Accounting Tips Guides

Certified Public Accountant (CPA) is a designation offered to qualified accountants, who have passed the Uniform Certified Public Accountant Examination in the United States and have the required state education and experience. The CPA license protects the public from inefficient individuals performing substandard accounting work.

New York State passed the first Accountancy Law in 1896, in order to test the qualifications of public accountants. It led to the issuance of a state license to allow people to practice as certified public accountants. Accounting then emerged as a profession with licensing requirements, code of professional ethics and certain standards of the profession. Later, other states also followed this lead and eventually fifty-four states and jurisdictions enacted the public accounting legislation.

The Board of Accountancy of each jurisdiction bears the responsibility for licensing candidates, as well as for compliance with the state accountancy laws. Several states do not allow the use of the designation Certified Public Accountant or Public Accountant by a person who is not certified as a CPA or PA in a particular state. Consequently, in many cases, the use of the CPA designation is not permitted out-of-the-state, until you get a license or certificate from the state. A CPA can also choose to become a member of the local state association or society.

Benefits of the membership to a state CPA:

Members of a state CPA enjoy a number of benefits ranging from major discounts on seminars that qualify them for continuing education credits, to protecting the profession as well as public interest by tracking and lobbying legislative issues that affect local state tax and other financial issues. Besides these, members of the state CPA also get dental, medical, disability and life insurance products along with the defined advantages and contribution retirement plans. They enjoy three weeks paid leave and ten holidays annually and 3 weeks sick leave, in the first year. In addition, they are also granted flexible working hours, comp time, tuition reimbursement as well as longevity pay.

As a member of an IT Section, working for CPA also enjoys an array of benefits. They are as follows:

. It offers its members with an opportunity to participate in the AICPA annual Top Techs Initiative. The members of the IT Section are also allowed to vote for the annual Top Technologies list.

. It grants the access to communities, where you can exchange your knowledge with other experts of CPA business technology.

. It allows the members to communicate on critical regulatory issues affecting your practice.

. It provides an opportunity to its members to be a part of the practical business implications initiated by new technological advancements.

. It allows access to the Info Tech Update that is an exclusive bi-monthly newsletter that covers the latest technological developments and necessary practice-related information.

. Members of the IT Section of CPA can also avail of a bi-monthly news- magazine, the only CPA focussed technology magazine. It helps assist the public accountants to select their own software solutions and advice their clients on accounting and business management software decisions.

. It also gives deep discounts on selected AICPA Web-casts, conferences like the annual AICPA Tech conference and publications.

. Members can also get the IT E-News, which is an exclusive monthly email publication. It contains the latest news and resources for practicing CPA-technologies and tools.

Former IRS Agent offers California Estate Planning. CPA Firm Murrary and Young offers expert accounting consultation to those in and around the California Area. Visit http://www.april15.com

Financial statement users hope that historical performance reflected on income statements might provide some meaningful grounds for predicting a company’s future performance. In the case of well established businesses operating in stable environments this would be a reasonable expectation. It’s too bad that in the real world there are so few businesses like this. Nonetheless, hope (or wishful thinking) springs eternal. For this reason generally accepted accounting principles (GAAP) rule makers allow management to distinguish between ordinary versus extraordinary gains and losses reported on income statements. The idea behind separating the extraordinary from ordinary results is that such a separation will give statement users a more realistic picture of operating results going forward.

There are two criteria for reporting extraordinary losses or gains. The events driving the gains and losses must be unusual and non-recurring. Actually almost always the concern is with extraordinary losses rather than gains. This is because managers are usually quite content to consider almost all gains as ordinary and most losses as extraordinary.

Some Extraordinary Recent Examples

The following examples of extraordinary losses are cited in “Intermediate Accounting” (Kieso, Weygandt, and Warfield;Wiley Press):

Losses incurred by timber companies due to the eruption of Mount St Helens were deemed to be extraordinary. However, GAAP rule makers deemed losses from the 9/11/01 attack on the World Trade Center not to be extraordinary. How the former event could be considered unusual and nonrecurring while the latter was not is very hard to understand.

The authors comment that GAAP rule makers were reluctant to characterize the losses stemming from 9/11 as extraordinary because they feared managers would allocate losses not related to the attack. Of course the same thing could have happened in the case of the Mount St. Helens eruption as well.

