Timely filing of taxes has great importance for businesses of all sizes but a lot of business owners due to limited time or bookkeeping knowledge fail to do the same. As a result, they either run out of time or fail to file taxes correctly. Since missing out on tax filing or doing it incorrectly has serious consequences, it is wise to hire certified accounting and tax professionals.

Tax preparers not only help businesses avoid added interest and penalties but also ensure future refunds, build reputation, and guarantee that the core business functions are not disrupted. But how exactly to hire the best income tax preparer?

In this blog, Finsmart Accounting – trusted by CPAs for outsourcing in India and New York – will share useful tips and ideas to hire certified tax preparers for your US-based business in 2023.

What are Some Useful Tips for Hiring Certified Tax Preparers? 

Here are some tips and ideas to get a competent tax preparer who can relieve your tax stress and save your organization from a bad reputation:

#1 Know your needs

Let’s be honest. It takes more than tax work to run a business in the United States. Meaning, your goal should be to hire an expert who can not only help you organize and file all crucial tax documents and returns but also support bookkeeping operations in time of need.

With this in mind, figure out what you want your tax preparer or accounting partner to do. Ask yourself questions like:

• Do I need someone who can help me sort tax returns for 2023 only?
• Should I hire an expert who can review if tax reports are in compliance with US government tax rules and regulations?
• Do I need an individual who can answer tax and finance-related questions on behalf of my company?
• Am I struggling with gathering financial data from income statements and expense documents?

Once you find the answers to similar questions, you will be able to figure out critical tax and accounting tasks that need to be tackled and what crucial outcomes are expected from the hired tax professional.

#2 Know your budget 

The bottom line of a business is affected whenever a new employee gets hired. So, hiring an in-house tax preparer can cost more than just the vouched-for monthly salary or hourly pay. Organizations also have to consider the additional expenses that will tag along including training, social security, medicare, unemployment insurance, and employee benefits.

Therefore, it is best to look at your pocket first. Not only maximum but also set the minimum that you’re willing to pay to your hired tax professional. Outsourcing or offshoring the tax preparation work is a great idea if you want to start 2023 with considerable savings.

This will help you save money not only on staff hiring and salaries but also software, hardware, and office supplies. Also, this will empower you to focus more on everyday business operations and client acquisition, both of which are pivotal for your corporation’s growth.

6 accounting and tax software used by tax practitioners in the USA

#3 Create a list of suitable candidates 

Done figuring out your requirements and selecting the right option between in-house and offshore tax preparer? Great. Because it’s time to begin the hunt! Prepare a list of candidates (or firms if you are choosing to offshore) that you think have the potential to handle the filing work and make your corporation comply with specific industry standards, laws, regulations, and ethical conduct standards.

Look for these qualities while picking the right tax-filing candidate for your corporation:

• Strong numerical reasoning abilities
• Attention to detail and accuracy
• Strategic thinking and problem-solving skills
• Good knowledge of accounting software used by your business
• Effective communication skills

Watch what the leading bookkeeping firm of South Florida has to say about Finsmart:

#4 Verify credentials 

Although it is true that a lot of CPAs have tax know-how, not all of them are certified tax professionals. They could be Enrolled Agents (EAs) or Accredited Tax Advisors (ATAs). That’s the reason why we suggest verifying credentials before hiring a tax advisor for your corporation. By doing so, you can determine whether the candidates have work experience, educational qualifications, professional membership, and trade licenses.

Ask your potential candidates whether they have qualified with more than fifty percent score in order to become a certified tax preparer. You can also visit state boards of accountancy websites to determine the type of credentials or qualifications and status of a tax professional’s license.

#5 Interview potential tax preparers

Here comes the most difficult part of the tax preparer hiring process. Once you have shortlisted potential candidates and verified their credentials, start interviewing them. Ask them how many years they have been in the tax line of business; how they prepare returns; how they respond to questions about returns when asked by IRS or state officials.

