Generally Accepted Accounting Principles or GAAP is the industry shorthand for a set of accounting standards and procedures followed by most businesses in the United States. A business that needs to be evaluated by third parties should strongly consider using GAAP to streamline those evaluations.

 

Both public and private companies utilize GAAP standards to stay abreast of their financial performance and for tax purposes. These ideals improve clarity and consistency in communicating a business’s financial situation.

 

If you believe your small business may eventually be subject to GAAP, you may want to adopt these values as early as possible. If you intend to sell someday, you should strongly consider conforming with GAAP. Understanding the individual principles will assist you in vetting the right people to advance you on this path.  

 

This article walks you through each of these concepts so you can determine how best to apply them within your organization.

 

Principle of Regularity

 

The principle of regularity states that GAAP compliance happens throughout the entire accounting period. Individuals cannot pick and choose which accounting methods they use period by period for their financial statements.

 

Accountants must adhere to these generally accepted accounting principles provided by the Financial Accounting Standards Board or FASB. Then, they must ensure these procedures remain consistent thereafter. 

 

Principle of Consistency

 

The accounting team should adhere to the same practices across all internal income statements during all accounting periods. This process ensures consistency when comparing multiple periods.   

 

Accountants must explain any variability in this process within the footnotes of the income statement.

 

Principle of Sincerity

 

Accountants should remain unbiased with the utmost goal of providing an accurate and objective depiction of the company’s financial health.

 

An objective perspective provides great significance to an organization. Many businesses choose to employ independently audited financial statements.

 

Principle of Permanence of Methods

 

The principle of permanence requires identical financial reporting methods applied throughout each accounting period.

 

This principle aims to increase clarity around a business’s financial statements and prevent switching methods to get more favorable-looking results.

 

Principle of Non-Compensation

 

Per this principle, accountants must report all positive and negative values within the financial statements with complete transparency without attempting to hide debts behind assets or costs behind revenue.

 

Principle of Prudence

 

Financial data should be gathered and reported “as is” without speculation or adjustments. A prudent or conservative approach ensures the company’s financial performance is not inflated.

 

Principle of Continuity

 

Accountants who produce financial statements that conform with GAAP work under the assumption that the business will continue its operations indefinitely. 

 

This assumption means that assets are priced at their historical value or original cost rather than their current value.

 

Principle of Periodicity

 

All financial entries are distributed across the appropriate accounting periods. This principle prevents stretching periods or numbers to adjust the final numbers within a financial report.

 

For example, if your business provides a service like auto repairs. You may complete the work on the car in November, but the insurance doesn’t pay until December. If you are an accrual-based company, the revenue for the job must show up in November on your financial statements because that’s when your business earned this money.

 

Principle of Materiality

 

A material event is anything that affects a company’s financial standing. Therefore, accountants must provide full financial disclosure and report all financial data to the best of their ability.

 

The materiality principle also allows the accountant to use leeway to GAAP principles and use their best judgment when recording a transaction or addressing an error.

 

Principle of Utmost Good Faith

 

This principle comes from the Latin phrase “uberrimae fidei.” It means accountants and business managers should act in good faith by honestly recording transactions and collecting financial data.

 

Although optional for non-publicly traded companies, GAAP is viewed favorably by banks and creditors. Most financial institutions will require annual GAAP-compliant financial statements as a part of their debt covenants when issuing business loans.

 

These principles are important because they provide an accounting team with the framework for reporting and analyzing data. It keeps all organizations on a level playing field for benchmarking. On the other hand, if each business reported its financials differently, it would be challenging to compare metrics.

 

On a final note, as a small business owner, it is essential to understand the basic concepts involved in these common accounting principles to understand e your accountant’s viewpoint. This information will help interpret the bigger picture and detect potential hurdles when considering any changes further down the road. 

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

The world of accounting has many moving parts. Many businesses follow an accounting cycle to keep track of the books and remain on a consistent schedule.

 

There are eight steps involved in this cycle. Upon completion, a company can ensure that every dollar is accounted for and reflected properly in the financial statements. 

 

Here is a checklist to use every month or at the end of an accounting period. Once completed, you can move on to the next period with a fresh, clean slate.

 

1. Transactions

 

We kick off the process by identifying and analyzing the financial transactions. These transactions include all monetary movement in and out of the organization. 