Corporate Restructurings: Unusual or Non-Re-occurring but Not Both

From the above example you might infer that it would be hard for management to show any gains or losses separate from those deemed to be ordinary. Think again. GAAP allows management to show separately the results of events that are unusual or non-re-occurring but not both. As you can imagine this opens the door to all kinds of mischievous allocations and disclosures.

The most mischievous separate disclosures involve what are euphemistically called “Corporate Restructurings”. Like most euphemisms this term puts a sanitary gloss on some really ugly messes. Restructurings usually involve plant closings and relocations, widespread employee layoffs and other unpleasantness. But more to the point they also usually involve big losses And of course corporations are always restructuring. So it is very common to see a corporation’s income statement have a separate line labeled “Restructuring Charge”. And usually to the immediate right is a very large bracketed number.

Example. Having experienced declining market share and profits Mizer Pharmaceuticals lays off 30% of its staff, closes research facilities, relocates manufacturing facilities to Somalia and doubles the salary of the CEO. Losses are in the 100s of millions. Instead of showing the losses as ordinary they are classified as a Restructuring Charge. A more accurate label for these “Restructuring Charges” might be something like “Losses due to Mismanagement”.

Is Anyone Fooled?

Probably not. Nonetheless allowing income statements to include large losses labeled as restructuring charges cannot enhance financial statement user’s confidence in the quality of the accounting information they are getting.

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.

http://understand-accounting.net

Microsoft Excel spreadsheets are an indispensable tool for accountants, being widely used to create financial statements as well as to produce many other types of financial reports including budgets, forecasts, cash flow and financial models. Many accountants consider themselves to be experts in using Excel but the reality is that the majority are self taught and are not aware of how to utilise the full potential of Excel. With some basic excel software training the wealth of functions available to the accountant within Excel can be identified and put to use.

Calculation Functions
Basic arithmetic functions such as SUM() and border formatting will enable you to produce useful models and perform some quite complex calculations. By expanding your knowledge of just some of the many other functions, Excel can become a much more versatile tool.

There are many financial functions available for carrying out interest and investment calculations which can greatly simplify the long formulae normally required for e.g. loan repayment. Care needs to be taken to check that the functions work in the same way as your own textbook formula but, once you have tested the functions in a variety of situations and confirmed the results, they can greatly simplify tasks such as determining the net present value.

If you wish to only perform calculations on items within your data that meet specific criteria, the Database and Array functions are very useful. The SUMPRODUCT() function is also a very good alternative. It is able to extract all sorts of values from a table of data and can be used as an alternative to a considerable number of functions.

Pivot Tables
Many Excel users are not familiar with Pivot Tables, which is one of the most powerful features of Excel. A pivot table is a great reporting tool that will sort and sum data independent of the original data layout in the spreadsheet. By dragging and dropping column headings around you can change the way the data is viewed. For example, take a list of rows each containing an employee name, week number, expense item description and expense amount. Using pivot tables, the data can be easily transformed into a table summing the total for each employee week by week or the total for each expense item by employee. The options are almost endless and can moved between at the touch of a button.

Auditing and Checking Features
Accountants have a professional responsibility to ensure they are presenting accurate data. To remove the chance of critical errors they should ensure that spreadsheets have been well designed and rigorously checked. Use of the IF() and TEXT() functions help by allowing error checking messages to be incorporated and demonstrate that the models have been reconciled and are performing properly.

Other features such as the validation tool, to check data falls within specified ranges and the audit toolbar, which will highlight the cells which combine to produce an error are also powerful tools in ensuring that data is presented accurately.

Protection of Data
It is always helpful to make your models user-friendly. Protecting or restricting the values that can be placed in cells can help to prevent unforeseen errors. Options are available in Excel to allow you to protect all or just selected cells within a worksheet. This allows you to restrict the cells where data can be input and prevent your formulas being accidentally overwritten or amended. Using drop down boxes is another good option available to limit the values that can be entered by users.

Whatever you are using Excel for, it is important that you attain the knowledge required to enable you to complete your everyday tasks. Excel software training can give you this knowledge and equip you with the skills you need to work more accurately and efficiently.

Author is a trainer with a Microsoft Office training company, the UK industry leader in its sector. For more information on Excel training, please visit http://www.MicrosoftTraining.net.

First, unless you are planning on going public or have hundreds of stockholders do not form a C Corp to begin with. Use an S Corp or an LLC. If you currently are a C Corp ask your attorney or tax advisor about converting to an S Corp. If you sell your company within a 10 year period of converting to an S Corp the sale can be taxed as if you were still a C Corp.