Why? Because no matter how much theoretical knowledge a certified tax preparer possesses, real learning transpires only when they work with books of real businesses.

Ask for references from the tax filing candidates to find out more about their work ethic, values, and how exactly they help their clients to meet accounting and tax filing goals. Finsmart’s team of US Tax Sheet and bookkeepers in India also suggests watching out for these soft signals of an expert tax preparer:

• Are they giving you full attention during meetings?
• Are they courteous?
• Do they listen to your queries carefully?
• Do they provide answers to questions and references when asked?
• Do they actually meet or speak to your listed requirements?

#6 Inquire about information security processes

Because hiring a certified tax preparer means letting him handle your sensitive business information such as addresses, credit card numbers, bank accounts, and financial and tax data on regular basis, it is important to inquire about data security processes. During the meeting, ask the following questions to your potential tax preparation candidates:

• How do you protect clients’ personal and financial information?
• How many people are going to have access to my business information?
• Do you encrypt the data?
• Have you established an on-site security process for data protection and confidentiality?
• Do you update critical access and passwords regularly?
• Do you run regular security and data assessments?

Accounting and tax professionals at Finsmart use advanced confidentiality and security measures to nullify the chances of data leaks and theft.

Here’s how we ensure data confidentiality and security for offshore clients!  

#7 Ask about IRS PTIN

Our post will be considered incomplete without discussing this tip for hiring a certified tax preparer in 2023! According to the Internal Revenue Service (IRS) of the United States, people who prepare or assist their clients in preparing federal tax returns must have IRS Preparer Tax Identification Number (PTIN) and their signatures on the returns. And not the old one but the latest!

If the preparer says that he or she doesn’t have an IRS PTIN number but can still prepare an original tax return for a small contingent fee, it’s okay to have second thoughts. You can also use the IRS website tool to confirm whether or not your hired tax advisor has a PTIN.

Get taxation help from Fismart

Above are important tips and ideas to consider while hiring a certified tax preparer in 2023. Hiring a professional that can handle critical financial/personal information and do tax preparation for your corporation is not an easy task.

In fact, getting started with the process will take a lot of time. But if you keep the aforementioned tips and ideas in mind, we are certain that you will come across a tax filing pro or outsourced accounting firm that can handle your accounting and tax filing in a timely manner.

Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our bookkeeping experts.

Also read:

Month-end closing checklist for better accounting

A comprehensive guide on raising funds for startups (Part 1)

Useful tips to prepare for fundraising for startups (Part 2)

Scale up business during tax submission periods

Ideas to make your business recession-proof

Learn about payroll services in India

The post Hiring Certified Tax Preparer in 2023: Useful Tips to Consider appeared first on Finsmart Accounting-international.

Modern accounting and tax preparation software are powerful tools that not only help CPAs improve accounting efficiency but also save clients from penalties and legal issues. Still, a lot of CPA firms have no idea which tax and accounting software make more sense for their business  

In this blog, Finsmart – a leading accounting outsourcing company in India – will talk about the best accounting and tax software of 2022. Read on to discover our list of popular tax accounting software for accountants and CPAs: 

#1 FreshBooks 

A modest application togged up in a user-friendly interface, FreshBooks is a powerful cloud-driven accounting tool for CPAs looking forward to an efficient software experience for themselves and their clients. Founded and developed in 2003 by 2ndSite Inc, it packs a plethora of features. 

FreshBooks helps small CPA firms in the US with recurring invoices, tax estimations for sales tax, and payments & expenses management. Want to scan your bank accounts and match account activity with financial records? No problem. Need to look at the history of every invoice your business has sent? Consider it done. Want to set payment reminders? Fret not!

This accounting and tax software provides CPA firms with a wide range of useful tools that can be accessed easily through a desktop or smartphone. FreshBooks offers multiple plans for diverse CPA needs. FreshBooks’ Lite plan cost around $7.50 a month. Plus and Premium plans cost around $15 and $27.50 per month respectively. 

