|
Financial Statements & Taxes Tips
Cash Basis v. Accrual Basis
While accounting and tax regulations permit cash basis presentation, all companies would be best served to account for transactions under the accrual basis of accounting. This latter method reflects the complete operating picture of the business. Accrual basis reflects customer receivables, vendor bills and personnel payables rather than just incoming receipts and outgoing disbursements as reflected in the checking account.
Monthly reports are good; Quarterly reports are better.
While monthly benchmarks are critical to most businesses, analysis of monthly financial information is generally skewed due to special circumstances - days open for business or frequency of payroll runs. Quarterly analysis proves much smarter as the positive or negative monthly spikes are flattened by a longer reporting period. Thus, true trends can be spotted, which may permit corresponding reaction to be appropriate rather than rash.
Sales Tax 101.
Ship it to an out-of-state customer, not required to collect sales tax. Ship it to an in-state, in-county or in-city customer, collect applicable sales tax. Customer picks it up, collect maximum applicable sales tax. Remember, based on shipping address, not billing address. And always review instructional materials for exceptions, inclusions and allowances.
Short-term v. long-term classification.
Careful attention to balance sheet classification is imperative for proper ratio analysis. Short-term assets and liabilities are generally to be turned into cash or spent during the next 12 months. Correspondingly, long-term assets are depreciated or amortized and long-term liabilities are paid over a timeframe greater than one year.
When tax planning isn't necessary.
We all fall into the trap on occasion - how does this affect taxes? Sometimes a thorough analysis of the tax effect is warranted. However, most decisions should not consider a myriad of tax codes and rather, simply hinge on whether or not it is practical.
Yes Virginia, the four statements really do tie into each other.
Simple. Tie net income (loss) on the statement of operations to the statements of cash flow and changes to equity. Tie cash on the balance sheet to the statement of cash flow. Tie total equity on the balance sheet to the statement of changes to equity. If they all match, your four statements are in basic compliance.
| 
