Tag: Assets

Outsourced accounting is a service which provides a full, accounting department experience for small businesses. An accounting department handles the day-to-day transaction coding, accounts payable, accounts receivable, payroll, management financial reporting and many other services.

Outsourced accounting providers have a full complement of accounting professionals allowing them to offer a small team of accountants at a lower cost to hiring.

Benefits of Outsourced Accounting

Many companies outsource a business process. You may already outsource your payroll process, so you’re familiar with some of the general benefits of outsourcing. Outsourced accounting has similar benefits as well as many others:

Freedom

Work on your business while we handle your accounting through the use of secured cloud-based accounting software; which enables you to have access to your accounting records from anywhere in the world at any time.

Real-Time Information

Your accounting is processed as it comes in. You work with us on what you want to do next. We can work on the same data at the same time, ensuring it is current and up-to-date; which puts actionable and current data at your fingertips.

Eliminate Hiring Costs

It’s expensive to hire, train, and maintain an accounting department. Outsourcing the accounting function eliminates hiring and training costs.

Enhance Business Continuity

Valuable knowledge walks out the door when a key accounting personnel leaves your company. The risk of knowledge loss and enhance business continuity with outsourced accounting.

Security

Your accounting data is stored on secured servers in the cloud protecting against physical data loss, and to enhance business continuity and disaster recovery.

Uses:

Bookkeeping:

Since Accounts Payable & Accounts Receivables are highly manual transactional processes, they are often assigned to entry-level accounting professionals in an in-house model in UK accounting firms. Employee attrition is high in these positions, hence every now & then a new talent must be sourced to fill these roles. This means downtime, which represents its own cost in lost productivity, plus the additional cost of hiring & training new team members to take over the role, all while the already scarce talent market drives the cost of this talent upward. That’s a lot of money & effort dedicated to a routine bookkeeping process.

With an outsourced model, this liability is delegated & will be meticulously handled by outsourcing management. General accounting & financial service workforce for outsourcing industry comprises of qualified accountants who are ACCA(UK) & Chartered Accountancy (India) charter holders who are well versed with IFRS & IAS compliant Accounting practices. They lead teams to ensure uttermost accurate accounting while processing your data.   

Accounts Finalisation:

With the need for timely submission of VAT & Income Tax Returns, it is very pertinent that accounting transactions & bank reconciliations are updated on frequent intervals to avoid missing tight deadlines. Furthermore, if a business operates on high cash inflows & outflows, it becomes very essential that records are accurate & the processing of the same takes place under strict internal controls with proper management. Outsourcing assists you in delegating that authority & responsibility thereby adding another layer of safety with cross verifications to mitigate the risks of fraudulent malpractices.

Timely available reports also enable executives to take accurate decisions for companies with immaculate record keeping. Statement of Equity, cashflow and Financial position can be prepared at ease if outsourced rather than the end minute hustle. Accurate statements aid in availing government benefits, loans and angel investments. They are the benchmarks upon which performance is judged & such meticulous tasks should be entrusted only with experts which the outsourcing industry boasts of. 

Payrolling:

The General Data Protection Regulation Act (GDPR) has introduced new dimensions to legislative compliance bottleneck for UK companies, particularly with regards to their staff payroll data. Major outsourced accounting firms invest heavily to build network infrastructure that is GDPR ready so as to ensure data security. With NIC contributions to be made every month for each worker, it becomes a cumbersome process specially if it involves wage-rate & time-rate computations. The complexities of processing payroll are becoming more & more integral & to ensure that rising fines by HMRC are not implicated, firms in general remain fully up-to-date with legislative changes on IR35, NIC contributions, Pension contributions & Finance Act-20. Hence, ensuring that our services remain compliant with changes in taxation or payroll legislation. Moreover, for a UK Company, the constant iterations in the Furlough Scheme, new payroll regulations & the Tax Code system would require hiring of a payroll specialist or staff members who need extensive training perform such mundane yet meticulous task. Evidently, the cards seem better on the ‘outsourcing’ table for all grounds. 