FreshBooks highlights:

• Customizable invoices 
• Payment reminders
• Recurring invoices
• Multi-currency billing
• Inventory management
• Easy to organize receipts 
• Tax-friendly expense categories
• Automatic tax calculations for sales tax
• Bank deposits, recurring payments, and auto bills with bank integration
• Streamline accounting functions

#2 Sage

Laozi once said, “The Tao of the sage is to work without effort.” The Sage accounting and bookkeeping software is all about this! a cloud-based accounting system, it requires no installation or software download to operate. Specifically geared towards the requirements of small and mid-sized global businesses, it offers a variety of different products that can make accounting and bookkeeping as simple as ABC. 

Talking about products, Sage helps businesses get the ball rolling when it comes to expense and compliance management, bookkeeping, and accounting processes. Thanks to the free trial offered by the developers, users can try to get a knack for this software and ensure that it is the right option for them before going along with one of its plans.

Sage offers three plans to businesses, namely Pro, Premium, and Quantum Accounting. The yearly cost of these plans is $340, $554, and $919 respectively. There’s also a free trial plan!

Sage highlights: 

• Cloud-based software
• In-depth reporting 
• Budgeting or cash flow forecasting
• Robust reporting 
• Make and reconcile invoices
• Easy accessibility 

#3 QuickBooks 

Another amazing cloud-based accounting and tax software by Intuit’s Quickbooks. This accounting solution helps CPA firms with invoicing, report generation, tax preparation, and much more. Popular amongst small and mid-sized accounting organizations in the United States, it makes it easy to track the overall financial health of a company by conjuring up a clear picture of income and expenses. 

Using QuickBooks, CPA firms can generate custom and compliant invoices, sales receipts, and estimates within minutes. The accounting tax software updates all transactions and statements automatically, allowing accountants to stay on top of cash flow data. Other than these features, QuickBooks is also popular for delivering error-free accounting and refining the cash flow management function. 

Like most accounting tax software, QuickBooks comes with monthly and yearly subscription plans. The price for the basic plan starts from $30/month and the premium ones can go up to $200/month.

Best practices for improving accounts receivable process 

QuickBooks highlights: 

• All-in-one accounting solution
• Cloud-based software
• Sorts transactions and expenses automatically into tax categories
• Scalable 
• Track expenses in one place
• Allows to scan receipts and attach them to invoices

#4 Microsoft Dynamics 365

Our list of best accounting and bookkeeping software will be considered incomplete without talking about Microsoft Dynamics 365 finance. Excellent bookkeeping and accounting are based on effectualness and preciseness. And this software is all about these aspects.  

Dynamics 365 Finance makes entry easier by allowing businesses to automate purchase invoice entries. And that’s not it! You can also manage payroll and create rich automated experiences across financial management tasks. Overall, it is a comprehensive business accounting and bookkeeping management software.

Dynamics 365 Finance comes at a monthly cost of $180. 

Microsoft Dynamics 365 features: 

• Cost-effectiveness
• Scalability 
• Robust data security
• Real-time accounting and bookkeeping insights 
• Access to predictive analytics

#5 Xero

The next software for accountants and tax practitioners on our 2022 list is pretty popular right now. Xero is an all-inclusive cloud-based tool best suited for CPAs that prepare a high number of returns during the tax season. Also trusted by Finsmart Accounting, it can help manage tax preparation, lodgement, and compliance tasks for all your bookkeeping clients with ease. 

Xero also provides powerful features to simplify bookkeeping. For example, it has an built-in automated converter that automatically converts currency make bookkeeping easier. Want to configure bank feeds for more accurate and faster results? Can be done within a few clicks. Xero comes with integrated support to around 700 apps and addons.

The starter plan of this tax preparation and accounting software costs $20 a month while the premium plan commands a price of $40 a month. 