 

Activities would include but are not limited to receiving payment for an invoice, paying for utilities, selling products, purchasing equipment, and payroll.

 

2. Journal Entries

 

Journal entries are records of the initial transactions. Often, a bookkeeper manages and records these daily transactions and puts them in chronological order. 

 

Journal entries are a comprehensive way to keep track of money in and out of the company.  

 

In double-entry accounting, there must be two entries for each transaction. When a credit occurs, there must be a resulting debit. 

 

3. Posting

 

Each journal entry is organized and summarized in the general ledger. The general ledger is a record that categorizes all of the transactions into one of the accounts (categories) listed below:

 

◦ Assets

◦ Liabilities

◦ Equity

◦ Revenue

◦ Expenses

 

When posting to a general ledger, it is crucial to match the transaction with the correct account and subaccount, such as rent, marketing, loan payments, etc.

 

4. Trial Balance

 

At the end of an accounting period, a trial balance assures that all debit and credit totals are equal. Therefore, running this common report makes discrepancies easy to identify. 

 

The trial balance brings to light the unadjusted ratios for each account and subaccount posted in the general ledger. 

 

When the total for all credits does not equal the total debits, a mathematical or recording error was made somewhere earlier in the process and must be fixed in order for “the books to balance.”

 

5. Worksheet

 

Unfortunately, many times, the first calculation of the trial balance will produce a discrepancy. Meaning the credit total does not equal the debit total. Therefore, adjustments need to be calculated until these equate.

 

Adjusting these entries is also called the worksheet analysis. Here is where we can identify when payments aren’t received, or a transaction wasn’t recorded. These discrepancies must be identified and eventually corrected before the period ends.

 

6. Adjusting Journal Entries

 

Once discrepancies related to cash transactions have been identified and entry adjustments recorded, it is time to recalculate a new trial balance.

 

You’ll then want to add any journal entries for non-cash transactions, such as a deferral or depreciation.

 

Once the trial balance is complete and the credits and debits balanced, you can move forward with producing financial statements.

 

7. Financial Statements

 

Now that the accounts are adjusted and recorded correctly in the general ledger, we are ready to create the financial statements.  

 

Financial statements include the following:

 

◦ Income Statement

◦ Balance Sheet

◦ Statement of Cash Flow

◦ Statement of Retained Earnings (optional)

 

The insight you and the company’s management will gain from these financial statements will aid in planning the next steps.  

 

8. Closing the Books

 

The last step in the accounting cycle is closing the books. Closing ties up all loose ends and occurs at the end of each accounting period. Accounting periods could be every month, quarter, year, or other consistent timeframes.

 

After the books are closed out, the cycle starts all over again with the new period. New revenue and expense accounts start over with zero balances.

 

In the most basic terms, the accounting cycle is the process of ensuring the accuracy of the books. This process demonstrates all money going in and out is accounted for and balanced.

 

Errors made throughout this process typically occur. Therefore, having a procedure for identifying and examining these errors is recommended for all organizations. 

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

It is virtually impossible to run a successful business without a continuous supply of cash that is easily accessible. Here is why understanding your company’s working capital is pivotal to creating a powerful organization.

 

Management teams tend to focus on the profit and loss statements or P&L, which is a formidable picture of what has already happened. However, managing your cash flow requires you to predict the future consistently. If not, cash flow quickly becomes a stratified problem that can have devastating consequences. 

 

This article will discuss working capital definitions and concepts you can implement in your business to improve cash flow management and reduce volatility and future financial stress.

 

What Is Working Capital?

 

Working capital or net working capital (NWC) is the difference between current assets and current liabilities. A liquid asset can be bought and sold quickly without affecting its price. 

 

Current assets, such as cash, securities, inventory, and accounts receivables, are resources a company owns that can be used up or converted into cash within one year.

 

Current liabilities are the amount of money a company owes. Examples of liabilities include debt repayment, accounts payable (bills due), and operating expenses due within the year. 

 

In its most basic form, working capital is part of your cash flow management approach.

 

Business Uses

 

NWC can be both positive and negative. The amount an organization needs to run smoothly varies depending on the size of the business and the industry. Of course, the more working capital a company has, the better its financial position. However, this number changes over time.

 

Retailers, for example, will see higher working capital during the holiday season when sales are at their highest. During these same months, a pool manufacturer will likely have lower liquidity to run their business.

