When it comes to managing the complex finances of a business, especially dealing with various payment arrangements from clients and navigating the ever-changing taxation rules, you need a tool that’s tailored to your specific needs. While established providers like Xero are great, they may not cover all the bases for every type of business out there and we need alternatives to them.

So, let’s explore some other options and find the best accounting software that’s a perfect fit for your unique business profile and also find Xero alternatives in Australia, Shall we?

WHY IS ACCOUNTING SOFTWARE A NECESSITY?

Accounting software has been proven to help a business grow at its best capacity. The burden of a trusted bookkeeper is completely shouldered opening more room everywhere else eventually converting to more dollars at hand.

• Reduction in expenses – Usually businesses end up hiring multiple accountants which isn’t necessary. Software could do all that work and be better trusted too.

• Business growth – Accounting can be a daunting task, especially for small and medium-sized businesses considering the resources expended. If software is procured to handle all of it, more resources could be diverted to actual business growth.

• Easy and Total Analysis – Accounting software provides you with detailed reports and analysis of your business. Inventory management, payroll, and due payments all needs will be efficiently adhered to.

• Manage Interstate transactions – If you own a business that operates across borders or will eventually do so, accounting software software would be very integral to maintaining transactions.

• Helps with Taxes – Taxes are always a bit shabby to get by with. They are thought at the heart of valid and legal operations and hence should always be prioritized for perfection.

What Are The Accounting Requirements In Australia?

let’s talk about accounting regulations and standards in Australia. They play a crucial role in ensuring businesses provide transparent and accurate financial reporting. These standards, known as Generally Accepted Accounting Principles (GAAP), are the bedrock of uniformity and openness in financial reporting.

The Australian Accounting Standards Board (AASB) is the authority responsible for these standards. They work diligently to align Australian accounting standards with global ones, promoting consistency and transparency in financial reporting.

Now, why is it so important to stay in line with these accounting standards? Well, compliance isn’t just about avoiding legal trouble; it’s also about maintaining the trust and confidence of investors. This, in turn, boosts a company’s reputation and image.

In the international arena, the International Financial Reporting Standards (IFRS) are used to harmonize financial reporting with global standards. It’s a move aimed at fostering transparency and attracting investment.

But, let’s not forget, that Australia has its own set of accounting laws too, such as those outlined in the Corporations Act and overseen by the Australian Taxation Office (ATO). To ensure compliance, companies often implement measures like internal controls and regular audits. All of this contributes to a healthy corporate environment.

So, in a nutshell, keeping up with accounting standards in Australia isn’t just a legal necessity; it’s a vital part of maintaining trust, transparency, and a thriving business environment. Hence, we need accounting software to keep up with the laws in Australia.

Why Do We Need Xero Alternatives?

Now that it has been established that we need accounting software to run a successful business, let us look at the problems in Xero.

Expensive

Xero currently offers four plans in Australia. The starter plan is $29/month, the standard plan is $59/month, the premium 5 plan is $76/month, and the Ultimate 10 plan is $110/month. These figures are quite high when seen in light of costs for other similar software. Although there are some discounts and a free trial too, small and medium-sized businesses would refrain from paying these amounts and look for Xero alternatives.

Complex To Use

Xero does provide a lot of training to its platform and, has a pre-set account to let you understand the basics. Despite this, Xero is on the difficult side to navigate through and get to the required with minimal operations.

An Accountant’s Software

Not having to hire an accountant is a major perk of purchasing accounting software. Xero themselves recommend hiring an accountant to handle the software. This suffocates the finances of a business unlike Xero’s alternatives, more so when they are not a large one. Also, the transparency is lost compared to what it would have been without the accountant being trusted with and given access to all the finances and accounting data.

Depleting Customer Service

Xero answers queries and complaints only through mail which gets you a response in a day. That is a bit delayed compared to the standard practice in the industry. Many other software, for the sake of efficiency and gratitude to the clients, answer queries and complaints over phone calls, effectively providing immediate responses.

