What Are The Basics Of Accounting Methods

What are accounting methods? Accounting methods help businesses keep their cash records and assist in preparing money reports by utilizing two fundamental methods of record-keeping for cash.  These two methods are cash-basis and accrual basis accounting.  These methods both have their own distinctive advantages of keeping corporate record keeping which help keep track of money coming an and out of the business. Donohoo Accounting knows what are the two types of accounting methods and how to utilize the for your business.

 

Accounting methods help businesses keep their cash records and assist in preparing money reports by utilizing two fundamental methods of record-keeping for cash.
Accounting methods help businesses keep their cash records and assist in preparing money reports by utilizing two fundamental methods of record-keeping for cash.

 

CASH-BASIS ACCOUNTING

What is cash-basis accounting? Corporations recording expenses in financial accounts when the cash is laid out, and they book revenue when they actually hold the cash in their hot little hands or, more likely, in a bank account. For example, if a plumber completed a project on December 30, 2018, but doesn’t get paid for it until the owner inspects it on January 10, 2019, the plumber reports those cash earnings on her 2018 tax report. In cash-basis accounting, cash earnings include checks, credit-card receipts, or any other form of revenue from customers.

 

Corporations recording expenses in financial accounts when the cash is laid out, and they book revenue when they actually hold the cash in their hot little hands or, more likely, in a bank account.
Corporations recording expenses in financial accounts when the cash is laid out, and they book revenue when they actually hold the cash in their hot little hands or, more likely, in a bank account.

 

ACCRUAL ACCOUNTING

Does your company use accrual accounting? This method is when you record revenue when the actual business is completed ex. (is when the completed amount of work that was stated in a contract agreement between the company and its client), not when it obtains the cash. The company records income when it produces it, even if the customer hasn’t paid yet. For example, a plumbing contractor who uses accrual accounting records the revenue earned when the job is completed, even if the client hasn’t paid the final invoice yet. Expenditures are handled in the same way.

 

The company records income when it produces it, even if the customer hasn’t paid yet.
The company records income when it produces it, even if the customer hasn’t paid yet.

 

BASIC ACCOUNTING TERMS

  • Equity: The net worth of your company. Also called owner’s equity or capital. Equity comes from investment in the business by the owners, plus accumulated net profits of the business that have not been paid out to the owners. It essentially represents amounts owed to the owners. Equity accounts are balance sheet accounts.

 

  • Assets: Things of value held by your business. Assets are balance sheet accounts. Examples of assets are cash, accounts receivable and furniture and fixtures.

 

  • Liabilities: What your business owes creditors. Liabilities are balance sheet accounts. Examples are accounts payable, payroll taxes payable and loans payable.

 

  • Debits: At least one component of every accounting transaction is a debit amount. Debits increase assets and decrease liabilities and equity.

 

 

While all these terms may seem a foreign language or a little overwhelming they can keep your business finances in order and make tax time a lot easier when it comes time to file.  Making the everyday accounting run smoothly can be done with Donohoo Accounting Services. Call us today for your free evaluation and let us take the stress out of your day-to-day money functions.

4 Actionable Tips for Using Your Tax Refund This Year

Even though getting your tax refund can feel like hitting a mini lottery, it’s important to remember that this payment is your money. As a result, the last thing you want is to let it flow out of your bank account just as quickly as it arrives. If you’ve had that experience in the past, the good news is you can do things differently this year. To help you make the most of every dollar that you receive, here are 4 actionable tips for using your tax refund this year.

  1. Make Payments Towards Debt

People from all walks of life struggle with managing debt. What often starts off as a small amount can spiral into a snowball that just keeps rolling in the wrong direction. What makes debt so problematic is that you’re not just dealing with the initial amount. Instead, interest is what really gets people in bad situations.

Because debt can choke someone’s personal finances, using your tax refund to pay off some or all of your debt is an amazing choice. If you’re trying to decide the specific debt to pay towards, the one with the highest interest rate is almost always the best choice.

  1. Prepare for An Emergency

Whether you have been able to stay out of debt or used previous tax refunds to pay it off, anyone who doesn’t have this burden can intelligently use their refund in a number of ways. A great option is to build up your personal or family emergency fund. Having a meaningful amount of money that’s easily accessible but off limits except for an emergency can give you a lot of peace of mind.

  1. Improve Your Home

Let’s say you’re already debt-free and have a comfortable emergency fund built up. One option to consider for your refund is improving your home. As long as you do your research and choose a project with a strong ROI, you’ll be adding to the long-term value of what is likely your largest asset.

  1. Other Investments

The other really good option that’s available for leveraging your tax refund is investing the money. Just keep in mind that even though highly speculative investments like cryptocurrency can seem enticing, they come with an incredible amount of downside risk. Investing your money in a more conservative option and letting it grow for the foreseeable future will likely yield the best return.

If you want to get your tax return filed so that you can get your refund and put it to good use, Donohoo Accounting Services can take of this process for you. All you need to do is call us at (513) 528-3982 to set up an appointment.