Xero highlights: 

• Cloud-based services
• Send invoices and quotes
• All bank transactions reconciled 
• Lets you enter bills
• Supports multiple currencies 
• Easy to use
• Comparatively lower price than its alternatives 

Learn about the best outsourced bookkeeping services in India

#6 Zoho Finance 

Zoho Finance packs all important accounting and finance tools that can help you make informed decisions and allow you to stay on top of your business. The accounting software helps manage the money flowing in and out of the business in an easy manner through Zoho Books, Zoho Invoice, Zoho Inventory, Zoho Payroll, and more.  

This accounting and bookkeeping solution also enables CPAs and entrepreneurs to manage clients, reconcile bank accounts, generate invoices, manage payroll, and generate insightful financial reports all of which will assist in growing the business smoothly. 

Zoho Finance (Plus) is available for $105 per month to organizations interested in streamlining all the back office work. 

Zoho Books highlights 

• Improves billing and invoicing process
• Collects payments efficiently
• Expense tracking
• Project management and timesheet
• Inventory management 
• AR and AP management
• Minimal chances of losing accounts and bookkeeping data
• Bank reconciliation
• Compliance management
• Invoice management 

#7 Oracle Netsuite

Our list of the best accounting software for CPA firms will be considered incomplete without taling about Oracle Netsuite. It is a remarkable web-based program packing robust features and reporting capabilities. Geared towards small to medium-sized accounting businesses, this tool can help you with recording transactions, managing payables and receivables, collecting taxes, and much more.

While Oracle Netsuite is mostly accessed from desktops or laptops, it does let accounting teams, executives, operation teams, and employees access data from their smartphones (thanks to its cloud-based capabilities) anywhere and anytime. This software also enables timely, accurate reporting, and greater control of financial assets. 

Oracle Netsuite pricing includes a $999 monthly licensing fee and monthly per-user fee that costs businesses around $99. 

Oracle Netsuite highlights:

• Better accounts receivable and payable process
• Simplified tax management system
• Payment processing
• Allows to manage billing operations 
• Turns quotes into invoices
• Supports governance, risk, and compliance programs 
• Syncs data with client’s files 
• Revenue recognition
• Better financial planning and reporting 

Automate accounting and tax preparation with Finsmart

We have listed the best accounting and tax software that are helping accountants and tax practitioners in the United States record and report financial transactions, manage accounts, track revenue & expenses, store receipts, stay tax-law compliant, and streamline filing. 

Keep in mind that the selection of the right accounting tax software depends on several factors including your unique requirements. Finsmart Accounting works with all modern accounting and tax solutions to help its clients manage finances and accurately prepare tax files. 

Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our bookkeeping, accounting, payroll management, and tax preparation experts.

Also read: 

Ideas to make your business recession-proof

Learn about accounting and payroll services in India

Accounting cyber security measures for 2022 

The post 6 Accounting and Tax Software Widely Used By CPAs in the USA appeared first on Finsmart Accounting-international.

A lot of business owners and organizations have a limited understanding of invoice management and consider it a challenging task. That’s why we decided to make things easy for them!

In this blog, Finsmart – the leading accounting outsourcing firm in India – will share 7 invoice management tips for modern-day businesses. These ideas will help process and handle invoices while reducing invoicing costs and increasing AR collection.

Are you ready for some invoice management tips? Let’s go!

#1 Create a comprehensive checklist

Let’s say you are looking forward to buying a property. It is obvious that you will ask the dealer about the construction quality, carpet area, developers’ reputation, location, and neighborhood before making a down payment, right? Creating a comprehensive list of client information is just like that. It will provide your team with all the invoice critical information and improve your chances of forwarding accurate and timely invoices.