Limited Facilities Provided

Limited payroll is the biggest issue in Xero. Even the flagship Ultimate 10 plan offers a payroll feature for a maximum of ten employees. After that, for each employee, Xero charges a fee. That is equivalent to increasing the salary of each employee by $3 – $4! Project tracking is also to be paid for separately. Analytics are only offered by the Ultimate 10 plan which is again costly. The starter plan which would be opted for by most of the small businesses and upcoming start-ups has limited invoices and bills. There also have been recent instances of bugs appearing in the software.

What Are The Xero Alternatives In Australia?

Let’s look at the choices that we have got for replacing Xero. We’ll look at their features and pricing, giving a general idea of what it will be like to use them.

1.QuickBooks

Quickbooks: Xero Alternative In Australia

QuickBooks is known well in the Australian Bookkeeping scene. It has been around for quite some time now. It is cloud-based and can be used remotely too. Offering a bunch of services like payroll management, multiple user accounts (varies with plans), and travel tracking, QuickBooks covers good ground. Maybe just a bit too ground, for it has been known to be difficult to operate, with the fact that they lack in providing training making it worse.

The advantages include – good well-rounded reports, integration with banks and other applications, phone support for queries, and tax management. Bugs have been reported from its users which is a bit concerning, but overall the software ticks most boxes.

PRICING:

QuickBooks offers three plans, ‘Simple Start’, ‘Essentials’, and the ‘Plus’ plan valued at $12.50/month, $20/month, and $27.50/month respectively. These are cheaper than Xero but still on the higher spectrum. The services vary significantly with a change in plan, making QuickBooks suitable for large businesses.

2.ProfitBooks

ProfitBooks: Xero Alternative In Australia

ProfitBooks creates an environment for most of the businesses to thrive. They have ensured that they eliminate the need for hiring an accountant making the software use easy and handy for a person even with zero knowledge of accounting. They lack direct integrations with other platforms but provide an indirect way across Excel to transfer data if required.

ProfitBooks has another advantage in its simplicity. The fact that it does not go overboard with heavy and deep-diving reports, helps the clients concentrate on what’s necessary, resulting in a better and non-negotiable analysis of critical value points later on reflecting steady but significant growth.

They are one of the very few recognizable accounting software all over the world to offer a lifetime FREE plan. It is not redundant in any way and does cater to valuable, especially for start-ups and small businesses.

PRICING:

They offer two plans; the full-time free plan labeled the ‘Startup’ plan and another plan called the ‘SMB’ plan worth $15/month. This is quite cheap compared to the counterparts with little to no compromise on services offered.

3.MYOB

MYOB: Xero Alternative in Australia

MYOB is quite good at the taxation part of the service. They also have tried to innovatively manage the very sensitive payroll by creating an entirely isolated payroll mechanism, but have still chosen to incur commissions on adding employees over a limit except for the top two paid plans.

They are also decent when it comes to offering other basic services with banking facilities and cross-country transactions being a highlight. Multiple businesses or branches of a single huge business could also be efficiently handled on MYOB.

PRICING:

MYOB offers four plans all of which are paid. The ‘Lite’ plan at $15/month, the ‘Pro’ plan at $27.50/month, the ‘AccountRight Plus plan at $68/month, and the ‘AccountRight Premier plan is valued at $85/month.

4.Rounded

Rounded: Xero Alternative in Australia

Rounded has very well-integrated AI into its software. They use it for optimal layout to create a personalized experience for any user. Also making it easy to navigate through. Rounded lands in itself a good multicurrency support easing cross-border transactions. Rounded also serves as a more than decent mobile application.

What is unique about Rounded is its feature of well-maintained in-app chat and communication support. It helps businesses communicate effectively over business transactions and reports on the platform itself also amounting to good accountability and transparency for later reference.

Rounded is not great at taxes and does not offer GST services on one of its two plans. Your bank account could also not be kept up with through this plan, as it cannot be connected.

PRICING:

Two plans. $19.95/ month for the ‘Starter’ plan and $24.95/month for the ‘PRO’ plan. The plans differ in GST valuation, Bank account connection, and unlimited availability of templates.

How To Choose The Best Accounting Software For Your Accounting Needs in Australia?

It takes careful consideration of various important elements to choose the ideal accounting software for your company. First, choose between desktop-based and cloud-based software. The benefits of cloud-based software like data synchronization, automatic backups, and ease of accessibility from anywhere, make it a popular option. For companies without dependable internet connectivity or those who require swift in-person transactions, offline software might be a good option.

