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Book Keeping and Accounting is something foreign to many, maybe because they never cared to learn it thinking it is just a dull game of recording transactions using unnecessarily complicated terms and methods. Far from it, book keeping and accounting is a logical way of recording transactions in a professional manner so that the information could be used in the ascertainment of many other vital business criteria such as the profits or losses made, who owes you and how much; how much you owe others, or are you carrying enough cash in the business for meeting immediate commitments etc., just to name a few.

Accounting is something that is useful in your personal as well as professional lives, and it would be worth your while to shed your prejudices and listen! Accounting is nothing complex as you have mistakenly imagined. It is based on one of the most fundamental concepts that if one receives something, then obviously another has to give; and therefore every transaction has a two-fold aspect called debit and credit in accounting terms. Maybe this reminds you of one of Newton’s Laws that action and reaction are always equal and opposite.

Fundamentally, the study of accounting is built on (i) The Accounting Equation, and (ii) Double Entry Book Keeping.

(i) The Typical Accounting Equation:
Assets = Liabilities + Equity

(ii) Double Entry aspect of Book Keeping:
The perfect balancing of the accounting equation is guaranteed by this system.

I think it pertinent now to define Accounting as a system of summarizing financial transactions and recoding in such a manner as to facilitate using such records for later analysis, preparation of further financial statements, interpretation of accounts and communication as required.

Now let’s go a little further with the Accounting Equation enunciated above, and move on to its practical implications:

Assets are your possessions (including what others owe you) while liabilities are what you owe others. The difference between the two is called Equity, which includes capital introduced by you (if it is a sole proprietorship) or by shareholders (in the case of a limited liability company) plus or minus any retained profits or accumulated losses respectively. May I also just state in passing that capital introduced is not refundable to anybody and as such it is not a liability. Hence it is called Equity.

Say, you buy a Motor Vehicle for $40,000 for which you pay $25,000 out of your retained profits (or personal savings) and for the balance you take a loan of $ 15,000 from an outsider.

Substituting these values in the Accounting Equation, we have:

Assets (Possessions) = Liabilities (what you owe others) + Equity (Capital/Personal Savings)
$ 40,000 = $15,000 + $25,000

You see one debit of $40,000 is equal to two credits added together ($15,000 + $25,000) = totaling to $40,000.

There could be more complex transactions requiring distribution to more ledger accounts as well as transactions involving only two ledger accounts. Every equation comprises of the double entry with one or a series of debits on one side of the equation equaling one or a series of credits on the other side.

In the two examples given below you will see how the two concepts of Accounting Equation and Double Entry are synchronized:

(i) Settlement of a liability by paying cash $50.
The liability represented by a creditor receives while your cash account gives.
Creditor (debited with) $50 = cash account (credited with) $50

(ii) Receipt of a debt from a debtor who owed you $75.
Your cash account receives while the debt represented by a debtor gives
Cash (debited with) $75 = Debtor (credited with) $75

Earlier we sited one of Newton’s laws to illustrate the concept of double entry in book keeping. At this point we would like to take you back to your algebra lessons way back in grade 8 or so where you were told that if you add something on one side of an equation, that you have to do the same to the other side of the equation too? It’s fair enough, is’t it? That is exactly what we ask you to do in book keeping too making the double entry equal and balancing.

Double entry book keeping is nothing so complex or weird as to defy fair and reasonable common sense. You can easily grasp the concept of double entry by training yourself to think logically as to who or what gives, and who or what receives in each transaction; and by framing the entries accordingly, while ensuring that the two sides of the equation are in agreement (balancing) and are consistent with common sense.

This article was written for Find This Online an online resource guide that offers a variety of articles written on different subjects. Visit us at Here for more articles on accounting information.

Company owners are often confused by the tangled web of business and financial regulations. To simplify the complicated financial part of the business, many of them choose to protect themselves by contracting for outsourced accounting services. On the other hand, some companies are still trying to handle their own bookkeeping or hiring non professionals to tackle the job in an attempt to save time or money. However, not using a professional is one that can cost a business owners more time and money than they realized they were gambling.