Tax Compliance:

Qualified Accountants have expertise in SA100, CT600 & SA800 filing & with a proper tax plan tailor-made for every client, their progressive tax savings over time is eminent. Outsourcing industry is in lieu with the MTD system for VAT leaving little to no ground for systematic errors in compliance. Furthermore, outsourcing experts ensure full adherence to the PAYE & the Tax code system. Outsourcing firms tend to go by the rulebook of HMRC guidelines & employees are regularly updated with policy changes. Guidance is often needed in choosing the right VAT schemes & to utilise the maximum deductions available through allowances. The staff at outsourced companies are well acquainted with implications of Finance Act of UK while being extensively trained in the use of softwares such as Xero, Payroll Manager, SAGE, QuickBooks, Spotlight Reporting, IRIS among others. This saves our UK Accounting clients the need of scrounging for skilled staff during busy season or cutting corners. 

Management Accounting:

The complete digitisation of financial & accounting process comes with its own perks. Previously, advisory services such as Cost accounting, Transfer pricing & Performance Measurement were expensive endeavours for companies as these required professional specialisation which came at a hefty consultancy fee. These reports must be undistorted, accurate & unambiguous & they must be customised as per the business operations in line with the goal perspectives. However, creating & analysing these reports is a labour-intensive task & not advisable to be performed by in-house staff to ensure transparency. Opting for advisory services of an outsourcing company to carry out functions such as relevant costing, creating pricing strategies, budgeting, risk analysis & variance analysis for large scale manufacturing units is a low-risk way to innovate your financial process while creating dynamic improvements in business performance and profitability. The desire of efficiency can be fulfilled within the stipulated budgeted expense structure by collaborating with an outsourcing firm. 

Business accounting is the process of recording, analyzing, and interpreting financial transactions and information. It is the way a business keeps track of its operations. Sometimes keeping track of these operations can be difficult, which is where accounting software steps in. Watch this video to see how accounting software can make accounting tasks easy.

Benefits of Investing in Accounting Software

In case you are wondering to know what benefits does accounting software offer to a business, then the following are worth reading as it familiarises you with some of the well-known benefits:

Productivity: The first and foremost benefit of adopting accounting software is an increase in business productivity. As the process is automated, the software collects, analyzes and offers valuable insights that assist businesses in making smarter financial decisions.

Greater Insights: Accounting software tracks all successful transactions and offers insights about business financial health. Manually composing these reports is a daunting task. But with the assistance of accounting software, businesses can predict the financial trends and make informed decisions. Hence, smaller companies can easily compete with larger firms by leveraging automation.

Security: Financial transactions form the core of any business; if they happen to fall in the wrong hands, then everything turns into a tragedy. Many cloud-based accounting applications adopt stringent security measures to keep financial data safe. They employ methods such as document encryption, user authentication, and authorization and offers protection like online-banking institutions. 

Financial Transparency: Automated systems prevent errors in calculations that arise due to human intervention. As a result of miscalculation, businesses have to bear irreparable losses and thereby leading to a crisis. In the case of accounting software, all the calculations are automated and hence accounts for a higher degree of accuracy.

Affordability: The accounting and financial systems automate the financial calculations and minimise the administrative burden.

Accurate Forecasting: One of the prominent benefits of accounting software is that it analyses the financial trends and patterns, thereby giving a view of financial performance. Without the software, it would instead take quite a long time to get a glimpse of financial patterns. The software provides a clear picture of areas that needs more investment and concurrently displays sections/areas that incur large expenses. Hence the software facilitates to implement smarter strategies by careful analysis of the financial trends and patterns.

Essential features of each of the Software Categories.

