A balance sheet is a quick picture of the financial condition of a business at a specific period in time. The activities of a business fall into two separate groups that are reported by an accountant. They are profit-making activities, which includes sales and expenses. This can also be referred to as operating activities. There are also financing and investing activities that include securing money from debt and equity sources of capital, returning capital to these sources, making distributions from profit to the owners, making investments in assets and eventually disposing of the assets.

Profit making activities are reported in the income statement; financing and investing activities are found in the statement of cash flows. In other words, two different financial statements are prepared for the two different types of transactions. The statement of cash flows also reports the cash increase or decrease from profit during the year as opposed to the amount of profit that is reported in the income statement.

The balance sheet is different from the income and cash flow statements which report, as it says, income of cash and outgoing cash. The balance sheet represents the balances, or amounts, or a company’s assets, liabilities and owners’ equity at an instant in time. The word balance has different meanings at different times. As it’s used in the term balance sheet, it refers to the balance of the two opposite sides of a business, total assets on one side and total liabilities on the other. However, the balance of an account, such as the asset, liability, revenue and expense accounts, refers to the amount in the account after recording increases and decreases in the account, just like the balance in your checking account. Accountants can prepare a balance sheet any time that a manager requests it. But they’re generally prepared at the end of each month, quarter and year. It’s always prepared at the close of business on the last day of the profit period.

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Accounting has been defined as, by Professor of Accounting at the University of Michigan William A Paton as having one basic function: “facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this process to interested parties.”

As an example, a company’s accountants periodically measure the profit and loss for a month, a quarter or a fiscal year and publish these results in a statement of profit and loss that’s called an income statement. These statements include elements such as accounts receivable (what’s owed to the company) and accounts payable (what the company owes). It can also get pretty complicated with subjects like retained earnings and accelerated depreciation. This at the higher levels of accounting and in the organization.

Much of accounting though, is also concerned with basic bookkeeping. This is the process that records every transaction; every bill paid, every dime owed, every dollar and cent spent and accumulated.

But the owners of the company, which can be individual owners or millions of shareholders are most concerned with the summaries of these transactions, contained in the financial statement. The financial statement summarizes a company’s assets. A value of an asset is what it cost when it was first acquired. The financial statement also records what the sources of the assets were. Some assets are in the form of loans that have to be paid back. Profits are also an asset of the business.

In what’s called double-entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to show a higher amount of assets to offset the liabilities and show a profit. The management of these two elements is the essence of accounting.

There is a system for doing this; not every company or individual can devise their own systems for accounting; the result would be chaos!

When choosing a bookkeeping system for your online business, there are several factors to actually consider. But first, bookkeeping software can help you with things like:

- quoting off-hand your bank balance

- formulate better decisions regarding financial statements involving your business

- guidance on the proper set-up of books

- knowing the debt accumulated on you credit card

- process refunds efficiently and quickly

- organizing business receipts

- understand the importance of tax time preparation

- knowing how a service product is doing for the past months

With all stated, you really need a reliable bookkeeping system that can make all of the mentioned tasks above be made possible. As an owner, you have to have specifications on the kind of bookkeeping service you would employ.

A good and efficient bookkeeping service must be able to deliver a complete online managing of documents and data which includes reconciliation of bank accounts, credit cards, payroll services, taxes, financial overviews and reports, and even give an advice on the generalities. What are the characteristics that will help you determine if a particular bookkeeping system is the one for you? Here are a few to give you some ideas.

Cost Effective

You have to find a bookkeeping software for your online business that wouldn’t cost you that much. Bookkeeping services need not be expensive. Search for a software that will offer more than any full-time service and costs less. But, not because their services are a bit reachable, doesn’t mean that deliverance of processing is compromised. Their sweet and enticing words must be equivalent to the performance they promised.

Supportive

A supportive bookkeeping system will give you aspects about your financial status. It will try to explain what is currently happening to the present financial reports and will be able to provide good business advice. Financial reports which are timely are essential for the monitoring of a healthy business. The entire bookkeeping service as a whole should be able to work with you for the success of your business.

Standardized

Be sure that you are working with professionals and not just a bunch of wannabes. Bookkeeping employees must be well-trained to be able to convey outstanding performance towards industry. Services must follow guidelines which are well-developed with regards to quality, communication and process.

Timely and Accurate

Every process must ensure strictness to be able to ensure timely and accurate reporting. The software must enforce a certain kind of quality and is able to identify errors on bookkeeping. The software is expected to be updated at all times.

Seamless and Convenient Service

Documents must be arranged on a manner that will be convenient on your part as the owner to drop it all off on the different locations wherever part of the city. With just a matter of days, every important document will be securely indexed and uploaded for easier access with just a simple click of a button. Gone are the days where you have to rummage through every single invoice or receipt hoping all is not lost.

Choosing bookkeeping service for your online business can involve a lot of thinking but will definitely take away the worst part of being burdened with mountainous paperwork. As the owner, you can stop worrying about your pile and just go on with your life.