 

Financial industries will frequently lend money to organizations during these off-peak periods. This movement of funds often requires tight monitoring between the company’s management team and the bank itself.

 

Businesses watch both their accounts receivable and accounts payable to help forecast future earnings. A shortfall occurs when the amount of money owed by the company is greater than the revenue coming in.

 

Mistakes to Avoid

 

Having a positive NWC is the objective, as the company will not need to borrow money. At the same time, an organization doesn’t want too much cash or liquidity. Excessive working capital means funds remain idle, which aren’t earning a profit for the business. 

 

Regular, high NWC could be used to increase social media marketing or other marketing strategies, provide additional training, or purchase software that could increase efficiency. 

 

Lastly, and perhaps the most severe working capital mistake is not having a proper cash flow management system in place. Although it may seem to be a good idea to pay bills as soon as they come, you may want to hold off until more invoices are paid. The consequence of paying a bill too soon might mean not having enough money for next month’s inventory or payroll.

 

Tips to Improve

 

Since NWC is current assets minus current liabilities, there are mainly two ways to improve your working capital. A business can increase existing assets or reduce liabilities.

 

A business can also tweak the dates that invoices are due. Companies can offer incentives to their customers to collect the receivables sooner. Conversely, an organization may negotiate a debt extension with creditors or suppliers.

 

Once you have a solid cash management process in place, you will be able to determine the best course of action for new spending. For example, in the long run, it might be cheaper to buy inventory in bulk; however, after plugging in the numbers, you may determine this would be sacrificing too much valuable working capital, which may result in inadequate NWC to package and ship. 

 

Overview

 

Working capital is one of the most critical metrics to running a business. Insufficient EWC amounts to a shortage of resources and even layoffs. At the same time, too much liquidity could mean the company is not reinvesting its money to improve the business.  

 

Most businesses fail, not because of a lack of profits but because of poor EWC management. Cash flow management is critical, and the sooner you can initiate a consistent process, the more flexibility you will have to expand and grow.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

If you manage your business finances on an ongoing basis, the central concept you need to establish is profitability. Understanding gross profit and calculating it on a continuing schedule is a cornerstone to building and growing your organization. 

This discussion defines gross profit, cost of goods sold, how to calculate gross profit and gross margin, and why this is important to the future of your business.

What Is Gross Profit?

Gross Profit or GP is the revenue from sales minus the costs to achieve those sales. The cost associated with sales is known as “Cost of Goods Sold” or “COGS” and is often in its own section on your income statement.

GP tells you exactly how much your company would have made if you didn’t have administrative or other expenses that weren’t directly associated with the product or service you provide.

To better understand gross profit, we must also look at our expenses.

Expenses or costs are divided into two categories: fixed and variable cost. Fixed costs are counted as operating expenses and remain consistent month to month. They are often grouped into a section called “Sales, General & Administrative” or “SG&A.”

Variable costs (COGS) cover all other expenses. 

Fixed cost examples (SG&A):

• Rent
• Office Phones
• Salaries
• Employee Benefits
• Insurance
• Payroll Taxes

Variable cost examples (COGS):

• Utilities Not Fixed
• Hourly Labor
• Packing and Shipping
• Equipment
• Depreciation

Cost of Goods Sold

The cost of goods sold or COGS on an income statement represents all of the expenses a business pays to manufacture, source, and deliver a product to the customer. This amount is subtracted from the organization’s revenue to determine gross profit.

COGS are everything from raw materials to freight charges. Costs like marketing expenses and overhead are not included. However, the cost of goods sold does include paying the labor force that makes and assembles the final product. 

The cost of goods sold is crucial because this is the true cost of doing business. If COGS increases, gross profit will decrease. Knowing these costs helps managers and investors understand the company’s bottom line.

Calculating GP

The gross profit calculation is one of five equations used to measure a company’s profitability. 

GP is calculated by subtracting the cost of goods sold from the revenue. 

For example, let’s say you manufacture coffee beans. You would first total the COGS, including buying the raw Cacao beans, utility costs for roasting the beans labor costs for assembling the beans for packaging, and finally, the cost of shipping the beans to the customer. 

If the total sales revenue for selling the beans for the month is $800,000 and the cost of goods sold totals $600,000, then you made a $200,000 net profit for that month.