Here is what happens when there is an asset sale of a C Corp. The assets that are sold are compared to their depreciated basis and the difference is treated as ordinary income to the C Corp. Any good will is a 100% gain and again is treated as ordinary income. This new found income drives up your corporate tax rate, often to the maximum rate of around 34%. You are not done yet. The corporation pays this tax bill and then there is a distribution of the remaining funds to the shareholders. They are taxed a second time at their long term capital gains rate.

Compare this to a C Corp stock sale. The stock is sold and there is no tax to the corporation. The distribution is made to the shareholders and they pay only their long term capital gain on the change in value over their basis. The difference can be hundreds of thousands of dollars.

Secondly, keep all assets that may appreciate in value outside the C Corp and in an LLC. Your real estate, patents, intellectual property, etc. should be held in a pass through entity so you avoid the potential high C Corp corporate tax rate and the double taxation if you do an asset sale.

Let’s say that you are a C Corp and the buyer refuses to do a stock sale. If you can get the buyer to move as much of the transaction value to a covenant not to compete, you will be much better off. That will be taxed to you personally at the long term capital gains rate and not the corporate tax rate and the gain can be spread out over the non-compete period.

Another approach you can use is “Personal Good Will”. This is where the seller’s reputation, expertise, and relationships are in effect separated from the assets of the company and account for as much of the good will value as possible from the business. So let’s say that the company sells for $8 million dollars and the amount allocated to the hard assets is $6 million. That leaves $2 million that can be classified as good will. If that good will is assigned to the C Corp, it will be taxed at the 34% rate and then taxed again when it is distributed to the shareholders at 15%.

If you can move that amount to personal goodwill for the owner, it is paid directly to him and he gets taxed at the 15% rate only. The calculation looks like this: If the good will is $2 million and is allocated to the C Corp. They pay $680,000 in corporate income taxes. The $1,320,000 remaining gets distributed to the shareholders and an additional 15% tax is paid or $198,000 for a total tax on that $2 million of $878,000. Moving it all to personal goodwill results in a total tax on that $2 million of $300,000, a savings of $578,000. This approach was pioneered in a classic IRS case called the Martin Ice Cream Case.

There is a built in bias on the part of buyers with the advice of their attorneys to avoid doing stock sales because you buy everything including any hidden liabilities. You as the seller want to convince the buyer to do a stock sale by demonstrating that there are no hidden liabilities. Another argument you can use is that most contracts are not assignable without the consent of the other party. In an asset sale it could be problematic to get assignments of a large quantity of contracts. An example is if your company is in a favorable long-term property lease the landlord will never agree to an assignment of that lease. If you have a long-term contract with a government entity, a change in ownership can trigger a contract end. In a stock sale these are not issues.

There are many variables in a business sale negotiation. Price, Cash at close, Stock versus Asset Sale, and allocation of purchase price. The IRS does not allow the buyer’s allocation of purchase price to be different than the seller’s. It also must be noted that from a tax standpoint, something favorable for the seller is correspondingly less favorable for the buyer. An experienced buyer will structure the deal in the most favorable way for himself. Sellers must get good advisors to help them negotiate to achieve the maximum after tax proceeds.

href=”http://www.midmarkcap.com/SellerResources.cfm” target=”_blank”>Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

There is nothing worse than preparing Income Taxes and finding that there were many deductions we didn’t keep track of. Not keeping track of deductions can be very costly come tax time. It is very important to keep good records all year round.

For every dollar you don’t deduct, you could be paying up to 35% back to Uncle Sam. If the dollar has been spent, taxes shouldn’t have to be paid on it. Think of the productivity of your business if you could put 35% of your income back into your business rather than in the hands of politicians. What kind of advertising campaign could you do with 35% extra cash flow every month. With a little organization and planning this can be possible.

Most business owners remember to take the big obvious deductions such as cost of goods sold, materials, tools, supplies, and employee expenses. But often times it is the small seemingly insignificant deductions that can make or break a company. Lone Peak Business Solutions has the 10 most commonly missed business deductions.

1. Advertising - Business cards, newspaper ads, information packets you hand out, free samples, flyers, product testing, videos and CD’s.

2. Children - Money paid to children for helping with such things as delivering flyers, product, stuffing envelopes, cleaning office and car, etc.

3. Dues and Subscriptions - Dues to professional organizations and magazines that have to do with your trade or business.

4. Educational Expense - Classes or seminars that you take to improve your business.

5. Gifts - Gifts to clients and associates.

6. Laundry and Cleaning - This includes uniforms and Protective clothing and also your clothing when you are out of town.