Thanks to technology, almost everything that you ever wanted is now very much available with just a click of the mouse. If you run an online business, then you have to remember that like in any other businesses, you will need to prepare a financial report for tax purposes. You have to have everything financial in your business recorded. From your income to your expenses, everything should be recorded and kept. This is called book keeping. However, book keeping for your online business can be a hassle, especially if you don’t know anything about book keeping.

Most businesses employ an in house book keeper in order for them to have a way to keep track of their business’s finances. However, this can prove to be too costly and impractical especially if you consider the fact that tax sessions doesn’t occur every month.

Today, you will see that there are now various book keeping service companies that offers book keeping services. If you want to save time and money, then outsourcing your book keeping job is what you will want to do.

This way, you will be able to have more time for your business and you will also save money by not hiring an in house book keeper. Outsourcing today has become very popular among a lot of businesses. It saves time, is efficient, and it also saves money. In fact, large companies can save millions of dollars in a year thanks to outsourcing.

However, when it comes to book keeping for your online business, you have to consider the fact that you need to choose the company carefully to do your book keeping jobs. First of all, book keeping is an obligation that you have to do correctly and accurately. If the person or company you hired made a mistake in your business’s books, then you will be in a lot of trouble with the government and the IRS.

The figures should match. If there is negligence in your books, then you will be investigated by the government and even audited.

Now, because of the fact that you need to concentrate more on your business, you may not have the time to do the books. This is why you will need the help of a professional.

There are numerous book keeping websites available today. Some can provide you with outsourcing services, while there are also others that you can hire full time to do your books.

When finding a book keeping service, make sure that the one you hire should be reputable in terms of doing their job right. You should also make sure that the staff are all professional book keepers and are experienced in this field.

A good sign would be a book keeping company that has a lot of clients. Because of the simple fact that they have lots of clients, you can be sure that a lot of companies and businesses trust them for this kind of job.

These are the things that you have to remember about outsourcing book keeping jobs. By outsourcing book keeping for your online business, you will be able to have more freedom in concentrating on running your business as well as save lots of money. Remember these tips and you can be sure that you will be able to find the right book keeper to outsource your business’s book keeping jobs.

Making a profit in a business is derived from several different areas. It can get a little complicated because just as in our personal lives, business is run on credit as well. Many businesses sell their products to their customers on credit. Accountants use an asset account called accounts receivable to record the total amount owed to the business by its customers who haven’t paid the balance in full yet. Much of the time, a business hasn’t collected its receivables in full by the end of the fiscal year, especially for such credit sales that could be transacted near the end of the accounting period.

The accountant records the sales revenue and the cost of goods sold for these sales in the year in which the sales were made and the products delivered to the customer. This is called accrual based accounting, which records revenue when sales are made and records expenses when they’re incurred as well. When sales are made on credit, the accounts receivable asset account is increased. When cash is received from the customer, then the cash account is increased and the accounts receivable account is decreased.

The cost of goods sold is one of the major expenses of businesses that sell goods, products or services. Even a service involves expenses. It means exactly what it says in that it’s the cost that a business pays for the products it sells to customers. A business makes its profit by selling its products at prices high enough to cover the cost of producing them, the costs of running the business, the interest on any money they’ve borrowed and income taxes, with money left over for profit.

When the business acquires products, the cost of them goes into what’s called an inventory asset account. The cost is deducted from the cash account, or added to the accounts payable liability account, depending on whether the business has paid with cash or credit.

While many businesses assume that accountants are bound by generally accepted accounting practices and that these are inviolate, nothing could be further from the truth. Everything is subject to interpretation, and GAAP is no different. For one thing, GAAP themselves permit alternative accounting methods to be used for certain expenses and for revenue in certain specialized types of businesses. For another, GAAP methods require that decisions be made about the timing for recording revenue and expenses, or they require that key factors be quantified. Deciding on the timing of revenue and expenses and putting definite values on these factors require judgments, estimates and interpretations.

The mission of GAAP over the years has been to standardize accounting methods in order to bring about uniformity across all businesses. But alternative methods are still permitted for certain basic business expenses. No tests are required to determine whether one method is more preferable than another. A business is free to select whichever method it wants. But it must choose which cost of good sold expense method to use and which depreciation expense method to use.

For other expenses and for sales revenue, one general accounting method has been established; there are no alternative methods. However, a business has a fair amount of latitude in actually implementing the methods. One business applies the accounting methods in a conservative manner, and another business applies the methods in a more liberal manner. The end result is more diversity between businesses in their profit measure and financial statements than one might expect, considering that GAAP have been evolving since 1930.

The pronouncement on GAAP prepared by the Financial Accounting Standards Board (FASB) is now more than 1000 pages long. And that doesn’t even include the rules and regulations issued by the federal regulatory agency that jurisdiction over the financial reporting and accounting methods of publicly owned businesses – the Securities and Exchange Commission (SEC).

If everyone involved in the process of accounting followed their own method, or no method at all, there’s be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.

If GAAP are not the doctrine used for preparing financial statements, then a business needs to make clear which other form of accounting they’re used and are bound to avoid using titles in its financial statements that could mislead the person examining it.

GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.

GAAP are not cut and dried, however. They’re guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You’ve surely heard the phrase “creative accounting” and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.