The final equation would look like this:

Gross Margin

Gross margin is the gross profit expressed as a percentage of revenue and is calculated by dividing the gross profit by the sales or revenue and then multiplying by 100.

Let’s use our coffee bean manufacturing example again. We would complete the formula by inputting the gross profit and dividing it by the revenue, multiplying it into a percentage. 

Therefore, every dollar of coffee bean sales generates about 25% gross margin. 

There are two ways to improve your gross margin. A business can increase its product price or lower the variable costs associated with producing these products. 

Long-Term Effects 

Utilizing gross profit will encourage managing an organization’s labor and supplies in the production process. It will help you identify critical sectors to reduce costs and increase revenue in the planning process.

“We look at gross profit margins on a weekly basis to be adaptable and pivot at speed while providing proactive leadership and fact-based decision making,” says Claude Compton, founder of Pave Projects. “This regularity allows the business to ride out changing tides and isolate any issues before they become a long-term problem.”

In addition to making changes, monitoring your business’s profit margins on each line of business will give you useful data to identify the most profitable areas within your organization and scale them. 

 

How FINSYNC Can Help

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

 

Bookkeeping and Accounting are two very critical disciplines within any organization. Often, these two terms are used interchangeably as they share a common goal in handling a company’s finances.

 

Accounting is the process of recording, classifying, selecting, measuring, and communicating the financial data of an organization to enable users to make decisions.

 

Bookkeeping is a component of accounting that maintains and records all daily financial transactions. 

 

Let’s take a closer look at the distinctions between these two valuable professions and how working with both bookkeepers and accountants will benefit your organization. 

 

1. Bookkeepers Organize Financial Data

 

The primary role of a bookkeeper is to record the individual transactions for a business into the general ledger, which summarizes all the financial information you have about your business. 

 

Examples of these transactions are listed below:

 

1. Posting debits and credits such as sales or operating expenses

2. Reconciliations or matching the transactions to the bank ledger

3. Delivering reports such as the balance sheet or income statement

4. Calculating and preparing payroll checks

 

A bookkeeper inputs the financial data on a day-to-day basis. Ensuring the daily monetary transactions is what keeps a business running smoothly. 

 

2. Financial Statements

 

Accountants start with the records the bookkeepers create, sometimes changing categorizations and adding non-cash journal entries, to then look at the business from a larger perspective. These records enable an accountant to analyze and interpret the data in reports that become great resources for business managers.

 

In addition to more specific reports, these financial statements are typically included in a reporting package prepared by an accountant:

 

◦ Income statement

◦ Balance sheet

◦ Statement of cash flows

◦ Statement of retained earnings – optional

 

These main financial statements are audited by accountants, government agencies, and other firms to ensure accuracy for tax, financing, or investing purposes. 

 

3. Analysis

 

Accountants are proficient in taking the information from the financial statements and general ledger and extrapolating the data to reveal higher-level financial structuring and analysis for a business. 

 

Accountants will set, organize,  and analyze financial indicators while scrutinizing any inconsistencies or irregularities. 

 

The result is a better understanding of actual profitability and awareness of cash flow in your organization. This information is essential in forecasting and predicting a company’s future trajectory. 

 

4. Management Decisions

 

A business management team will use the data interpreted within the financial statements to make decisions that affect the organization’s future direction. 

 

Any accountant may summarize their analysis and make recommendations to these decision-makers. They also can investigate any out-of-the-box discrepancies or address complex accounting issues. 

 

Most importantly, your accountant is a crucial advisor that can help you analyze the future: the impact of purchasing new equipment, hiring new team members, switching vendors, etc.. Accountants can list the financial ramifications of these vital management decisions.

 

5. Skill Sets

 

The required credentials between a bookkeeper and an accountant are perhaps the most significant difference between the two roles.

 

While bookkeeping may require specific skills, software knowledge, and training, no formal education or certification is required. The basic requirements are to be detail-oriented, excel in basic math, and be highly organized.

 

Accounting positions generally require a bachelor’s degree in accounting or a related field such as auditing. 

 

In addition, many accountants have a CPA or Certified Public Accountant credentials. Most state boards require at least two years of direct experience before an accountant can sit for the CPA exam. This license should be continually renewed with additional classes and certifications.

 

Summary

 

There is a high level of overlap between a bookkeeper and an accountant. But for the most part, bookkeepers are concerned with the day-to-day maintenance of financial data. At the same time, accountants are focused on leveraging the company’s financial metrics to make wise business decisions. 