Data security is integral to any accounting software. For secure data transfer, ensure your provider uses HTTPS, and ask about their security precautions. Choosing reliable cloud hosting companies like Amazon or Rackspace is a good idea.

Decide which key functions you require, such as invoicing, expense monitoring, inventory management, and bank reconciliation. As you choose software for your organization, take scalability into account.

The ability to readily export your data is essential for exit options. Be aware of any hidden fees, such as transaction costs or integration fees, and be aware of any restrictions in free trial versions.

Post-purchase support is crucial, too. Verify the availability of numerous support channels, prompt responses, knowledge, resources, and software updates.

Ultimately, you may choose accounting software with confidence by taking these variables into account and matching them with your company’s demands and objectives. ProfitBooks is an illustration of a complete accounting software choice that is suited for small and medium-sized businesses looking for a dependable accounting solution. It offers user-friendly features, scalability, inexpensive price, outstanding support, and transparency in expenses.

Conclusion

So, we looked at multiple options to get Xero off of our desks and also got a good insight into what accounting software does. We also took care of the consuming task of selecting an accounting software backing our reasons with quality opinions.

From my research of this article, it is very clear that more than the software it becomes more about the requirements of your business. The way you want to handle your accounts is where the ideal software resides, consider it as a priority.

In the end, when you’re picking your accounting software, just remember these things and match them up with what your company needs and wants. One option to consider is ProfitBooks. It’s great for small and medium-sized businesses, with user-friendly features, room to grow, a reasonable price, excellent support, and clear expenses.

I hope you enjoyed reading this while enlightening yourself on all your queries. Until next time then, Happy learning!

The post 4 Resourceful Xero alternatives in Australia appeared first on ProfitBooks.net.

This migration process is creating a lot of chaos and is leading to a lot of confusion you might be thinking about migrating from Quickbooks to Tally, Zoho, ProfitBooks, Freshbooks, etc.

Before you jump the gun and decide to carry out all your accounting activities on the first popular accounting software you find, the following are some things you should consider doing first.

• Software compatibility
• Data migration
• Training & support
• Longevity of the company
• Future updates

Software compatibility

Quickbooks Online was a multi-faceted cloud base online software. which took care of a range of functionalities. Now that you are searching for other software make sure that it is online cloud-based accounting software. This will make sure that you do not lose your data and migration is a much simple process, and it will also help you avoid a learning curve that you might face.

Data migration

The most important aspect of this migration is to make sure that you don’t lose your data. When migrating from QuickBooks online, make sure that you clear your QuickBooks account first. Once that is taken care of, take backups of all the contacts, financial statements, and other important original files.

There is a high chance that you might lose data during migration. To minimize the loss make sure to back up all your company files.

Training & Support

Migration is an overwhelming process as is, so make sure that you are not wasting your time explaining your situation to every other software company you are trying to export data.

Quickbooks Online has announced its exit from the Indian market in September 2022. That is a long period for preparing their staff for the data export process support.

If your new software is not allowing a smooth migration from QuickBooks online, it will cost you not only money but also time.

Longevity of the company

Quickbooks Online is a US-based company that launched its product QuickBooks Online in India in 2012.

The software version they made available for Indian markets was cheap and easy the business growth of the company became stagnant as they failed to understand the Indian market

In the past 10 years since QuickBooks entered the Indian market a lot of promising accounting software companies that not only understand the Indian markets but are also based in India have become popular.

with QuickBooks software exiting India, it’s safe to say it will be durable for Indian businesses owner to invest in cloud-based accounting software from an Indian company. As not only do they understand the Indian market better, but also will be able to match the low rates you are used to with QuickBooks.

Future updates

The easiest way for any software to be relevant is to make consistent updates to its system to stay updated with the current market needs. example, Integrating GST once it was introduced to the Indian market. Something Quickbook failed to do.

Now as you are migrating from QuickBooks to other software take a look at how many times the software launch future updates with accords to the market, this will help you to take a sound decision.

