What You Need To Know About Adjusting Entries?

A business can maintain either cash or accrual basis of accounting system. The difference between cash and accrual system is necessary to understand so that you can choose the right accounting system for your business. In the cash system, the entries are made in books only when either the money is received or spent. Whereas, in the accrual system, revenues are recorded even if cash has not been received or if expenses have been incurred but no cash payment has been made. Adjusting entries are used in accrual system of bookkeeping. These entries are used to convert a company’s accounting records to the accrual basis of accounting. Here are few points that will help you answer the question, what are adjusting entries?

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Dangers Of An Inaccurate Bookkeeping System

An inaccurate record in bookkeeping can cost your company dearly. A silly mistake, such as entering an income which is not realized as yet, affects the profitability of the company. You may end up paying tax for an amount that you have not received. Apart from this, there are many such incidences which affect the smooth functioning of the company if you have inaccurate financial statements. Some of the dangers of an inaccurate financial reporting are as follows.

Incorrect financial position

One of the dangers of inaccurate financial reporting is that it reflects an incorrect report about your financial position. If an investor finds that the financial position of the company is unstable, he would not invest. This also happens in the case of getting loans from financial institutions. Thus, it affects the future plans of the company. Inaccurate financial statements, therefore, prevents a company from growing further.

Can cost the company

As mentioned earlier, an income which is not received and is recorded in the books shows an increase in profits. Similarly, underestimating profits can lead to penalties when an audit is conducted. Moreover, an error in miscalculating the number of years for depreciation of a fixed assets and expenses can result in payment of more taxes than you need to. Such dangers of inaccurate financial reporting can cost the company profits.


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Create A Business Plan That Investors Will Love

Business plans serve multiple functions such as setting a benchmark for growth, attracting investors and acquiring funding from investors. Creating the ideal business plan for investors can help you with fundraising more than any other endeavors. It is essential to learn the art of creating a business plan to attract investors. Often, before you even give your passionate pitch, investors will first want to take a look at your business plan. Here are some pointers on how to create the most effective business plan for investors.

What can a business plan showcase?

A business plan can help highlight key factors which are essential in your quest to acquire funding from investors. A detailed business plan helps the investor visualize the progress of the company and cements the idea that a lot of thought has been gone into the business venture. It also allows investors to hold the entrepreneur accountable for growth by taking into account a set of financial benchmarks to compare with.
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4 Bookkeeping Tips to Keep Your Finance in Order

Maintaining correct  records of your daily transaction is an essential task in any business organization. It is useful for managing finances, filing tax returns, and increasing profitability; to name a few. Therefore, it is critical to have an accounting system in your organization. If you do not have one, then it would be difficult to manage your finances and it can cause major problems for your business. Here are few bookkeeping tips that will assist you to keep your finance in order.
 

1. Separate Accounting for Business

One of the many basic accounting tips is to have a separate account for your business. Do not mix your personal and business expenses. At the same time, ensure you have a separate bank account for both. This will help you to avoid using business finances for personal use. It gives a clear understanding of the financial position of your business as well.
 

2. Keep an Accountant

In a small business, you may be able to manage your finances without much difficulty. However, as you begin to grow, it becomes burdensome to keep a track of each financial trail and transaction individually. This is when you should take the assistance of a professional to solve your problem. You can hire an accountant for your firm or ask a professional bookkeeping firm to prepare your accounts. A professional bookkeeping firm will also provide you with critical bookkeeping tips so that you can manage your accounts in an effective manner.

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Revenue VS Profit: What’s The Difference

Do you think revenue and profit are the same? . Well, this is not true. In accounting terms, there is a substantial difference between revenue and profit. When you receive revenue, it does not mean that your business has earned a profit. While your business is doing well, being well-versed in accounting and bookkeeping gives your business an advantage. This is because then you are able to assess and manage your funds in a better way.

This is why businesses need the help of professionals accounting firms who assist them in their day to day book-keeping and accounting systems. Revenue vs profit can be explained in following points.
Top and bottom line

Revenue vs profit compared as the top vs bottom line. In a business, revenue is considered as the top line. Revenue is the total amount of money earned by the company after the sales of its goods or services. Profit is considered as the bottom line. Profit is the sum total of the income after deducting the cost of the materials, operating and non-operating expenses, debts and taxes.

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