 

If you are a small or medium business owner, your finances need to be in order. Without procedures to track transaction activities, a business must guess where its money is coming and going.

 

It is up to you to decide which expertise your company is ready to employ, as both roles are critical to sustainable business success. However, many organizations can outsource these disciplines during the early stages of development. 

 

Ultimately, these two disciplines are made to work in tandem. Hiring a bookkeeper can bring peace of mind, knowing your finances are organized and ready for tax season. In addition, a qualified accountant can see financial and tax loopholes that can save your business money. 

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

Revenue, sometimes called turnover, is the total income generated by a business from the sale of goods or services. This vital indicator is critical for determining an organization’s financial and business performance. 

 

Understanding Revenue

 

Revenue is often mentioned in conjunction with profit as these could represent two sides of the same coin. 

 

It is best to think of revenue and profit in terms of the top line and bottom line. As we know, revenue is the income generated. Profit is the remaining cash flow after expenses. Therefore, if revenue exceeds the yearly expenses, the business will record a profit.

 

Creating profit and loss statements allows you to understand your revenue, expenses, and profit. This statement provides a kind of map that details the coming and going of money by category over a defined period of time. An Income Statement is the proper name for what is commonly referred to as either a “Profit & Loss” or a “P&L.” 

 

This information allows you to make informed decisions on your business because you can see which parts of the company are doing well and areas that need improvement. 

 

Types of Revenue

 

In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard of accounting practice or the rules established by a government or government agency.

 

There are two types discussed below.

 

Operating Revenue

This revenue is the money a company generates from its primary business activities.

For example, a soap manufacturer derives its output from soap sales. A surgeon produces a return based on the medical services they provide.

Separating operating from total revenue allows one to gain insight into the productivity of the business operations. One can see profitability down to the individual team member or sales associate if using a system that supports that type of transaction tagging. 

Non-Operating Revenue

This is defined as the money generated from outside a company’s primary operations. 

This income tends to be infrequent and even unusual. 

Examples of non-operating revenue gains could be interest earned from the sale of assets, dividend income, or lawsuit proceeds.

This income cannot be classified as cash flow because the amount will be inconsistent the following year. 

Separating an organization’s operating and non-operating funds will give investors a clear picture of the financial health of an organization. 

 

Calculate Revenue

 

The best way to calculate a company’s revenue is to sum up the organization’s amount earned. 

 

We’ll explore two formulas today. But before we get to the number crunching, it is important first to calculate how many units were sold and the average price per unit.

 

Total Revenue is all income generated from the total sales of goods and services regardless of source. When looking at total revenue, you are looking at both operating and non-operating sources.

Total revenue or TR is significant because it gives a high overview of consumer demand. Overall, it helps a business determine the price of a product or service.

 

By looking at TR, we can perform a more complex revenue analysis that will allow the business to project its profitability while keeping its operating expenses in line with sales growth. We can also see which products and services are resonating and which are not.

 

Sales Revenue is the portion of total revenue that comes exclusively from sales of goods or services. This excludes revenue generated from any other income stream other than sales.

Sales Revenue is crucial because we can consistently compare past and future performance. This information becomes an important KPI in forecasting and planning a strategy as we advance.

 

For example, if I sell 1000 bags of flour in April, each bag retails at $5, then my sales revenue during this period is $5,000. This number is before any expenditures are taken out. In looking at this raw number over time, I am able to determine if my price is too high or low.

 

Since Total Revenue is also looking at non-operating income, this can skew the accurate picture of a company’s performance. Herein is why sales revenue provides a clear view of revenue generation.

 

Bottom Line

 

Revenue is the most fundamental accounting metric for your company. Yet, it is rarely understood perfectly. The more you know how revenue is calculated, the easier it will be to earn more year after year. 

 

Income may come from different sources (such as new product lines or services offered) and is observed from different perspectives. Overall, steady business growth earnings over time increase an organization’s credibility and profitability in the eyes of investors and lenders. 

 

Some companies calculate their revenue and income manually. However, many companies have started to automate their accounting system. FINSYNC’s all-in-one cash flow management system will facilitate the preparation of the company’s financial statements to generate reports, including Income Statements, quickly and accurately.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

The word “error” is a somewhat triggering word for bookkeepers and accountants alike. Locating an unexpected error in a balance sheet can sap hours and hours of valuable time from a day. Fortunately, today, we will only discuss a predicted error, the Margin of Error. 

