Friday, 23 May 2014
Wednesday, 31 October 2012
Accounting Methods for Condominium and Homeowner Associations
There are several schools of thought on what method of accounting is the best for condominium and homeowner associations. Before deciding on the accounting method, the association should look at the make up of the finances. Asking important questions upfront on whether the association is to employee an accountant/certified public accountant (CPA), management company or perform the book recordings on their own is always a great starting place. Considerations that financial statements for FHA approvals, Fannie Mae Project Submissions, bank loans, and a host of other needs are required to be in the Accrual Method of Accounting.
Management companies do not always use an accountant or CPA. Questions need to be explored when choosing the management company on what rules are in place to assure that the accounting is compliant with governmental regulations. All accounting files must comply with US General Accepted Accounting Practices in order for the financial statements to be considered valid.
Accounting method choices involved the following selections:
Cash Method, in simple terms, is when association income is recorded when received and bills are recorded when paid. As the simplest method of accounting, the Cash Method does not consider liabilities or obligations of the association. Most tax returns are completed on the Cash Accounting Method.
Modified Accounting Method (also known as a hybrid accounting method, modified cash or modified accrual methods) is a mix of the cash and the accrual accounting methods. The income and expenses are recorded at the time received or paid and the obligations and liabilities of the association are also extrapolated out. The Modified Accounting Method is misleading to some reviewers, as income is often inflated while expenses are held for finalization of payment. A large number of management companies use the modified accounting method for their monthly reports.
Accrual Accounting Method uses transactions as the primary way of monitoring the finances. In this method, income and expenses are fully recorded at the time incurred regardless of the cash position. The receipts of incomes or payments of expenses is not a factor in this accounting method. The method shows the liabilities and obligations of the association. A Cash Flow Statement is usually provided to define the current cash movements of the organization. The accounting method is often the most complicated and for some, the most beneficial method of accounting. Financial Statements for banking loans, project reviews, and other official business are required to be in the accrual based format.
Use of a hybrid model, a normal management company preference, gives a snap shot of both the cash and the obligations/liabilities. We recommend that instead of the Hybrid Model that a Balance Sheet, Profit and Loss Statement be given to the Board. A simple comparison of the cash financial statements will explain the "nuts and bolts" of the cash flow to the Board of Directors. The obligations/liabilities reviewed through the accrual based financial statements will provide the Board the consistency of both the cash movement and the obligations/liabilities. This will allow the Board to see the complete financial profile of the financial health of the association.
Overall, understanding the financial of the association is imperative for the Board of Directors. Failure to keep up the "bottom line" will impact the future health of the association, owners, and the property values.
Management companies do not always use an accountant or CPA. Questions need to be explored when choosing the management company on what rules are in place to assure that the accounting is compliant with governmental regulations. All accounting files must comply with US General Accepted Accounting Practices in order for the financial statements to be considered valid.
Accounting method choices involved the following selections:
Cash Method, in simple terms, is when association income is recorded when received and bills are recorded when paid. As the simplest method of accounting, the Cash Method does not consider liabilities or obligations of the association. Most tax returns are completed on the Cash Accounting Method.
Modified Accounting Method (also known as a hybrid accounting method, modified cash or modified accrual methods) is a mix of the cash and the accrual accounting methods. The income and expenses are recorded at the time received or paid and the obligations and liabilities of the association are also extrapolated out. The Modified Accounting Method is misleading to some reviewers, as income is often inflated while expenses are held for finalization of payment. A large number of management companies use the modified accounting method for their monthly reports.
Accrual Accounting Method uses transactions as the primary way of monitoring the finances. In this method, income and expenses are fully recorded at the time incurred regardless of the cash position. The receipts of incomes or payments of expenses is not a factor in this accounting method. The method shows the liabilities and obligations of the association. A Cash Flow Statement is usually provided to define the current cash movements of the organization. The accounting method is often the most complicated and for some, the most beneficial method of accounting. Financial Statements for banking loans, project reviews, and other official business are required to be in the accrual based format.