Migration from QuickBooks to ProfitBooks

Once you have done all the above-mentioned things and are ready to start your migration process, you will come across a lot of popular accounting software like Zoho, tally, FreshBooks, etc. We recommend you check out this software to take an informed decision for your migration, but the following is some information about ProfitBooks to help you with your conversion process

ProfitBooks is a Pune-based accounting online software company, actively working in the sector for the past 10 years.

ProfitBooks was also recently voted as the “Best inventory management software in India for SMEs” by Capterra.

ProfitBooks is created with the business owner in mind, not just an accountant or CA. Hence, even a person with no accounting experience can use the software with easy.

A lot of accounting activities like creating invoices, maintaining a chart of accounts, proper payment gateway integration, automatic backups, etc. Can be done easily in ProfitBooks as it’s on QuickBooks.

Our support staff is well-trained for this migration process and we can ensure a smooth transaction from QuickBooks.

ProfitBooks is one of the most affordable software on the market, which allows its users to access a lot of accounting features such as invoicing, payables & receivables, inventory management, GST tax filing, etc.

Conclusion

Migration from a trusted accounting software can be an overwhelming process, but it’s important to take the things mentioned in the article into consideration before you start the migration process.

If you wish to migrate to ProfitBooks contact support@profitbooks.net

Also read

Zoho books vs quickbooks which is better?

Top 5 alternative to quickbooks

Comparing quickbooks & freshbooks

How to select a perfect accounting software-8 tips 

Best Inventory management software

The post Tips To Migrate From QuickBooks To Another Accounting Software appeared first on ProfitBooks.net.

For a new business owner learning how to manage their cash flow is a skill of a lifetime, hence we have written this blog to help business owners learn in detail about how to manage their cash flow.

In this blog, we will be talking about the following points.

• What is a cash flow.
• benefits of cash flow statements.
• Methods of cash flow statement.
• Preparation of cash flow statement
• Example of cash flow statement.
• Interpretation of cash flow statement.
• Conclusion

What is a cash flow

A cash flow statement is a financial statement that shows the inflows and outflows of cash and cash equivalents for a business over a specific period, usually a year. It provides a summary of the company’s cash transactions, including its operating, investing, and financing activities.

The cash flow statement is divided into three sections:

1. Operating activities: This section shows the cash inflows and outflows related to the company’s core business operations. This includes cash received from customers, payments made to suppliers and employees, and taxes paid.

2. Investing activities: This section shows the cash inflows and outflows related to the company’s investments. This includes cash spent on purchasing or selling property, plant, equipment, or other long-term investments.

3. Financing activities: This section shows the cash inflows and outflows related to the company’s financing. This includes cash received from issuing stocks or bonds or borrowing money, as well as cash paid for repurchasing stocks or paying off loans.

Benefits of Cash Flow Statement

Benefits of cash flow statement

A cash flow statement is an essential financial statement that provides information on a company’s cash inflows and outflows. By analyzing cash flows, investors and creditors can assess a company’s ability to generate cash and meet its financial obligations. Here are some benefits of a cash flow statement:

• Provides a Clear Picture of a Business’s Financial Health: The cash flow statement helps business owners and investors to evaluate the liquidity of a business. By understanding the cash inflows and outflows of a company, investors can determine if a business has enough cash on hand to pay its debts and fund its operations.

• Helps in Decision Making: The cash flow statement can also help business owners to make important financial decisions. For example, by analyzing the cash flow statement, business owners can determine the feasibility of capital expenditures or decide whether to pursue new investments or financing opportunities.

• Monitors Business Performance: By analyzing a company’s cash flow statement, you can determine its operational efficiency, profitability, and liquidity. It provides insights into the company’s performance over a while, allowing you to identify trends and make informed decisions.

• Improves Cash Management: A cash flow statement helps businesses improve their cash management by identifying areas where cash inflows can be increased or cash outflows can be reduced. This can lead to better financial performance and increased profitability.

Methods of Cash Flow Statement

Methods of cash flow statement

There are two main methods of preparing a cash flow statement: the direct method and the indirect method.

Direct Method

The direct method involves tracking all cash inflows and outflows from operating activities and presenting them in a cash flow statement. This includes the cash received from customers, cash paid to suppliers, salaries paid to employees, and other operating expenses.