 

Using the tips outlined in this article, you will understand and use margin of error calculators while also increasing your knowledge of the methods and procedures needed when looking at your clientele.

 

Margin of Error Validity

 

Let’s say you flip a coin 100 times. Since there is a 50% chance that a coin will land on “heads,” the average statistical results will be 50 times heads and 50 times tails. However, it is not likely you will get this exact result. 

 

Therefore, mathematicians in the field of statistics developed a separate label to account for the degree of error that the solution will deviate. This is also known as the Margin of Error. 

 

Having the ability to recognize and calculate the margin of error is a necessary skill for any small business owner. This metric comes in handy when deciphering survey data and asking for input from your customers.

 

Define Your Population

 

In statistics, a population is a pool of individuals from which a statistical sample is drawn within a study. A population represents every member who is grouped by a common trait or characteristic.

 

Understanding a business’s population parameters is necessary to determine decisions or predictions based on your survey data. 

 

For example, say you want to determine the most popular social media platform your subscribers use. You may send a survey to your subscribers (your defined population) and ask them to select an answer from a specific set of selections.

 

While it would be wonderful if 100% of your survey recipients responded, that’s uncommon. In this example, you will use your responses as your sample and infer that the patterns in their responses hold for the rest of your subscribers.

 

In other scenarios, you may not be able to survey the entire population due to cost and time constraints. Instead, you’ll attempt to pick a representative subset to survey and use those results to draw conclusions.

 

In either case, the margin of error determines how accurate the sample is to the entire population.

 

Simple Margin of Error Calculator

 

Using this quick formula allows calculating the margin of error to be simple and easy.

 

 

Let’s say you received 2000 responses to your query about social media platforms. In this case, the margin of error would be .022. Therefore, there is a 2.2% margin of error in your sample. 

 

Extended Margin of Error Calculator

 

Here is the universal formula for calculating the margin of error for a sample.

 

 

Z = Z score; this is already calculated. You can reference the following Z Score Table.

p̂ = sample size proportion

n = sample size

 

Step 1: Calculate p̂ by calculating the number of respondents that you are selecting. Ex: you can look at each social media site individually and then compare it to the entire sample. The p̂ value is represented by a percentage of respondents. See the example below for more details.

 

Step 2: Find Z Score corresponding to a 95% confidence level, or 1.96 in this case.

 

Step 3: Calculate and convert to a percentage.

 

Using the social media example again, let’s say the company conducted a survey and found that 30% of their customers prefer Facebook as their social media platform. Since you are comparing the 30% of users who preferred Facebook to the 70% who preferred a different platform, here is how the equation would look:

 

 

When we input these numbers, our answer is 2.0%, slightly different from the easy formula. 

 

Conclusion

 

Using samples of a population for survey data will always provide a range, not a specific number. Therefore, the margin of error reveals the imprecision within the sample. 

The only real way to reduce your margin of error and improve your cash flow is to increase your sample size and get more respondents. The smaller the margin of error, the more confidence you may have in your results. The bigger the margin of error, the farther they can stray from the views of the total population.

Finally, the margin of error calculators offer a certain statistical way of predicting the accuracy and reliability of your survey results compared to the entire population.  

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

There is a new requirement for employers and firms who use small vendors. The IRS has reintroduced Form 1099 NEC, or nonemployee compensation, as a new way to report pay to self-employed professionals. 

 

Before 2020, the 1099-MISC Form had been used by firms that utilize contract workers and other nonemployees to let the IRS know what was paid out and provide evidence to cross-reference against what the recipients reported on their 1040s (individual tax filings).

 

Let’s look at why this Form is making a comeback and the difference it can make in your organization.

 

History of 1099-NEC

 

The IRS retired the NEC Form back in 1982. The old form only had one box to fill out. This Form was used to report fees, commissions, and other nonemployee compensation. The remainder of the Form was for identification purposes.

 

In 1983, the 1099-MISC replaced the NEC Form. MISC stands for Miscellaneous Income. The MISC expanded to include rent, royalties, attorney fees, and healthcare payments greater than $600. 