There are several reasons why choosing professionals to handle online bookkeeping services is one of the most cost-effective investments that a company can make.

Navigating the Regulatory Maze
The legal landscape changes quickly and businesses struggle to keep abreast of the latest developments. In our increasingly litigious society, ignorance of the law is no protection from significant financial liability.

This is one of the many reasons companies chose to employ outsourced accounting services. Unless a business is primarily involved in financial services, it is difficult to keep track of the changes. By hiring an experienced professional, not only does a company get its books in order, but it also gets financials done in compliance with the law.

Recent Changes Turn the Financial World Upside Down
The past few years have seen some of the most sweeping business reforms since the Great Depression. High-profile financial disasters like Enron and Worldcom have fueled public outcry for legal protection that has put a burden on all companies, public and private. It is harder for companies to use the casual internal bookkeeping services that have served them in the past. They need dedicated, full-time specialists that are familiar with today’s proper accounting practices, not the practices of ten years ago.

Using online bookkeeping services that use highly specialized accountants relieves the company of much of the burden of following frequent regulatory changes. These firms do nothing but financial work, so they can focus on using the correct practices and that protects their client companies.

You’re in Control When Using Online Bookkeeping Services
Although hiring an outside firm to do financial work can provide protection against liability, it doesn’t absolve the company of responsibility. For that reason, some companies are hesitant about using outsourced accounting services. They fear losing one of two things: control or security. If you choose the right service provider, neither of these will be a problem.

Online bookkeeping services give you full, real-time access to all of your financial data. Nothing is done without your permission or behind your back. You get regular financial reports that allow you to keep an eye on the company’s financial health. The service is there merely to process the data; all financial decisions are still yours.

That unlimited access doesn’t mean there is no security. In fact, your data is probably more secure if handled by online bookkeeping services. Professional companies have dedicated systems have hacker defenses, virus protection, and backup capabilities that small or even mid-sized companies can’t match.

Few companies need or can afford to hire a full-time, dedicated accounting staff and yet all companies need those capabilities. Outsourced bookkeeping services give you the benefit of expert financial services at far less cost.

Author is a freelance copywriter. For more information on Online Bookkeeping
Services, visit http://www.osibusinessservices.com

The basic advantages of a computerized accounting system are efficiency and speed. In a manual system receipts and disbursements are initially recorded in registers. This can involve writing a check and then writing a description in a register or this can be done on a one-write system. Either way the transactions in the registers must be manually posted to the general ledger and then compiled into financial statements. This manual transfer of information is time consuming and subject to error (such as transpositions).

In a computerized system all the multiple steps of a manual system are collapsed into one entry. For example when you create a check there is an automatic and simultaneous posting to a register and to the general ledger accounts. Financial statements can be created at any time and as often as needed.

You would think that with these advantages computerized accounting would be both cheaper and more error free than manual accounting. But it turns out that this is not always true. First of all while software costs have come down there is a fairly big learning curve involved in using the software properly. Much of the problem lies in ill conceived software design.

The problem of poor design stems from an over ambitious attempt on the part of developers to allow users with no bookkeeping training to make entries without reference to the debit and credit structure. The software hides this structure on the assumption that the user does not understand it. All manner of problems ensue from this design flaw. Often even CPAs and experienced bookkeepers cannot figure out what is going on with these software packages. This necessitates expensive training and consultation with experts in the software.

It would be far better if the software mirrored and exposed the debit and credit structure so anyone with basic bookkeeping knowledge could understand how to use the software. I am convinced anybody can learn the debit and credit system within a few hours (see my book). But the software developers believe that business owners are too stupid or intimidated to learn the system and that it has to be hidden. This causes all kinds of expensive problems.