To calculate the cash flow statement using the direct method, you will need to calculate the following:

1. Cash flow from operating activities:
   Cash Inflow: This includes cash received from customers, interest and dividends, and other operating income.
   Cash Outflow: Cash paid for inventory, operating expenses, interest and taxes, and other operating expenses.
2. Cash flow from investing activities:
   Cash Inflow: This includes cash received from the sale of investments and property, plant, and equipment.
   Cash Outflow: Cash paid for the purchase of investments and property, plant, and equipment.
3. Cash flow from financing activities:
   Cash Inflow: This includes cash received from debt or equity securities issuance.
   Cash Outflow: Cash paid for debt repayment and dividends.

Indirect method:

The indirect method, on the other hand, starts with the net income figure from the income statement and adjusts for non-cash items and changes in working capital to arrive at the cash flow from operating activities. Non-cash items include depreciation and amortization, while changes in working capital include changes in accounts receivable, accounts payable, and inventory.

Preparation of Cash Flow Statement

Preparing a cash flow statement requires accurate tracking of all cash inflows and outflows during the period. Businesses can use accounting software to automate this process or do it manually using spreadsheets. The steps involved are:

1. Gather financial data: Collect financial data for the period for which you will be calculating the cash flow statement (usually monthly, quarterly, or annually).
2. Identify cash inflows and outflows: Determine the sources and uses of cash for the period, including operating, investing, and financing activities. Start with the beginning balance of cash on hand for the period. This is the amount of money the company had at the beginning of the period.
3. Calculate cash flows from operating activities: Use the indirect method to calculate cash flows from operating activities. This involves adjusting net income for non-cash items such as depreciation and changes in working capital.
4. Calculate cash flows from investing activities: Determine the cash flows from investing activities, such as buying or selling property, plant, and equipment or investing in securities.
5. Calculate cash flows from financing activities: Determine the cash flows from financing activities, such as taking out or repaying loans, issuing or buying back shares, paying off debt, or paying dividends to shareholders.
6. Calculate the net change in cash: Calculate the net change in cash for the period by adding and subtracting the cash inflows and outflows from Operating. Investing and Financing activities.
7. Determine the ending cash balances: Calculate the ending balance of cash for the period by adding the net change in cash to the beginning balance of cash.
8. Prepare the cash flow statement: Present the cash inflows and outflows for each category and the net change in cash in a cash flow statement. The statement should include a reconciliation of the beginning and ending cash balances.

Example of Cash Flow Statement

Examples of cash flow statement

Let’s prepare Cash Flow Statement for Excel Ltd by using Direct Method and Indirect Method:

Excel Ltd
Cash Flow Statement
For the Year Ended March 31, 2023 (in Rupees)

Using Direct Method:

Cash inflows from operating activities:
Cash received from customers: 5,00,000
Cash paid to suppliers: 3,00,000
Salaries paid to employees: 1,00,000
Total cash inflows: 5,00,000
Total cash outflows: (4,00,000)
Net cash inflow from operating activities: 1,00,000

Cash inflows from investing activities:
Sale of equipment: 10,000
Purchase of equipment: (30,000)
Net cash outflow from investing activities: (20,000)

Cash inflows from financing activities:
Issuance of long-term debt: 50,000
Repayment of long-term debt: (20,000)
Payment of dividends: (10,000)
Net cash inflow from financing activities: 20,000
Net increase in cash: 1,00,000 – 20,000 + 20,000 = 1,00,000
Cash and cash equivalents, the beginning of the year = 85,000
Cash and cash equivalents, end of year = 1,85,000

Using the Indirect Method:

Net income: 1,00,000
Adjustments for non-cash items:
Depreciation expense: 20,000
Changes in working capital:
Increase in accounts receivable: (30,000)
Decrease in accounts payable: 10,000
Increase in inventory: (5,000)
Net cash inflow from operating activities: 95,000

Cash inflows from investing activities:
Sale of equipment: 10,000
Purchase of equipment: (30,000)
Net cash outflow from investing activities: (20,000)

Cash inflows from financing activities:
Issuance of long-term debt: 50,000
Repayment of long-term debt: (20,000)
Payment of dividends: (10,000)
Net cash inflow from financing activities: 20,000

Net increase in cash 95,000 – 20,000 + 20,000 = 95,000
Cash and cash equivalents, the beginning of the year = 85,000
Cash and cash equivalents, end of year = 1,80,000

As you can see, the main difference between the two-method is the way they report cash flow from operating activities.