Use of a hybrid model, a normal management company preference, gives a snap shot of both the cash and the obligations/liabilities. We recommend that instead of the Hybrid Model that a Balance Sheet, Profit and Loss Statement be given to the Board. A simple comparison of the cash financial statements will explain the "nuts and bolts" of the cash flow to the Board of Directors. The obligations/liabilities reviewed through the accrual based financial statements will provide the Board the consistency of both the cash movement and the obligations/liabilities. This will allow the Board to see the complete financial profile of the financial health of the association.
Overall, understanding the financial of the association is imperative for the Board of Directors. Failure to keep up the "bottom line" will impact the future health of the association, owners, and the property values.
Bookkeeping Shortcuts That Lead to Internal Control Weaknesses
As a business owner, you need to ask yourself (or your clients) some very important questions about how your bookkeeping data is entered into your accounting software.
1. Do you know how much money you pay to all of your vendors?
2. Could you print out a detailed listing showing the total amount paid to each vendor?
3. Would that total amount include a lump sum or could you see how much you spent on a specific cost?
4. Can your software print out all of the contact information for your vendors?
5. Does your bookkeeper enter more journal entries to record financial transactions rather than tracking the actual transaction by payee name?
6. Does your bookkeeper reconcile your business credit cards?
7. Are your credit card receipts accounted for?
8. Are your vendor hard files a mess and you can't find anything?
An enormous fraud and internal control weakness in the accounts payable function is not tracking vendors in the accounting software. This happens so often when the business uses credit cards to pay for all of the business and personal expenses so that they can accumulate mileage or points from the credit card company. When the bookkeeper has to enter in hundreds of charges per month, they don't seem to want to break it down and enter the charge in as a credit card transaction by recording it to the proper vendor. They tend to enter the transaction into the bookkeeping system from the point of payment and group it straight to an expense account without tracking who the expense was for. Realistically, this type of entry only shows that XYZ Company paid $5,000 to American Express, yet $4,500 was to Builders Supply for materials on a job site. This type of entry system does not allow you to see how much of that actual payment made to American Express was paid to Builder Supply. Yes it may show that your supply expenses was $4,500, but it is lacking the "to who and what for" information that causes the weakness.
When payments are entered without tracing who the vendor is, this creates several problems.
1. Potential loss on profits
2. Tracking vendors that require 1099's
3. Tracking billing schemes or purchases with a shell company
4. Overpayment on purchases
5. Not confirming receipt of materials or merchandise.
The solution is to set up specific accounting controls and requiring your bookkeeper to enter all vendor purchases properly so that you can track your total costs per vendor.
Most small business computer software is integrated with the credit card companies to import the data directly into the computer system. If you have the ability to use this function, do. It will save time for your bookkeeper from entering in all of those meal expense receipts.
Don't allow shortcuts or laziness to be an identifying factor in your bookkeeping system, it is doing you more harm than good.
1. Do you know how much money you pay to all of your vendors?
2. Could you print out a detailed listing showing the total amount paid to each vendor?
3. Would that total amount include a lump sum or could you see how much you spent on a specific cost?
4. Can your software print out all of the contact information for your vendors?
5. Does your bookkeeper enter more journal entries to record financial transactions rather than tracking the actual transaction by payee name?
6. Does your bookkeeper reconcile your business credit cards?
7. Are your credit card receipts accounted for?
8. Are your vendor hard files a mess and you can't find anything?
An enormous fraud and internal control weakness in the accounts payable function is not tracking vendors in the accounting software. This happens so often when the business uses credit cards to pay for all of the business and personal expenses so that they can accumulate mileage or points from the credit card company. When the bookkeeper has to enter in hundreds of charges per month, they don't seem to want to break it down and enter the charge in as a credit card transaction by recording it to the proper vendor. They tend to enter the transaction into the bookkeeping system from the point of payment and group it straight to an expense account without tracking who the expense was for. Realistically, this type of entry only shows that XYZ Company paid $5,000 to American Express, yet $4,500 was to Builders Supply for materials on a job site. This type of entry system does not allow you to see how much of that actual payment made to American Express was paid to Builder Supply. Yes it may show that your supply expenses was $4,500, but it is lacking the "to who and what for" information that causes the weakness.
When payments are entered without tracing who the vendor is, this creates several problems.