The software developers also try to set up default charts of accounts and financial statement formats that create all manner of problems that could be avoided simply by insisting that the user learn enough about accounting and their own business. Again these “simplifying” designs increase the reliance on expensive experts.

Finally, software developers do not make money by selling excellent and reliable software that works for years. Rather developers make money by selling new and improved upgrades. But guess what? An accounting package that was any good to begin with should not require frequent upgrades, or for that matter upgrades at all Basic bookkeeping and financial statement compilation procedures have not changed for centuries. Yet any popular software package user will be inundated with new versions of the package which will require yet more expensive consultations. Most of these upgrades are simply unnecessary bells and whistles or fixes for bugs that should have never been in earlier versions.

So what should a small business do? By all means buy a software package but do not expect that your costs will end with the purchase of the package. Undoubtedly you will need to pay a consultant to set the program up and give you basic training. Overall cost savings from conversion from a manual system will not be as great as they should be.

Michael Sack Elmaleh is a Certified Public Accountant and Certified Valuation Analyst. His book, “Financial Accounting: A Mercifully Brief Introduction”, has received wide critical acclaim. He has nearly 30 years of accounting and 10 years of teaching experience.His web site is understand-accounting.net

The IRS recently published a newswire urging people to safeguard their records. IRS Acting Commissioner, Kevin M. Brown stated, “With forecasts calling for an active Atlantic hurricane season, the IRS encourages taxpayers to protect tax and financial documents that can be hard to replace.” (Newswire dated June 1, 2007)

Actually whether or not you live in a hurricane area, there are many things that can happen to destroy important records. We all think about big natural disasters such as hurricanes, tornados, earthquakes, etc. But there are other disasters that can affect anyone no matter where you live. They include such things as fires, flooded basements, theft, accidentally throwing things away, etc.

If you happen to get audited, the IRS doesn’t particularly care why you no longer have your records and they will go off the records they can gather. The IRS can provide you with W-2 information, income from interest, dividends, stock sales, 1099 information, interest paid on government student loans, and how much mortgage interest you paid to a financial institution. They don’t have records of business deductions, donations, dependents, alimony paid, daycare expenses, medical expenses, etc.

There are several ways you can choose to keep your records safe.

1. Paperless Record keeping: With the wide use of computers, internet bank records, W-2 forms, and other documents can easily be downloaded to your computer. Other documents can be scanned in. This can then be saved onto a USB drive as a back up which can be store in a safety deposit box and/or sent to a relative in another city.

2. CD or DVD: Records can be scanned into the computer and burned onto a CD or DVD. Several copies can be made inexpensively and stored in several places.

3. Record Keeping Companies: There are companies that will copy and keep your records in their vaults so that in the case of a disaster they can provide you with a copy.

4. Protective Boxes and Safes: You can purchase fire proof and water proof boxes and small safes to keep valuable records in. They can work well if you don’t live in a place were place where a natural disaster will likely take down the entire house.

Other items you may want to document and keep safe are personal records such as birth certificates, social security cards, passports, insurance documents, home closing documents, and investment documents. In large disasters, it is important to be able to prove who you are and that your children belong to you. If your home is destroyed you may need to prove ownership.

There once was a family of eight. One evening the whole family went to the local pool for an evening of swimming and fun. They were gone about two hours and when they arrived home, their home was on fire. The fire department was there and the neighbors had all been frantically trying to find them. The plug on their toaster had shorted out and started the fire. It was a small fire that was quickly contained, but the fire department wouldn’t let the family go in until they were sure everything was safe, which took a day. They stood there with nothing but their swimsuits and towels as neighbors ran to their homes to find clothing and diapers so the family could at least get dressed.

When they were finally able to enter their home, the smoke had damaged everything. They spent a week in a hotel until the insurance could make arrangements to find temporary housing, Then came the task of listing all the things that had been destroyed and working with the insurance company to fix their home and replace the contents.

This was a relatively small disaster as disasters go. But it could happen to anyone. In any disaster it is good to have a record of your personal belongings, especially items of greater value. Photographing or video taping the contents of your home can be a great help when filing an insurance claim after a disaster.