Interpretation of Cash Flow Statement

Interpreting a cash flow statement involves analyzing the sources and uses of cash for the period in question. Review and analyze the cash flow from operating, investing, and financing activities.

• Operating Activities: Positive cash flow from operating activities is generally a good sign, as it indicates that the company is generating cash from its main business activities. Negative cash flow from operating activities may be a cause for concern, as it suggests that the company is not generating enough cash to cover its operating expenses.
• Investing Activities: Positive cash flow from investing activities may indicate that the company is investing in its future growth, while negative cash flow from investing activities may indicate that the company is divesting assets or reducing its investments.
• Financing Activities: Positive cash flow from financing activities may indicate that the company is accessing capital to support growth, while negative cash flow from financing activities may indicate that the company is paying down debt or returning capital to shareholders.

Assess the net change in cash: The net change in cash shows the overall change in the company’s cash balance for the period. A positive net change in cash is generally a good sign, as it indicates that the company is generating more cash than it is using. A negative net change in cash may indicate that the company is experiencing cash flow problems or is using cash to fund operations or investments.

Conclusion

In summary, a cash flow statement is like a bank statement for a company. Just like how a bank statement shows all the money coming in and going out of your account, a cash flow statement shows all the money coming in and going out of a company’s account. By accurately reviewing and assessing the cash flows, businesses can find opportunities to improve their financial performance and promote growth. Whether you’re a small business owner or a large corporation, the cash flow statement is a valuable tool that can help you achieve your financial goals. As the company gets bigger manually maintaining its cash flow may get difficult, to solve this problem a lot of companies opt for accounting software.

There are a lot of accounting software like ProfitBooks which you can use to manage your cash flow. The plus side of using ProfitBooks is its easy interface and “forever free plan”

To know more visit the website and sign in for your “forever free plan” today!

Also Read:-

How to manage cash flow in a small business

30 cost-cutting ideas to survive cash flow crunch

10 cash flow mistakes that can kill your business

Difference between cash & accrual accounting method

Top 10 free accounting for small businesses.

The post Cash Flow Statement: Explanation and Example appeared first on ProfitBooks.net.

If you step out in the market often and interact with businesses or any transactions, you’d have encountered the terms‘ invoice‘ and ‘bill’. Businesses, accountants, and customers often use these two terms interchangeably.

Though they do have some commonalities, they surely aren’t identical.

If you are a business owner and wish to have some assistance in invoicing, make sure to head over to ProfitBooks. ProfitBooks is your one-stop solution for all your invoicing needs.

In this article, we will go through everything around invoices and bills. By the end of the article, you will clearly understand what invoices and bills are. Not only this, but you’ll also have a proper understanding of other transaction receipts and their differences. 

Before understanding the differences between an invoice and a bill, knowing what these documents are for is necessary. Let’s go through that one by one.

What is an invoice?

An invoice is an official document issued by a business to its customers for the goods and services provided. In other words, a seller uses an invoice to request payment from a buyer. 

While issuing an invoice, a business generally gives a period for the customer to clear the payment. This period usually varies around 30-90 days. In this way, the customer receives a short-term credit for the decided payment term for the goods purchased.

Components of an Invoice

A typical invoice generally contains the following components. 

• Date
• Invoice Number
• Unique ID Number
• Description of goods and services
• Business contact information
• Payment Terms

When an Invoice is Sent

An Invoice is used to request payment for provided goods and services. Hence, an invoice is something that is issued before payment.

Following are some types of invoices that you might encounter in the market.

• Standard invoice: Simple document used for billing your goods and services.

• Commercial invoice: An export document serving as legal evidence of the transaction.

• Recurring invoice: Used to bill customers for ongoing and continuous services. Used for subscription-based businesses.

• Tax invoice: Invoice issued for taxable supply of goods and services.