While compiling invoices, create a checklist of tasks enacted and total hours worked. Divide up these points in regard to compensation. Tick off these details while creating the invoices:

Customer name
Mobile number
Alternate mobile number
Invoice number
Invoice date
Tax identification numbers
Payment terms
Service or product that you are invoicing

Include any breaks that your business took, products delivered, the exact rate of pay, or the days you worked. Also, manage and register invoices in a timely manner rather than saving them for the last.

#2 Put invoice numbering system in place

Mid and large-sized businesses that occasionally face issues regarding tracking and managing invoices should definitely consider this tip. Documenting your sales and purchases using a numbering system is important in the accounting system and the same minimizes the chances of errors. It can also help you differentiate bills correctly as well!

Organize your invoices according to the payment period or numeral value. Values like BusinessInvoice_001 or InvoiceNumber_010 will immediately help you identify invoices. You can also state dates in the file name. That will make it easy for you to manage and keep a record of your payment period.

#3 Automate invoice process

While MNCs use inventory management software for tracking product availability in real-time and also generating an order, a lot of small and midsize businesses still stick to traditional ways of invoicing. For those who don’t know, paper invoices are usually time-consuming to generate and a headache to manage.

In some cases, paper invoices become difficult to track. You might find a problem checking when a specific invoice was sent or whether it was actually paid. Not to mention, one can make a lot of errors in manual processing. Put simply, it can seriously impact your bottom line.

Automating your invoice management process, on the other hand, can help your organization in speeding up invoice approvals. It can also help in minimizing errors like duplicate bills, overpayments, and late payments, and reduce processing costs.

Some best invoice automation software for businesses are:

Docsumo
Tipalti
Rossum
ABBYY Flexicapture
Kofax

Learn about accounts payables and receivables services in India

#4 Send invoices promptly

Aryn Kyle once said, “Don’t wait for the perfect moment. Take the moment and make it perfect.” Our next invoice management tip is all about this quote! If you really want your clients to take your business seriously and you want to leave a good professional impression on them, never delay your invoices.

Send your invoices to clients immediately after creating them and accomplishing the work you’re billing for. By doing so, you are more likely to remember all the details and less likely to make mistakes in your invoice. In other words, your chances of making your clients angry or delaying payment will reduce a lot. Payment will also process faster and in a more streamlined way.

Watch what the leading bookkeeping firm of South Florida has to say about Finsmart:

#5 Set reminders

Sending reminders to clients regarding pending invoices is not easy. Some business owners fear that it will make the clients mark them as annoying. But truth be told, setting reminders and asking for timely payments can help your business establish itself as professional and reflect the importance of timeliness.

Mid and large-sized businesses can remind their clients of pending invoices by sending quick payment reminder emails using software like HoneyBook. Make sure to consider the following points while sending payment reminder emails:

Re-attach the original invoice
Use clear subject lines
Keep email tone friendly, even if payments are late
Make the payment due date clear. Also, restate the payment terms your clients have agreed to
Remind your clients of how much they need to pay
List the payment methods your business offer
Yield clear and complete information about the work done for the client

Attach any previously agreed-upon consequences document of overdue payments if your client fails to pay your business again and again.

#6 Charge late payment penalty

Another important invoice management tip for large businesses to consider in 2022. One of the greatest issues for any business is not receiving payments on time. There are many cases where clients either ignore the invoice alerts or intentionally hold up the payment. To check such clients, start charging a late payment penalty. Here’s a legit way to get started with this:

While sending invoices, state that a late fee would be charged on delayed payment. Also, mention that the late fee charges will increase with respect to the delay. If you don’t put a late fee policy in place, clients who don’t pay on time may repeat the behavior.

Effective cash flow management strategies for businesses of all sizes

#7 Turn to AR and AP experts

Using invoice management software is not everyone’s cup of tea. While some find it too complex to use, others consider it a drain on financial resources. For them, hiring accounts receivable (AR) and accounts payable (AP) management experts is still a profitable option.