1. Potential loss on profits
2. Tracking vendors that require 1099's
3. Tracking billing schemes or purchases with a shell company
4. Overpayment on purchases
5. Not confirming receipt of materials or merchandise.
The solution is to set up specific accounting controls and requiring your bookkeeper to enter all vendor purchases properly so that you can track your total costs per vendor.
Most small business computer software is integrated with the credit card companies to import the data directly into the computer system. If you have the ability to use this function, do. It will save time for your bookkeeper from entering in all of those meal expense receipts.
Don't allow shortcuts or laziness to be an identifying factor in your bookkeeping system, it is doing you more harm than good.
Accounting Tips For Sole Proprietorships
Accounting can be tricky for the person who has just started his or her own business. If you are new to the business world then you need all of the advice that you can get. In particular you need advice that will save you money on your new venture!
One of the first accounting tips that you should learn is to keep everything as simple as possible when you are first starting down the road as a small business owner. The most basic business model that you could choose is what is known as a sole proprietorship. This is a type of ownership that does not necessitate any special filings to the IRS or any special type of communication until you come to a point where you have hired employees and need to set up their payment schedule.
Those who become sole proprietors are owners of a small company and are only required to obtain an occupational license if the county or the municipality mandates it. You are required to remit all city and state tax collections on any wholesale or retail sales collected by your company.
An important tip for sole proprietors who are concerned about personal liability is to purchase a personal liability umbrella policy. To avoid any liability issues, you need to learn your trade as well as you possibly can and make sure that you keep accurate and up-to-date accounting records.
As you go about building your business from the ground up do not spend too much time worrying about future communications that will be required with the Internal Revenue Service. The sole proprietorship model is such that the IRS will not even be aware that you have started a new business until you file your first income tax return.
Be smart about your accounting when it comes to the bank accounts you use. Even if you start with a really small business it is a good idea to keep your business expenses and any money connected to your company separate from your personal bank account. While it is not an absolute necessity to do this, it makes for a good business practice to do this from the very start.
It is an unfortunate reality that affects many entrepreneurs- over 90 percent of small companies fail within the first five to six years of getting underway. What you need to do to prevent this from happening to you is to plan ahead and know your business inside out before you open up shop. Do research and make sure that you are business savvy when it comes to accounting before you start. Whatever you do not know, learn. If despite all of your best efforts your company does not thrive and you decide to shut it down, then as a sole proprietor all you need to do is to end your business. When tax time rolls around fill out a Schedule C form and include it with your return and that is it.
One of the first accounting tips that you should learn is to keep everything as simple as possible when you are first starting down the road as a small business owner. The most basic business model that you could choose is what is known as a sole proprietorship. This is a type of ownership that does not necessitate any special filings to the IRS or any special type of communication until you come to a point where you have hired employees and need to set up their payment schedule.
Those who become sole proprietors are owners of a small company and are only required to obtain an occupational license if the county or the municipality mandates it. You are required to remit all city and state tax collections on any wholesale or retail sales collected by your company.
An important tip for sole proprietors who are concerned about personal liability is to purchase a personal liability umbrella policy. To avoid any liability issues, you need to learn your trade as well as you possibly can and make sure that you keep accurate and up-to-date accounting records.
As you go about building your business from the ground up do not spend too much time worrying about future communications that will be required with the Internal Revenue Service. The sole proprietorship model is such that the IRS will not even be aware that you have started a new business until you file your first income tax return.
Be smart about your accounting when it comes to the bank accounts you use. Even if you start with a really small business it is a good idea to keep your business expenses and any money connected to your company separate from your personal bank account. While it is not an absolute necessity to do this, it makes for a good business practice to do this from the very start.
It is an unfortunate reality that affects many entrepreneurs- over 90 percent of small companies fail within the first five to six years of getting underway. What you need to do to prevent this from happening to you is to plan ahead and know your business inside out before you open up shop. Do research and make sure that you are business savvy when it comes to accounting before you start. Whatever you do not know, learn. If despite all of your best efforts your company does not thrive and you decide to shut it down, then as a sole proprietor all you need to do is to end your business. When tax time rolls around fill out a Schedule C form and include it with your return and that is it.