Billing and Invoice system

• Check writing
• Intimate customers regarding payment dues
• Financial activity documentation
• Prepare documents for authorisation and validation

Payroll Management system

• Calculating employee salaries
• Deposition of salaries
• Production of tax forms & Payslips

Time and Expense Management system

• Expedite billing cycles
• Approve expenses
• Collect payments faster

Enterprise Resource Planning Systems

• Product planning
• Material purchase
• Inventory management and control

Accounting software integration: Increasing productivity

Automating even select areas of the business can assist in streamlining operations, eventually boosting productivity for financial management, better cash flow management, and sound financial health.

Effective automation can cut down on time spent on high-volume bookkeeping tasks, freeing up precious human resources to focus on business building activities, including financial and strategic planning.

In the process, existing software need not become redundant. Accounting software integration by professional experts, can help in optimizing automation while ensuring better utilization of existing resources, including infrastructure and hardware. Automated systems can help businesses optimize cloud computing, in turn helping seamless remote work operations.

Uninterrupted business continuity

Apps and tools in software development can help record, store, organize, and access business data more efficiently. Leveraging professional assistance for automation can make a difference in:

• Accurate needs assessment
• Identifying relevant solutions
• Ensuring effective accounting software integration
• Reliable trouble-shooting and backup support
• Reliable technical help
• Savings on expenses; cost efficiency

IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding balances with an entity’s related parties. The standard defines various classes of entities and people as related parties and sets out the disclosures required in respect of those parties, including the compensation of key management personnel.

Disclosures to be made

• Relationships between parent and subsidiaries should be disclosed irrespective of whether there have been any transactions or not. If the entity’s parent or the ultimate controlling party does not produce consolidated financial statements, then the next senior parent must be named in the consolidated financial statements for public use.
• An entity must report the compensation to the key management personnel in total and each of the categories such as short term employee benefits, post-employment benefits, termination benefits, share-based payment, and other long-term benefits.
• If key management services are obtained from another entity, then only the amounts incurred for the provision of such services shall be disclosed.
• If the entity has transactions with the related party during the financial year, then it shall disclose the nature of such transactions, and also all the details such as amount, outstanding balances including commitments, provision for doubtful debts, and the expense recognised in respect of bad and doubtful debts.
• The above disclosures will be made separately in respect of a parent, subsidiaries, associate, entities with joint control or significant influence over the other entity, joint ventures in which the entity is the venturer, and key management personnel of the entity or parent and other related parties.

In general, any related party transaction should be disclosed that would impact the decision making of the users of a company’s financial statements. This involves the disclosures noted below. Depending on the transactions, it may be acceptable to aggregate some related party information by type of transaction. Also, it may be necessary to disclose the name of a related party, if doing so is required to understand the relationship.

General Disclosures

Disclose all material related party transactions, including the nature of the relationship, the nature of the transactions, the dollar amounts of the transactions, the amounts due to or from related parties and the settlement terms (including tax-related balances), and the method by which any current and deferred tax expense is allocated to the members of a group. Do not include compensation arrangements, expense allowances, or any transactions that are eliminated in the consolidation of financial statements.

Control Relationship Disclosures

Disclose the nature of any control relationship where the company and other entities are under common ownership or management control, and this control could yield results different from what would be the case if the other entities were not under similar control, even if there are no transactions between the businesses.

Receivable Disclosures

Separately disclose any receivables from officers, employees, or affiliated entities.

When disclosing related party information, do not state or imply that the transactions were on an arm’s-length basis, unless you can substantiate the claim.

The financial statements of general insurance companies must be in conformity with the regulations of IRDA, Schedule B.

It has three parts: viz:

(a) Revenue Account;

(b) Profit and Loss Account, and

(c) Balance Sheet.

Revenue Account (Form B-RA):

The Revenue Account of general insurance companies must be prepared in conformity with the regulations of IRDA, Regulations 2002, as per the requirements of Schedule B. It has already been stated above that separate Revenue Account is to be prepared for each individual unit i.e. for Marine, Fire, and Accident.

These individual revenue accounts will highlight the result of operation of each individual unit for a particular accounting period. It also reveals the incomes and expenditures of each individual unit. Like Revenue Account of a life insurance company, Revenue Account is prepared under Mercantile System of Accounting.