 

Non-employee compensation was recorded in Box 7 of the MISC Form. Clients were obligated to issue this to all payees paid $600 or more in a calendar year. 

 

Since 2020, this Form has been revitalized. Now, the 1099-NEC Form replaces the entirety of Box 7. Box 7 of the current MISC Form is now only used to report direct sales of $5,000 or more. 

 

Reasons for the 38 Year Absence

 

The main reason the IRS is bringing the NEC Form back has to do with the 2015 Protecting Americans from Tax Hikes Act or PATH Act. Prior to this act, taxpayers could file one Form, 1099-MISC. Non-employee compensation and other miscellaneous payments were reported by February 28th each year. 

 

After 2015, the PATH Act changed the reporting non-employee compensation deadline to January 31st each calendar year. 

 

Because of the date discrepancies, companies began separating non-employee compensations into two 1099 Forms. These different deadlines created a lot of confusion for businesses, taxpayers, and the IRS as well. 

 

The IRS decided to bring back Form 1099-NEC to report non-employee compensation to clear up the complication.

 

Who Uses Form 1099?

 

The IRS requires all businesses to report payments over $600 made to independent contractors or vendors as non-employment compensation. 

 

Examples of NEC include:

 

◦ Independent Contractor

◦ Freelancer

◦ Rideshare Driver

◦ Delivery Driver

◦ Gig Worker

 

Keep in mind there are penalties for missing the January 31st filing deadline. 

 

Penalty details are below:

◦ $50 if you file within 30 days

◦ $100 if you file more than 30 days late but before August 1st

◦ $260 if you file on or after August 1st

 

Bottom Line

 

Employers must use Form 1099-NEC for all non-employed individuals.

 

Contractors should be aware they will most likely be seeing this new form. 

 

The Form 1099-NEC filing date is quickly approaching. Therefore, it is a good idea to make sure your 1099 recipients’ contact and business information are up to date as soon as possible.

 

You can request copies of official 1099 Forms from the IRS website, and you’ll receive them by mail. Both the 1099-NEC and the 1099-MISC can be filed either electronically or by mail.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

Cost Accounting is a specialized area of accounting that provides insight into the costs associated with a business. Costing helps a company understand where they are spending their money. This valuable information determines which products or projects to develop further and employ. 

Historians believe that cost accounting first appeared during the Industrial Revolution. During the mid to late 1700s, a new global supply chain was created. Demand economies forced producers to track their costs, which paved the way for automating their manufacturing processes. 

Even though history tied manufacturing to cost accounting, today, it extends into the service industry. For example, a bank will often deduce how much it costs to deposit a customer’s check and process international wire transfers.  

As you read further, you will discover several factors that determine the success of an organization’s cost accounting practices. These details will enable you to set up your unique process within your organization. 

What is Cost Accounting?

Cost accounting (CA) is the method of accounting that records and analyzes a company’s total costs related to the production of a good or service. This type of accounting is in conjunction with establishing how a company gains and loses money. 

The goal of cost accounting is to improve the net profit margin of a business. By tracking each project and process to determine how much profit each dollar of sales generates. 

A company’s accountant is already aware of the organization’s fixed costs, such as rent and salaried wage expenses. However, variable costs, like raw materials, change with each product output or service rendered. 

Understanding the intricacies of these costs is a critical component of a company’s growth trajectory. This information gives management the visibility they need to make changes to improve efficiency.

4 Types of Cost Accounting

There are four different types of cost accounting. Recognizing the specificity of each class will help you make strategic decisions and lead your business in the right direction. 

1. Standard

Standard CA is where businesses assign a “standard cost” to a product or service. The costs budgeted for a project look at materials, production supplies, and commissions. 

Standard cost is compared to the actual accrued expenses. This comparison is known as variance analysis

2. Activity-Based

Activity-Based Costing (ABC) is the cost allocated by the activity and effort used to produce a product or service. 

This costing system breaks down overhead costs by the actual consumption of each good and service. 

Both fixed and variable costs are associated with this costing type.

3. Lean

Lean CA is a method that focuses on the value of each part of the production process. 

Lean is a more specialized type of cost accounting that will reduce waste and eliminate errors. This costing type puts the highest value on saving the customer money.

4. Marginal

This type of costing divides all costs against the total quantity of the project. 

Marginal CA only considers the variable costs for a specific product. Whether a business takes on a new project or not, this costing type assumes all fixed costs will be paid each month.