Outsourced AR and AP experts like Finsmart are helping organizations reduce their cash-flow burdens. From preparation of sales invoices on behalf of clients to following up for invoice payments, flagging long outstanding or stuck-up cases with management, and updating books of accounts for inward receipts – our team of experienced professionals will completely manage invoice function and other AR and AP tasks on a day-to-day basis.

With AI-powered technology blended with human expertise, Finsmart ensures timely deliveries and streamlined processes. The same can make invoice management hassle-free and transparent.

Invoice management solutions for businesses: Final words

Above are some useful tips and solutions for managing invoices for mid and large-sized organizations. Keep in mind that mishandling invoice data can contribute to costly errors. It is highly advised to follow these best invoice management practices while generating or sending invoices to clients. We are certain you’ll face no errors and receive payments in a timely manner.

Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our AP and AR experts.

Check out our recent blogs and resources:

Month-end closing checklist for better accounting in 2022
Basic accounting terms and definitions to get started
Browse India entry consulting services
Discover outsourced bookkeeping services in India

The post 7 Invoice Management Tips and Solutions for Modern Businesses appeared first on Finsmart Accounting-international.

Young business owners however have little idea of how to improve their AR collection. As a result, they are exposed to the risk of not having enough cash on hand to sustain business operations.

In this blog, Finsmart Accounting – the leading outsourced accounting company – will share tips and ideas to collect and improve accounts receivables. These insights will help you identify and fix potential cash flow problems before they adversely impact your organization.

Are you ready to check out our list of best accounts receivable collection tips and ideas? Let’s go!

#1 Create A/R aging report

The first and foremost thing to take control of your accounts receivable collection process is to create an A/R aging report. For those who don’t know, it is a record that demonstrates the unpaid invoice balances in conjunction with the duration for which they have been outstanding.

Creating an A/R aging report will:

• Help you track and measure the payment status of all your customers.
• Help you follow up with clients so that they know you are on top of the billing and collection process.
• Get the measure of payment terms with suppliers and make required changes.

While catalyzing an A/R aging report, write the amount of debt owed by each client and segregate them into groups according to the number of days since the invoice. Break the days down into categories like 0-30, 31-60, and 61-90. This will tell you what type of action is required against each party.

#2 Follow a proactive approach

Being proactive is being in control and power. Delayed payments from your clients can limit your business’ cash flow and hinder its growth. The delays may also stop you from taking on new projects, onboarding resources, or investing in new equipment.

Having a solid on-time accounts receivable collection system will let you act on troublesome payments right away and allow you to stay on top of business finances. Reach out to customers as fast as possible and let them know that they are in the red. By doing so, you can make certain that all parties are on the same wavelength concerning payment deadlines, the amount owed, and payment methods.

#3 Avoid delay

DELAY is the worst enemy of PROGRESS. If your customers are late payers, they can increase your Days Sales Outstanding (DSO) and the amount of money your business has invested in accounts receivable. Put simply, they can outstretch resources enough to embroil you into a cash trap.

The best practice for improving your accounts receivable collection process is to avoid delays. Move quickly and do not lose time dispatching notices when accounts are past due. Accounts receivable automation software like Lockstep Collect or FreshBooks can help you diminish late payment problems and boost cash flow and efficiency.

Effective cash flow management strategies for 2022-23

#4 Send reminders

This AR collection tip can help you improve your business’ accounts receivable collection process. A large percentage of invoices get overdue because customers accidentally miss due dates. Sending payment reminders via emails, text messages, or push notifications (if you are using any AP portal) can help customers make payments on time.

This tip can also increase customer contact and make short work of dispute resolution. Send reminders to all of your clients at predefined intervals, say 7 days before the invoice is due. You can also call them directly for a friendly reminder depending on the industry and geography in which your business operates.

#5 Analyze credit risk of customers

Do you know that payment collection closely consorts with client credit risk as well? Yes, you read it right! The higher the credit risk score of a client, the more difficult accounts receivable collection is going to be. Therefore, perform credit risk analysis on your clients.