Items appearing in Revenue Account:

Premiums:

It has already been stated above that general insurance policies are issued for a short period, say, for a year. As a result, many of them may be unexpired at the end of the year. Therefore, the entire premium so received cannot be treated as an income for the current year only. A portion of that amount should be carried forward to the next year in order to cover the unexpired risks. This is what is known as Reserve for Unexpired Risks.

As per Schedule IIB of the IRDA the Reserve for Unexpired Risks should be provided for out of net premium so received as:

(a) 50% for Fire Insurance business;

(b) 50% for Miscellaneous Insurance business;

(c) 50% for Marine Insurance business other than Marine Hull business, and

(d) 100% for Marine Hull business.

In addition to the above, if any company wants to maintain more than this level, it can do so. The same is known as Additional Reserve.

Claims Incurred (Net):

It is the first item that appears in the expenditure side of the Revenue Account of an insurance company. Claims mean the amount which is payable by the insurer, to the insured for the loss suffered by the latter against which the insurance was made.

Claims can be divided into:

(a) Claims intimated but not yet accepted and paid;

(b) Claims intimated, accepted but not paid;

(c) Claims intimated, accepted and paid; and

(d) Claims rejected. But if there is only ‘Claims intimated’ the same is to be treated like (b). That is why, in order to find out the outstanding claims, claims that have been intimated (whether paid or unpaid) should be considered.

At the end of the year the entry for the purpose will be:

Claims A/c             Dr.

To Claims Intimated Accepted but Not Paid A/c

Claims Intimated but Not Accepted and Not Paid A/c

A reverse entry should be passed at the beginning of the next year for which there will be no effect in Claims Account. But, if any claim is rejected subsequently, the amount is to be transferred to Profit and Loss Account and Claims Account must be credited for the purpose.

Commissions:

Insurance Regulatory and Development Authority Act, 1999, regulates the amount of commission which is payable on policies to the agents.

Operating Expenses:

Operating expenses will come under Schedule 4 of the Act. All revenue expenses other than the commission and claims will appear under this head.

Some of the operating expenses are:

Training Expenses; Rent, Rates and Taxes; Repairs; Printing and Stationery; Legal and Professional Expenses; Advertisement and Publicity, Interest on Bank Charges, etc.

Profit and Loss Account (Form B-Pl):

In order to find out the overall performance or results of the operating of general insurance business Profit and Loss Account of the General Insurance Companies is prepared. It also takes into account the income from investment by way of interest, dividend, Rent Profit/Loss on sale of investments. Provision for Taxations and Provision for Doubtful Debts, if any, should also be provided for.

Similarly, other expenses related to insurance business and bad debts written-off also will be adjusted to this account. However, appropriation section of Profit and Loss Account will contain payment of interim dividend; proposed dividend; transfer to any reserve i.e. appropriation items.

Balance Sheet (Form B-Bs):

The Balance Sheet of a general insurance company as per IRDA format is divided into two parts, viz. Source of Funds and Application of Funds. It is prepared in vertical form.

Sources of Funds:

It consists of:

(i) Share Capital (Schedule 5):

Various classes of Share Capital viz. Authorized Capital, Issued, Subscribed, Called-up and Paid up capital are separately shown.

(ii) Reserves & Surplus- (Schedule 6):

All kinds of reserves will appear under this head, viz. Securities Premium, Balance of Profit and Loss Account, General Reserve, Capital Redemption Reserve, Capital Reserve, etc.

(iii) Borrowings (Schedule 7):

Long term borrowings viz. Bonds, Debentures, Bank Loans, taken from various financial institutes will appear under this head.

Applications of Funds:

It consists of:

(i) Investments — (Schedule 8):

All kinds of investments, whether long-term or short-term, will appear under this schedule.

(ii) Loans— (Schedule 9):

Different kinds of loans clearly specified, viz. (a) Security-wise, Borrower-wise, performance-wise, and maturity-wise classification.