An organization doesn’t have to stick solely to one type of cost accounting method. The beauty of CA is that your company can use a combination of these four systems to design a costing strategy that works best for you.

Difference Between Cost Accounting and Financial Accounting

Both cost and financial accounting are needed to track finances. However, cost accounting is a source of information about specific production costs only for internal purposes.

Financial accounting creates three official financial statements, or four if you consider the statement of retained earnings. These documents track all aspects of a company’s finances and are shared with investors and owners. Regulations and standards govern these statements to ensure consistency across snapshots of multiple businesses.

Advantages to Automation

No accounting process can be successful without strong support and software. Businesses rarely keep track of costs by hand or through Excel spreadsheets. These outdated methods are more prone to errors and are very time-consuming. 

To correctly incorporate a successful CA system, one has to rely on the data. 

Many companies are switching to cloud-based payroll and other automated accounting platforms. These highly developed software systems can accurately disseminate significant data across multiple departments and locations. 

If you acknowledge that profitability is the key driver for any business sector, it becomes clear that employing a trusted system is critical. Measuring profitability could be the most important factor in determining the success of an organization. 

Overall, cost accounting allows management more strategic planning and decision-making power to improve cost efficiency. Adopting an integrative and intuitive approach is the first step to streamlining costs. 

 

How FINSYNC Can Help

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

The total expenses accrued by all businesses involve accumulating costs or money required to perform business activities. Successfully calculating variable costs is one of the most significant factors when determining the success of an organization.

Accounting teams will separate costs into two categories: fixed and variable costs. Today, we will focus on variable costs, and by the end, you will feel confident about calculating the variable cost and maximizing your cash flow management. 

Definition of variable cost

Variable cost represents materials or other inputs acquired by a business. These costs directly correlate to the number of services or goods produced. Variable costs will increase or decrease depending on a company’s production or sales volume. Consequently, these costs will rise as production increases and fall as production decreases.

The two categories in cost accounting are variable and fixed costs. These accrued costs encompass the total cost of running a business. For instance, fixed cost differs in that these numbers stay the same regardless of the company’s output. Examples of fixed costs would be rent, payroll processing, business insurance, etc.

Common Variable Costs

When we look at variable costs, these numbers fluctuate week after week, depending on the sales volume. Below are examples:

• • Raw Materials are the materials needed within a manufacturing environment to produce the final product.
  • Transaction Fees are an expense that businesses must pay every time there is a credit card purchase or a bank transfer is sent. 
  • Utility Costs include expenses such as electricity, gas, water, etc. Note there are utilities such as internet connectivity which are considered fixed expenses. This is because they don’t change month-to-month and are independent of revenue or production volume. 
  • Commissions are additional salaries paid to someone completing a sale or even service work. Some businesses allocate a percentage of the total amount sold to each sales associate that assists in closing the deal.
  • Labor can be a variable cost if the workers are paid hourly or based on each unit completed.
  • Packaging and Shipping costs will vary depending on the amount of inventory sold.

Variable Cost Formula

Under the cost accounting umbrella, variable cost is likely the most abstract category. These numbers change month after month and often create much confusion.

The total variable cost equals the number of units produced multiplied by the variable cost per unit. See formula below:

 

Here is how to calculate this formula: 

1. 1. First, identify all costs associated with the specific production of a single product unit.
   2. Second, add all of these costs together so you have the total price for each unit.
   3. Finally, the total variable cost is multiplied by the price per unit by the number of units produced.

Average Variable Cost

The average variable cost (AVC) takes the total cost per unit divided by the number of units. AVC explains how costs from increasing output fall, become flat and finally increase as production costs outweigh benefits. 

The formula for average variable cost requires the calculated total variable cost to be complete.

 

Furthermore, one must divide the total variable costs from the accounting period by the total number of units produced.

Importance of Variable Costs

If a business has a large proportion of variable costs in its cost structure, most of its expenses will vary in direct proportion to revenues. Therefore, businesses are more equipped to weather a sales decline than a company with a high fixed-cost balance. 

Learning how to calculate variable cost will help you accurately forecast expenses as a whole and identify ways to bring down your total costs. For instance, you might find that you can get materials from another supplier for less. These savings will bring down your cost per unit, which directly decreases your total costs.

 

 

How FINSYNC Can Help

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.