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Woman confused about her accounting information
Accounting information is the collected and stored particulars of the financial and accounting data of a business. It is used and processed by the internal users. An accounting system is generally computer based data. Accounting data usually comprises of much more that the financial statements, balance sheets and cash flow charts. It contains data of revenue, expenses, bookkeeping, customer information, data related to tax paid and due, and employee information. It also includes sales orders, purchase receipts, requisitions, invoices, ledgers and such financial statements of this type. 

Inventory is up to date in an accounting information system. Check registers that were previously made on old fashioned registers of paper are now maintained in computerized systems by installing special accounting data using specific software. Using this software makes data interpretation much easier to access and report.

As this accounting data is for company use only and it consists of customer and employee information and other sensitive data, they are highly secured. Security checks are maintained in the accounting information system and hackers and other external sources are prevented from accessing the data.

The data that an accounting information comprises is very important and it must be interpreted correctly. In the case of wrong interpretation, the company can go into loss. Because of this, entrepreneurs must know the basics of accounting data and its elements. They must fully understand their financial statements. While, of course, they can segregate the job to accountants and other personnel, the entrepreneurs must still understand the accounting information on their own. They should be able to access, interpret, and account for the information in both internal meetings and with the outside sources.

Financial mistakes pose an adverse risk to the growth of business and it can damage the reputation with the customers and suppliers.

Common Mistakes made in Interpretation of Accounting Information and How to Avoid Them 

1.  Business owners often mix their personal finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated, it is impossible to know what was intended for business and what was used personally. The amount of profit that was generated out of invested capital cannot be estimated correctly if the two are intertwined.

2.  Entries are not done in time. Getting behind in bookkeeping and the submission of entries of expenses or sales will not yield an up to date picture of the business and will not allow you to make timely decisions. It can lead to a negative balance if the expenses are entered but the income statement is not updated. Invoices to be paid by the company may go unnoticed and it can lead to a bad reputation of the company. It can even end terms with suppliers. Business growth is halted or significantly reduced when you do not enter data in a proper amount of time.

3.  Not setting up a proper software that is needed by the company leads to faulty decision making. Further more, installing the wrong (more complicated than required or lacking crucial functions) software can lead to inappropriate data entry. Sound decisions are hard to make when your company lacks the proper accounting software that it needs.

4.  Failure to double check the reports and statements and, instead, just relying on checking the amount of net profit may lead to many errors or malfunctions in business. Accounting information software is just a tool to use. Decisions must be made after completely checking the reports and interpreting the data. Data interpretation is made by comparing financial statements with the cash flow statements and the balance sheets.

5. Keeping all receipts until all taxes are paid and an audit is conducted is must. Even after that time period, receipts are very important for matching data entries in registers or in software.

6. After a long day of work, there is more of a chance of mathematical or data entry mistakes. Stay focused. One mistake can lead to big errors.

7. Entrepreneurs and business owners must focus on the long term consequences of the decisions they make after getting a full picture of their accounting information. Short term decisions after interpretation of accounts data do not set the business up for long term benefits.  Always focus on the future and the bigger picture.

Conclusion

Correct interpretation of accounting information is the backbone any business. Specifically, focus on accurate bookkeeping practices and be sure to pay attention to every little detail so that you can take that information and make wise decisions for your company.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Businesspeople Working On Laptop In Boardroom Together
Relying completely on accounting tools and your own understanding of the subject can turn out to be one of the most costly mistakes that you can make in your business. Working with an accountant who is licensed and qualified can save your business from many unwanted situations and can help to reduce your tax bill significantly.

When you decide that you need the services of a professional accountant or bookkeeper, you must have a clear picture in your head about what to ask them and when. It is important because you want to ensure what’s best for the business and asking the right questions is the first step in this process. Here are some key questions that you should ask an accountant before hiring them for their services.

Working with an Accountant – Key Questions

What will be the Mode of Communication and How Often do we need to Be in Touch?

This might seem like an obvious question, however, effective communication is the key to building a healthy relationship with your accountant. Decide early on about your need to meet face to face or via calls or emails. The frequency of your meetings should also be decided in case the accountant is working for you part-time. Even if have hired a full-time accountant, you will need to schedule a weekly meeting to understand how your business has been performing.

How can Working with an Accountant Save you from Excessive Tax Liabilities?

Preparing your documents to file tax returns is a tedious process which usually requires the services of a professional accountant. You must always ask accountants about their plan to save you from excessive tax burdens as well as filing an unblemished record of your financials. An accountant can help you to decide on your tax credits or deductions, which can be claimed, and any new laws that can help your business in any way.

What are some Key areas that need to be Consulted about on a Regular Basis?

A professional accountant is able to understand the dynamics of your business early and should be able to keep you informed about the critical factors that can affect your business. Your accountant should have detailed knowledge in areas such as corporate taxing, financial modeling, HR planning and GAAP. While working with an accountant, it is vital that they are able to help you make certain decisions, like hiring a full or part-time contractor and renting or buying a certain property.

The key is collaboration and if your accountant is able to work with you and can convey information without any confusion, you might taste success sooner than you think.

How to Nurture my Business?

For development, it is necessary to build a financial model from scratch, exactly to the requirements of your business. The model should be realistic and must account for strengths as well as weaknesses. You don’t want your business to be performing well on paper, while failing in reality. Explain the current scenario and your future ambitions for the business to your accountant and ask for a financial plan, which should help achieve those objectives.

What is the Plan to Manage the Cash Flow?

The job of an accountant is to manage your current cash flows and forecast the future ones. A plan needs to be devised so that when the times are tough, there is always some room to maneuver and you are not stuck. All of your receivables and payables go through the system that is devised by an accountant and nothing should go overlooked or missing.

What is the Value of my Business?

DCF (Discounted cash flow analysis) is a method which is used by accountants for the valuation of a business. Apart from your tangible assets, an accountant must be able to correctly estimate the fair market value of your business. Based on the overall value, you can further identify the aspects of your business that offer the maximum value. An accountant may require some time to accurately value your business, so don’t expect an immediate answer. Working with an accountant to assess your valuable aspects of the business can really be advantageous in the overall scheme of operations.

Are Accountants of any Help in Reviewing and Negotiating Business Contracts?

This question is more related to legal matters and should be asked by your attorney, however, some of the financial matters in a contract must go through an accountant as well. The attorney and accountant, with your collaboration, must be able to correctly determine the legal and financial boundaries of a contract. Critically scrutinize each contract for any possible clauses or points that could hurt your business in the future.

What are some Special Considerations while Working with an Accountant?

Every business has its unique needs which require a certain approach. Similarly, the accountant also has to feel at ease while working with you in order to give 100%. Be honest with your accountant and don’t hide anything because things will be disclosed at the time of auditing. Also, if you want your accountant to really help the business develop, take care of their concerns and talk to them if they have any issues.

Conclusion

The key to your business success depends on you collaboratively working with an accountant in your business. Asking the right questions at the start will ensure that you hire someone who is aligned with your goals and is able to handle all of the financial matters concerning the business.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.