Also, if you do not have insurance to cover losses, they can be deducted on your tax returns. Recording what you have, when you purchased it and what you paid for it can also expedite claims. The IRS has a free disaster loss workbook that can help individuals and businesses compile a detailed list of belongings. The IRS publication 584 is for individuals and the publication 584B is for businesses.

Nothing can take away the pain and trauma of a disaster, but being prepared can make the recovery process much easier. Review your emergency plan annually. Make sure records that have been safeguarded are current and up to date. Being prepared takes much of the worry out of life.

Christopher Anderson is part owner of Lone Peak Business Solutions, Inc. He wants to share his success as a business owner with others who desire to own their own business. He also believes that the economy is stronger with more business owners, and as a result, he is focused on helping business owners succeed.

Whenever a business starts there is always the question of how the people that provide services for the business will be paid. Will those services be performed by employees or will independent contractors be used?

Before the business can determine how to treat payments they need to know and make clear the business relationship. It is important to establish this relationship because an employee has taxes withheld, social security and medicare matched by the employer, unemployment insurance paid, workers compensation insurance paid and often benefits provided. An independent contractor just gets paid. It is a big expense difference.

To determine whether an individual is an employee or and independent contractor, the relationship of the business and worker must be examined. It comes down to does the business have control over what and how a job will be done or do they just control the results of the job. The determination falls into three categories: behavior control, financial control, and type of relationship.

Behavioral Control

Employees are generally subject to instructions about when, where, and how to work. The employer controls when and where the work is performed and what hours the person will be at the job. The person is told what tools and equipment to use, who else can be hired to assist with the work and where to purchase supplies and services. They are told what work is to be performed by a specific individual and what order or sequence to follow. Employees also may be required to receive training by the employer.

Independent Contractors can be hired to do a certain job in a certain place and be completed by a certain time. However, how the job is done is up to the contractor. When the work is performed, what equipment is used, who is hired to assist and where materials and supplies are purchased are up to the Independent Contractor. They also obtain and pay for their own training.

Financial Control

An employee is generally guaranteed a regular wage amount for an hourly, weekly or other period of time, even if the wage or salary is connected with a commission. They may be paid whether work is being performed or not. An employee generally does not have an investment in the company unless there are stock options available. They usually have any expenses they incur for things such as travel, phone, or equipment reimbursed.

An Independent Contractor is not reimbursed for any expenses. They generally have a business of their own or a significant investment in the facilities and equipment used to perform the work. An Independent Contractor is free to offer services to the general public and can take on jobs for other companies or individuals. They generally advertise their services and maintain a home office or visible business location. They generally get hired and paid by the job, usually a flat fee. Although some jobs can be billed hourly. An Independent Contractor can make a profit or loss on the job.

Type of Relationship

An Employee generally signs a employee contract. The employee is generally provided benefits such as insurance, pension plan, vacation and sick pay. Employee’s are engaged for an indefinite period of time. They perform activities that are a regular daily part of the business. They fill out an IRS W-4 form that tells the employer how much taxes to withhold. They are not free to do business for other companies and in fact some companies have penalties if they do.

Independent Contractors have job by job contracts or for specific project or periods of time that state they are responsible for their own taxes. They are not provided with any benefits. They fill out an IRS W-9 form telling the IRS that no taxes are required to be withheld.

It is important to determine what kind of relationship from the beginning of your business. If you treat an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that person. Also, if you pay an individual as an Independent Contractor, they do not qualify for unemployment of workers compensation so if they try to collect it, you will want to be ready to verify they are not an employee.

More information about Employees and Independent Contractor is found in the IRS publication 15A.

Christopher Anderson is part owner of Lone Peak Business Solutions, Inc. He wants to share his success as a business owner with others who desire to own their own business. He also believes that the economy is stronger with more business owners, and as a result, he is focused on helping business owners succeed.