7. Travel - Hotels, airfare, cab fare, parking, cleaning while away from home, trip log.

8. Home Office - A home office must be a separate room in your home to do business and accounting. Part of your living room or bedroom will not count. A percentage of utility Bills, home owners insurance, property tax, mortgage interest, refinance fees, repairs and maintenance, cleaning supplies, office decor, etc. are deductible. You find out the percentage by dividing the square footage of the office by the square footage of the entire house.

9. Mileage or Vehicle - There are two ways to take a vehicle expense. One is to take the mileage you use when picking up product, supplies, office supplies, meetings, handing out advertising or business cards, meals and entertaining clients, etc. The other way is to take the expense of using the vehicle: fuel, parts, mechanics, oil changes, etc. Along with taking expenses, you can also depreciate the vehicle.

10. Telephone - Cell phone, long distance calls on home phone, extra phone lines into home for business, fax or Internet.

Items such as paper clips, bank charges, credit card charges and home office expense seem small and unimportant at the time, but multiply those little things over a year or two and then multiply it times 35% and it can add up to quite a bit of money that should be in your pocket rather than in the government’s pocket.

Along with keeping track of expenses it is important to evaluate your income and expenses on at least a quarterly basis. This allows you to determine if too much is being spent any one place. It allows you to determine if all the deductions that can be are being claimed. It allows you to determine how to better increase sales and decrease costs.

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.

Small businesses rely heavily on maintaining a good cash flow and having their clients pay on time. When a majority of small businesses are dealing with checks written against insufficient funds, that is indeed bad news for small businesses everywhere.

Recent studies have shown that small, medium and large companies have had many bounced checks. Micro companies, with less than 10 employees, have been less affected.

This frequently happens when someone pays a business by check for goods or services. The business deposits the check into its bank. The prudent business owner checks that the check has cleared and writes out new checks based on the money that is in the business bank account. It later turns out that the check may not have cleared at all and the business owner is now overdrawn and in debt. This means steep bank charges and makes it less likely that business facilities will be extended in the future.

Understanding The Check Clearing System

Most people know that a check takes anywhere from three to seven working days to clear. The date that a check clears depends on:

1. The currency in which the check is written. For example, US Dollar checks clear more quickly than checks written in French francs.

2. Whether the bank that has issued the check belongs to the same group of companies as the recipient bank. Checks usually take longer to clear when paid outside the banking group.

3. Whether the check is paid in on a business day.

What most people don’t know is that most banks ‘clear’ checks when the normal clearing period has elapsed. This sometimes happens before the bank has verified that the funds are available. The bank makes the amount of the check available for withdrawal but it hasn’t really cleared.

Some unscrupulous people can use this to their advantage. For example, they could pay by check for goods or services, write the wrong amount on the check, ask for a refund and disappear with the money well before the check clearing process is complete. When the original check bounces, it is the small business that is left facing an angry bank manager and a large bill.

Payment Help For Businesses

Fortunately, there are now some fairly basic and relatively inexpensive ways for businesses to receive money from their customers. Here are a few “Do’s” and “Don’ts” for you to follow. You can minimize or eliminate your bad check losses if you stop trouble before it starts.

1. Seek out and retain the advice of a competent Certified Public Accounting (CPA) firm. If you think you have a leaky pipe in your basement, you wouldn’t want to fix it yourself, would you? (Remember “The Bill Cosby Show” episodes?) A CPA is a professional that is trained to fix leaky financial systems. Retaining a CPA not only can guard your business from bad check writing, but also may catch and flag down a whole host of uncontrolled debits against your checking accounts.

2. Convert your accounts receivable systems to one or more trusted automated systems. These will ensure that secure funds are being deposited into your accounting system for the goods you have sold or the services you have rendered.

3. Your CPA accounting firm can provide you with many leads with which you can build secure money transfer capability into your financial system. Your bank can also provide very valuable assistance. It’s just a matter of doing some digging for advice and answers.

Business owners who are worried about being left with a large paper check debt should consider getting their customers to adopt one of these bill pay systems where possible. This will reduce the high business cost of bounced checks. As incentives, the business can advertise a number of “freebies” to its customers. In that manner, we all win.

Bob Carper is a veteran information systems consultant with an MBA from Pitt. For additional information go to All About Webconferencing or Effective Web Design. You may also e-mail Bob at robertcarper06@comcast.net