of recording tax accounting is fitting. With this method, accounts and sales are left open until the full payment is received. Using the cash method helps small businesses be aware of what accounts have been completed and closed and which sales have not been collected on yet.
The procedures of small businesses can range anywhere on the spectrum. Some are very rigid and have all paperwork filed within minutes of the transaction and some don’t have access to files or a computer for a day or two. When agreements or sales are completed on the road, outside the company walls, it takes discipline to get every sale receipt back to the file cabinet.
If partial payments are made over a long period of time, cash accounting will work well to show consistent income. When using cash accounting, these transactions reflect the cash flow accurately. Since cash accounting records each installment, the actual money received would be consistent and relatively even. Payment plans can last for several years if the product or service is very expensive. When longer plans are used for larger sales, this method will show more consistency.
When income from sales is needed to pay for operating expenses, cash accounting will accurately show the amount of money that was earned and can be used to pay those bills.
Once the tax accounting method on a cash basis is selected, it is next to impossible to efficiently change the method. If a change to the accrual method is desired, the cash method must have been used for the last two consecutive years. At that time, a formal request must be submitted to the Secretary of the Treasury. To make sure this process is done correctly and all the bases are covered, the owner/officer of the business should consult with a certified public accountant.
By: Joe Coffee
Posts Tagged ‘Accountant’
Using the Cash Method For Tax Accounting
January 10th, 2010Peachtree Accounting Software is For the Pros
December 24th, 2009
Peachtree accounting software is made with the serious analyst in mind. It has capabilities that are exclusive to Peachtree, but require some sense and know-how to properly execute those operations. The results will allow you to take an in-depth look at how well your business is run, but you must know what to look for.
Once these quirks and procedures are set-up and familiar, they can be real time savers. For example, Peachtree accounting software has broadcast invoicing capability. For recurring billed services, it is easy to create identical invoices for different customers. If a lawn mowing business has 20 customers that get the same basic mowing package, those 20 different invoices can be generated in 90 seconds.
Another nuance of Peachtree is the home page. Although very informative, this dense page can take awhile to get accustomed to. It can be very efficient to have a comprehensive snapshot of accounts receivable, accounts payable, account balances, debts due, profit, and loss.
If you, as the owner/manager are more transaction oriented without much desire to plug numbers into a computer and run monthly statistics there is still an option for you. Keep in mind that hiring a data-entry staff to operate the software and having an accountant look over the final reports is probably cheaper than just hiring a CPA to culminate all the company’s figures. Not only is price a consideration but in this choice the business has total access to all the revenue, payroll, or sales numbers at a moments notice.
The highlights of Peachtree accounting software are versatility and dynamics. Some of the formulas that are normally counted as a given, are stripped away to allow the user to manipulate the data into exactly what is desired. The flip side of the coin is that the user must be at least a little familiar with accounting.
Having detailed information about the statistics of your business performance can be vital to success. Looking over and processing this information can be time consuming and laborious, but finding an area of inefficiency or an area of opportunity can pay huge dividends for longevity.
The main difference between Peachtree and QuickBooks, Simply Accounting, and Microsoft Office accounting software is user-friendliness. All in all, Peachtree accounting software offers more options and information to do with what you want. The question is do you know how having that information can benefit the bottom line? It is up to you to decide if you possess some accounting skills and want software that can be tailored and fit to your business needs or just want something that tallies, adds, and subtracts.
By: Joe Coffee
DIY Tax Filing Made Easy
November 29th, 2009
Tax returns are a standard gripe of just about every working American. You work all year and then have to pay a nice chunk of your salary to the government. This is your chance to get it back though. Filing your tax return properly will usually result in a sizable tax refund, and you need to file one anyways to stay within the law. It used to be a real pain to file your taxes. You had to crawl through the forms yourself or hire an accountant to do the paperwork for you. Now there are a number of ways to file taxes free without any of the hassle.
This is all possible thanks to the advancements in accounting technology. The first wave may not have seemed that interesting to you. It was mainly just for hardcore accountants who wanted to use computers to organize their books. Now, you can even benefit from the mainstream releases. A number of companies have released great tax software that is both reliable and effective. The best part is that it is a way to get free federal tax filing. In most cases, you’ll have to pay for the initial package, but then you’re set. Some even offer free filing in the heat of tax season, so you could try out a basic version before you buy.
The systems themselves are really quite simple. They basically just act as an accountant. The system has a number of fields which it needs you to fill. Input all of your standard tax information and follow the instructions. As you go along it will probably make suggestions based on what your information is. Most of the new sets offer suggestions for tax credits and deductions based on your information and demographics. Either way, you just need to keep working through your information until it comes to the end. You’ll then see that your tax return is complete and ready to be sent into the IRS. Just click the button to send a free e-file to the IRS and you should receive a confirmation email from them once it’s recorded. You just did your taxes by yourself. Isn’t it a good feeling?
These software programs have done a lot for us over the years. They have made it possible for the average man to file his taxes without any real problems. It basically does the job that any tax preparation agency would do. It just does it faster and cheaper.
By: Caitlina Fuller