Credit risk analysis helps ensure a positive cash flow by:

• Minimizing bad debts
• Reducing DSO
• Mitigating financial risks
• Improving customer experience

By analyzing the credit risk of your clients, you will be able to determine the borrower’s ability to meet your business’ debt obligations and safeguard yourself from a serious loss of cash flow.

#6 Offer a good customer experience

A wise man once said, “It takes months to find a customer and seconds to lose one.” Collecting accounts receivable doesn’t mean you have to be unprofessional and turn the air blue for your customers. Instead, try putting yourself in their shoes and have polite conversations. Understand why they fail to pay your business on time.

• Is it because of insufficient cash flow at their end?
• Is it because of a temporary problem with the bank
• Is it because they have issues with your product or service?

Whatever the case, just listen to their reasons carefully. This will help you build strong and long-lasting client relationships. Some of you might be thinking, “Okay, but what about those with unreasonable excuses?”

Well, you can handle such customers with a straight face. Just don’t overdo it as it can jeopardize your relationships and hurt the reputation of your business.

AR and AP services in India to streamline demanding functions!

#7 Outsource AR experts

Let’s be honest. Handling the accounting receivable collection process is not everyone’s cup of tea, especially for teams that have to carry oversee a lot of business functions including production, procurement, marketing, client support, and management. To them, we recommend outsourcing AR AP experts.

Hiring a team of outsourced AP and AR experts can help simplify the accounting receivable collection process and reduce your cash flow burden greatly. Using the best AR strategies, the team will help you determine methods to get paid faster and reduce processing costs.

Outsourced AP and AR experts like Finsmart Accounting work with its clients to optimize operational performance through effective financial management through order management, cash management, and debt analysis.

From following up with clients for invoice payments to updating books of accounts for inward receipts and flagging stuck-up cases to sharing AR reports, our team of highly experienced accounts receivable experts can completely manage the AR process.

Accounts Receivable Collection Process: Final Words

Above are some useful tips and ideas for improving your accounts receivable collection process. We know the collection is a complex and delicate process but still an important one for every business. Our tips and ideas will ensure that you meet your payment collection target without ruffling customer-business relationships and brand reputation.

Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our AP and AR experts.

Check out our recent blogs and resources:

Month-end closing checklist for better accounting in 2022
Basic accounting terms and definitions to get started
Learn about outsourced bookkeeping services in India

The post Improving Accounts Receivable Process: Best Practices from Finsmart appeared first on Finsmart Accounting-international.

However, in order to manage your business and finances properly, it is really important to latch on to basic accounting concepts and terminologies. If you want to learn, then, keep reading! 

In this blog, Finsmart has compiled a handy list of 16 basic accounting terms and definitions for US-based businesses. These terminologies and definitions will define business accounting basics for you and give you insights on how to keep your business operations running smoothly. 

Accounting terms and definitions

Are you ready to explore our list of basic accounting terms and definitions? Let’s go! 

#1 Cash flow 

You must have heard this term while having a conversation with your accounting team. Cash flow depicts the net amount of cash and cash equivalents coming into and going out of the business at any given time. In simple words, it is the calculation of all cash collected and spent on business operations, investments, and financing.  

#2 Cash flow forecasting 

As the term itself suggests, cash flow forecasting involves predicting the future flow of cash that will move through (in and out) your business bank accounts. This basic accounting term will help you create scenarios based on new projects or investments; let you determine when to invest in a business, and also pay off debts or pay yourself correctly. 

#3 Allocation 

Most entrepreneurs allocate tasks to different team members to lighten the workload and make business functions run effectively. This basic accounting term is something like that. Allocation is the process of assigning funds to various accounts or periods. It can also be used to divide costs between different departments or activities within a company. 