(iii) Fixed Assets (Schedule 10):

All fixed assets viz. Goodwill, Intangibles, Land and Building, Freehold/Leasehold Property, Furniture & Fixture, etc. will appear in this schedule.

(iv) Current Assets:

This section has two parts:

(a) Cash and Bank Balances (Schedule 11):

All cash and bank balances lying at Deposit Account and Current Account, Money-at-call and short notice etc. will appear in the Schedule.

(b) Advances and Other Assets (Schedule 12):

All advances (short-term) and other assets, if any, will appear in this Schedule.

(v) Current Liabilities (Schedule 14):

All current liabilities viz., Agents’ balances, Premium Received in Advance, Sundry Creditors, Claims Outstanding etc.

(vi) Provisions— (Schedule 15):

All kinds of provisions viz., Reserve for Unexpired Risk; Provision for Taxation, Proposed Dividend, Others.

New Format for Financial Statement:

According to Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations, 2002, every general insurance company must prepare as per Schedule B of the Regulations the following three statements for preparation and presentation of financial statements:

For General Insurance:

Revenue Account— Form B-RA

Profit and Loss Account — Form B-PL

Balance Sheet — Form B-BS

Thus, in short, every general insurance company is required to prepare a Revenue Account (Form B-RA); Profit and Loss Account (Form B-PL) and Balance Sheet (Form B-BS).

(a) Interest Suspense Method:

From the standpoint of conservatism, interest on doubtful loans should be transferred to Interest Suspense Account and, at the same time, when the interest is realized (either in part or whole) the same is credited.

 

(b) Cash Basis Method:

No separate entry is required for Interest on doubtful loans. Since interest on such loans comes under Non-performing Assets, as such, such interest should not be recognized from conservatism point of view cash basis method is the best one.

The entries are:

(c) Accrual Basis Method:

Under this method, the whole amount of interest is to be credited and, at the same time, a provision should also be made for such interest to Bad and Doubtful Debts Account.

The entries under this method are:

Provision

A provision is a decrease in asset value and should be recognized when a present obligation arises due to a past event. The timing as to when the said obligation arises and the amount is often uncertain. Commonly recorded provisions are, provision for bad debts (debts that cannot be recovered due to insolvency of the debtors) and provision for doubtful debts (debts that are unlikely to be collected due to possible disputes with debtors, issues with payments days etc.) where the organization makes an allowance for the inability to collect funds from their debtors due to nonpayment. Provisions are reviewed at the financial year end to recognize the movements from the last financial year’s provision amount and the over provision or under provision will be charged to the income statement. The usual provision amount for a provision will be decided based on company policy.

Basic accounting treatment for recognizing a provision is,

Expense A\C                              Dr

Provision A\C                            Cr

Contingent Liability

For a contingent liability to be recognized there should be a reasonable estimate of a probable future cash outflow based on a future event. For instance, if there is a pending lawsuit against the organization, a possible cash payment may have to be made in the future in case the organization loses the lawsuit. Either winning or losing the lawsuit is not known at present thus the occurrence of the payment is not guaranteed. The recording of the contingent liability depends on the probability of the occurrence of the event that gives rise to such liability. If a reasonable estimate cannot be made regarding the amount, the contingent liability may not be recorded in the financial statements. Basic accounting treatment for recognizing a contingent liability is,

Cash   A\C                                       Dr

Accrued Liability A\C                   Cr

Contingent Liabilities	Provisions
Recorded at present to account for future possible outflows events.	Accounting for the present, due to past events.
Occurrence is conditional or not certain.	Occurrence is certain.
Reasonable estimation is made for the future amount to be paid.	Amount is not largely certain.
Recorded in Statement of financial position: increase in company’s liabilities.	Recorded in Statement of financial position: decrease in company’s assets.
Not recorded in the income statement.	Recorded in income statements.