Double entry bookkeeping stretches back centuries perhaps even as early as the 12th century and is now accepted worldwide as the accounting standard to be employed by all companies in recording the financial accounting records. The first written explanation of the accounting system was reportedly by a Venetian mathematician Luca Pacioli towards the end of the 15th century.

The accounting industry has grown somewhat since then and today contains many technical words known but largely ignored by non accountants. The understanding and desire to understand accounting terms is further confused by the banking industry while adopting double entry bookkeeping as standard use what appears to be diametrically opposed terms in the presentation of information to their customers.

In accounting terms an asset such as money in the bank is a debit balance, while bank customers are told if they have money in the bank it is a credit balance. This arises because what the bank is really saying is when a customer has money in the bank that the balance represents a creditor to the bank as it owes the customer money and is a creditor in the banks books. Hence the bank describes the balance as a credit balance.

The simplest way to understand double entry bookkeeping is the understanding that every financial transaction has a double effect. One effect is to change the profit and loss of the business with sales income increasing the financial profit and purchases reducing the financial profit. While the double entry is that every profit and loss transactions also has a balance sheet effect in either increasing assets or increasing liabilities.

In more complex accounting areas such as journal entries or bank transactions both sides of a transaction may have no impact on the profit and loss account as both sides of the double entry effect the value of balances in the balance sheet. For example when a creditor is paid the bank balance reduces and the amount owed by the business reduces by the same amount.

The greatest value of double entry bookkeeping to a business is its ability to show in numerical terms the profitability of the business to generate improved financial performance and management while also producing a statement of assets and liabilities. These factors are important to accountants too although the greatest benefit to an accountant is that because every transaction has an equal and opposite entry a mathematical check can be produced to ensure all financial transactions have been recorded accurately.

This mathematical balance is when all the financial accounts into which the financial transactions have been entered are listed and added up and if all transactions have been entered correctly the total is zero. This is called the trial balance.

The function of accounts clerks and bookkeeper is to record the prime documents such as sales invoices and purchase invoices into the financial ledgers. Cash and bank records must also be entered. And for every entry made there must also be the opposite entry into the business financial ledgers such as sales ledger, purchase ledger and bank.

Accounting software is basically a database of these financial transactions that automates the double entry enabling a single transaction to be entered once by the user but create the second entry in the company financial accounts. Using accounting software which all but the smallest companies adopt as a standard business tool ensures greater accuracy and usually produces a self balancing trial balance since the accounting software always produces a second equal entry to the one being input to the financial system.

The task of an accountant is first of all to ensure the prime documents are entered accurately and then interpret the results produced by the trial balance into financial statements and reports in a format that aids the financial management of the business and ensure those financial figures also represent a true and fair view of the financial position.

Limited companies must produce a balance sheet under various financial acts and submit the balance sheet to both Companies House and the tax authority each year. Different rules apply to a limited company as opposed to self employed business because the accounts including the balance sheet are public records available to the members of that company and not necessarily the property of a single individual or partnership.

Self employed business in the UK are not compulsory required to produce a balance sheet and consequently may choose to operate a single entry bookkeeping system rather than double entry. By adopting a single entry system the self employed business has less financial control over the assets and liabilities although this is often not a problem as the self employed in smaller businesses often know exactly what the individual assets and liabilities of the business are.

In smaller businesses that may not have adopted accounting software it is a common practise for the bookkeeper to maintain day books.

A sales day book would be a simple list of sales invoices issued and by recording against those financial transactions the sales receipts as they are received the sales day book effectively becomes a sales ledger in that it shows the debtor balance owing to the company.

A purchase day book would be a list of purchase invoices received and by recording on the purchase day book the amounts paid to each creditor that day book effectively becomes the purchase ledger.

Terry Cartwright is a qualified accountant in the UK designs Accounting Software on excel spreadsheets providing complete Small Business Accounting Software solutions for with single and double entry Bookkeeping systems for both limited companies and self employed business.