#4 Credit/Debit 

Credit as a basic accounting term means an increase in a liability or equity account or a decrease in an asset or expense account. Debit, on the other hand, is an increase in an asset or expense account or a decrease in a liability or equity account. 

Learn about outsourced bookkeeping services in India

#5 Income sheet 

Another important accounting definition for businesses to keep in mind! The income sheet shows the company’s financial performance (net profit) over a certain period. It tells the financial story of the business over a period of time. The income sheet is an amazing benchmark tool for businesses to measure performance and understand profit. 

#6 Accounts Payable (AP) 

Accounts Payable (AP) represents money your business has incurred but has not yet paid. In other words, this basic accounting term represents the amount due to vendors or suppliers for goods or services received that have not yet been paid for. AP is recorded as a liability on your balance sheet. 

#7 Accounts Receivable (AR) 

Accounts Receivable (AR) represents the money due to your business for goods or services it has provided. It includes all of the revenue (sales) that your company has provided but has not yet collected payment on. AP is recorded as an asset on the balance sheet that is likely to convert to cash in the short term. 

Accounts payable and receivables services in India to streamline accounting 

#8 Accrued Expense 

As the accounting term itself suggests, an accrued expense is a type of expense that has been incurred but hasn’t been paid or for which there is no expenditure documentation yet. A journal entry is created to record an accrued expense in place of documentation. An accrued expense is generally expected to be paid for within quite a short period of time like next week or next month. 

#9 Asset (A) 

Another basic accounting term you might have heard from your accountant. An asset is defined as anything of value or a resource of value that is owned by your business and can be easily converted to cash. These are listed in descending order of liquidity. Cash, A/R balances, inventory, buildings, office furniture, land, and vehicles are all considered assets.  

#10 Equity (E) 

Equity (E) can be found on a business balance sheet and is one of the most common pieces of data employed by analysts to assess a company’s financial health. It denotes the value left over after liabilities have been removed. To be more precise, equity represents the money that would be returned to your business’ stakeholders if all of the assets were liquidated and all debts were paid off.

#11 Inventory 

Inventory is a basic accounting term used for raw materials, produced goods, and goods that are available for sale. There are 3 types of inventory – raw materials, work-in-progress, and finished goods. Inventory is classified as a current asset on a business’s balance sheet. As goods are sold to customers, the inventory account becomes lower. 

#12 Liability (L) 

All debts that a business has yet to pay are referred to as liabilities (L). These are settled over time through the transfer of economic benefits including goods, money, or services. Common liabilities in accounting include Accounts Payable (AP), payroll, and loans. 

#13 Interest 

Another basic accounting term every US-based business should have an idea about. Interest is the amount paid on a loan or line of credit that exceeds the repayment of the principal balance. It is often reflected as an annual percentage of the amount of a loan. Interest in accounting can either be simple or compound. 

#14 Journal Entry (JE) 

Journal entries (JE) are raw business transactions that are recorded in manual accounting or bookkeeping systems in chronological order by date and posted to the appropriate accounts in the general ledger. Each journal entry comprises a unique identifier, date, debit/credit, amount, and account code.  

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#15 Payroll 

Since you are a business owner, it is obvious you give wages, salaries, and bonuses to your employees. The total of all the compensation that a business must pay to its employees on a given date or for a set period is called payroll. It often appears as a liability on your balance sheet showing what your business owes in terms of unpaid wages, bonuses, and more. 

#16 Receipts 

We are certain most of our readers know about this accounting term. For those who don’t, receipts are documents produced by a business for its customers after they have paid for goods or services. Business owners should save received receipts because they can prove that their incurred expenses are accurate. 

Basic accounting terms and concepts 

Our list of basic accounting terms and definitions ends here. But your accounting journey has only begun. You are likely to come across more unfamiliar accounting terms, finance phrases, and acronyms. Whenever that happens, speak with your accounting partner to get the exact meaning and insights. 

Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our accounting experts.

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