In accounting, “Accounts” refer to the individual records that track financial transactions related to specific assets, liabilities, equity, income, or expenses. Each account is part of the general ledger, where debits and credits are recorded to monitor the financial status of a business. Accounts help in organizing financial data for reporting, analysis, and decision-making purposes.

Accounts Types

There are several types of accounting that range from auditing to the preparation of tax returns. Accountants tend to specialize in one of these fields, which leads to the different career tracks noted below:

• Public Accounting.

This field investigates the financial statements and supporting accounting systems of client companies, to provide assurance that the financial statements assembled by clients fairly present their financial results and financial position. This field requires excellent knowledge of the relevant accounting framework, as well as an inquiring personality that can delve into client systems as needed. The career track here is to progress through various audit staff positions to become an audit partner.

• Financial Accounting.

This field is concerned with the aggregation of financial information into external reports. Financial accounting requires detailed knowledge of the accounting framework used by the reader of a company’s financial statements, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Or, if a company is publicly-held, it requires a knowledge of the standards issued by the government entity responsible for public company reporting in a specific country (such as the Securities and Exchange Commission in the United States). There are several career tracks involved in financial accounting. There is a specialty in external reporting, which usually involves a detailed knowledge of accounting standards. There is also the controller track, which requires a combined knowledge of financial and management accounting.

• Government Accounting.

This field uses a unique accounting framework to create and manage funds, from which cash is disbursed to pay for a number of expenditures related to the provision of services by a government entity. Government accounting requires such a different skill set that accountant tend to specialize within this area for their entire careers.

• Management Accounting.

This field is concerned with the process of accumulating accounting information for internal operational reporting. It includes such areas as cost accounting and target costing. A career track in this area can eventually lead to the controller position, or can diverge into a number of specialty positions, such as cost accountant, billing clerk, payables clerk, and payroll clerk.

• Forensic Accounting.

This field involves the reconstruction of financial information when a complete set of financial records is not available. This skill set can be used to reconstruct the records of a destroyed business, to reconstruct fraudulent records, to convert cash-basis accounting records to the accrual basis, and so forth. This career tends to attract auditors. It is usually a consulting position, since few businesses require the services of a full-time forensic accountant. Those in this field are more likely to be involved in the insurance industry, legal support, or within a specialty practice of an audit firm.

• Tax Accounting.

This field is concerned with the proper compliance with tax regulations, tax filings, and tax planning to reduce a company’s tax burden in the future. There are multiple tax specialties, tracking toward the tax manager position.

• Internal Auditing.

This field is concerned with the examination of a company’s systems and transactions to spot control weaknesses, fraud, waste, and mismanagement, and the reporting of these findings to management. The career track progresses from various internal auditor positions to the manager of internal audit. There are specialties available, such as the information systems auditor and the environmental auditor.

Accounting Rules

The system of debit and credit is right at the foundation of double entry system of book keeping. It is very useful, however at the same time it is very difficult to use in reality. Understanding the system of debits and credits may require a sophisticated employee. However, no company can afford such ruinous waste of cash for record keeping. It is generally done by clerical staff and people who work at the store. Therefore, golden rules of accounting were devised.

Golden rules convert complex bookkeeping rules into a set of principles which can be easily studied and applied.

• Debit The Receiver, Credit the Giver

This principle is used in the case of personal accounts. When a person gives something to the organization, it becomes an inflow and therefore the person must be credit in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited.

• Debit What Comes In, Credit What Goes Out

This principle is applied in case of real accounts. Real accounts involve machinery, land and building etc. They have a debit balance by default. Thus, when you debit what comes in, you are adding to the existing account balance. This is exactly what needs to be done. Similarly, when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the organization.

• Debit All Expenses and Losses, Credit All Incomes and Gains

This rule is applied when the account in question is a nominal account. The capital of the company is a liability. Therefore, it has a default credit balance. When you credit all incomes and gains, you increase the capital and by debiting expenses and losses, you decrease the capital. This is exactly what needs to be done for the system to stay in balance.