Accounting Tips for Home-Based Businesses
Accounting is not very easy for a lot of people. However, it is very essential for every business. And as much as the accountant and bookkeeper need to be well-versed of it, the business owner equally needs to know even the simplest and most basic data in accounting. And to make it easier, it is worthwhile to note these tips for businesses, especially those that are based at home.
-Never neglect receipts. These are to be considered as among the most important things that you should keep for filing. Should anything go wrong with your payables or if a supplier asks you for payment for something you've already paid for, then you can use your receipt to prove your payment. It is best to keep your hard copy and file them. Also, in case these are lost, you should have a backup electronic file that you can get by scanning your hard copies.
-Even home-based business owners need to be careful with their tax filing. You should always take note to deduct all your expenses that are related to your business when you file your tax. Examples of these expenses are:
*Mortgage or rent. Whether you work from home or rent an office space, you can still deduct your rent from your tax. But you have to be specific as to how much space you are dedicating to your business at home.
*Utilities. Of course, you cannot rent a space and do business without having to use water and electricity. These can also be deducted from your taxes.
*Communication services. You can deduct your phone bills from your taxes. Otherwise, it would be impossible for your clients to reach you without a phone connection.
*Software. Businesses need software for data filing and storage. Expenses incurred from these software packages are to be deducted as well.
*Insurance. Insurance is very necessary for any business just in case something untoward happens. This can also be deducted from your tax. Dental, as well as health insurance, if you have any can also be taken off your tax.
*Transportation. You need to see your clients to start to make your business thrive. That is why client meetings and client calls are important. You can deduct such transportation expenses from your taxes as well. While you are also meeting them, you should also deduct your entertainment expenses from your taxes which may include drinks, snacks and meals.
*Security systems. Any business, whether home-based or in a building, should have security systems like alarms and surveillance cameras. You have to deduct your expenses on these as these are part of your company's safety and protection.
-Though accounting software for business is a way to save on money and expenses, you need to hire an accountant if you are not comfortable with your skills just yet.
-Get the best software for accounting from Shoebooks. It has different products that suit your company's individual needs. It also allows you to take your business anywhere with you as you please. By just using your admin login, you can have access to your business anytime.
Always remember that even home-based businesses also need the same time and attention as any other small business.
-Never neglect receipts. These are to be considered as among the most important things that you should keep for filing. Should anything go wrong with your payables or if a supplier asks you for payment for something you've already paid for, then you can use your receipt to prove your payment. It is best to keep your hard copy and file them. Also, in case these are lost, you should have a backup electronic file that you can get by scanning your hard copies.
-Even home-based business owners need to be careful with their tax filing. You should always take note to deduct all your expenses that are related to your business when you file your tax. Examples of these expenses are:
*Mortgage or rent. Whether you work from home or rent an office space, you can still deduct your rent from your tax. But you have to be specific as to how much space you are dedicating to your business at home.
*Utilities. Of course, you cannot rent a space and do business without having to use water and electricity. These can also be deducted from your taxes.
*Communication services. You can deduct your phone bills from your taxes. Otherwise, it would be impossible for your clients to reach you without a phone connection.
*Software. Businesses need software for data filing and storage. Expenses incurred from these software packages are to be deducted as well.
*Insurance. Insurance is very necessary for any business just in case something untoward happens. This can also be deducted from your tax. Dental, as well as health insurance, if you have any can also be taken off your tax.
*Transportation. You need to see your clients to start to make your business thrive. That is why client meetings and client calls are important. You can deduct such transportation expenses from your taxes as well. While you are also meeting them, you should also deduct your entertainment expenses from your taxes which may include drinks, snacks and meals.
*Security systems. Any business, whether home-based or in a building, should have security systems like alarms and surveillance cameras. You have to deduct your expenses on these as these are part of your company's safety and protection.
-Though accounting software for business is a way to save on money and expenses, you need to hire an accountant if you are not comfortable with your skills just yet.
-Get the best software for accounting from Shoebooks. It has different products that suit your company's individual needs. It also allows you to take your business anywhere with you as you please. By just using your admin login, you can have access to your business anytime.
Always remember that even home-based businesses also need the same time and attention as any other small business.
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