• Pro-forma invoice:  A preliminary bill or an estimated invoice used to request payment from a committed buyer.

• Interim invoice: While managing cash flow for large jobs, a business uses interim invoices to cover some bits of the large costs.

• B2B and B2C Invoice: ‘Business to Business’ and ‘Business to Customer’ invoices.

Importance

Invoices turn out to be crucial documents for accounting, financial reporting, and taxation requirements. They need to be handled appropriately and professionally. Remember that once an invoice is finalized, one should not delete it.

An authentic invoice is legal proof of a signed agreement between a buyer and a seller. It is important to avoid making any mistakes, as an invoice can protect a merchant from fraudulent lawsuits.

Example: If you are a seller, you will issue an invoice to the buyer for all the goods and services you offered. The most common cases where an invoice is used are inventory tracking of a business, requesting timely payments from customers, delivering goods to a client, etc.

For someone just starting a small business, handling these legal documents without making any invoicing mistakes can be a little too much. During such situations, you’d need some authentic and reliable source of help; that is ProfitBooks.

ProfitBooks is easy-to-use online accounting software for small businesses to manage their finances and stay on top of their cash flow. It is your one-stop solution for all invoice-related and accounting software needs.

It has got it all, from strong accounting features to inventory management. You can create professional invoices in multi-currency, manage business expenses, and track bank account movements and the status of invoice.

What is a bill?

A bill is another legal document that talks about the amount that a customer owes to the vendor. Bills contain details such as the amount charged for a sale, including the taxes, if any. They are often issued for a cash transaction completed in one go and often serve as proof of transaction.

Components on a Bill

Most of the components included in an invoice are often seen in a bill. Though there are a couple more components that are reflected in a bill. They include:

• A list of goods and services provided
• Total number of items or units purchased
• The total amount, including the taxes, if any

When a Bill is Used

A bill is treated as a record of the purchases of a buyer’s goods and services. Bills act as a reminder for the payments that are yet to be done.

Bills are often considered less formal than invoices as they’re commonly used for transactions made in one go. 

Importance

Although a bill includes a lot of similar information to an invoice, the payment is the primary focus of a bill. Unlike invoices, bills cannot be recurring but can be used only once.

Example: If you go to a shopping mall, you’ll receive a bill and not an invoice at the counter for all the items that you have purchased. You will be asked to pay the bill immediately.

You will find examples of billing at places like shopping malls, restaurants, departmental stores, etc.

Other types of transaction receipts that you might have come across

Here are some more terms you might have heard somewhere and found synonymous with invoices and bills.

1. Receipt

People often think of a receipt and a bill as the same thing. A receipt is issued after payment is done as proof of the payment.

2. Expense report

Sometimes, an employee needs to pay out of pocket for business goods. This amount gets paid later as reimbursement by their employer. For this to happen, an employee must submit an expense report stating all their expenditure.

3. Statement

A statement is something that a customer asks a business owner. Businesses often send their customers a statement, including past sales transactions, credits, or payments.

Invoice vs. Bill: What’s the difference, and what’s in common?

Now that we have clearly understood all the transaction receipts and the functionalities of an invoice and a bill let us dive into their differences. The same document can be referred to by the terms’ invoice’ and ‘bill’. Therefore, people often find it confusing. 

It’s all about perspective. The same document that you (as a buyer) treat as a bill is treated as an invoice by the vendor. Let’s take the help of an example.

Suppose that you bought a computer from a local shop nearby. The shop owner would send you an invoice for that purchased computer, including the necessary details. To pay the amount that you owe for the computer, you would receive this invoice as a bill. After you are done with the payment of the bill, you will receive a receipt from the shop owner as proof of the payment.

An invoice is generally treated as a legal document used for financial reporting. In comparison, a bill acts as a proof of transaction. An invoice refers to a specific document type, whereas a bill is used more as a generic term.

Although both the documents, more or less, contain very similar information about a business transaction, they just aren’t the same.

Sample Invoice and Bill

This sample invoice generate from ProfitBooks will help you understand how an invoice format is supposed to be. The same document will be treated as a bill by the buyer or the customer.

Conclusion

Like many countries, India, too, has a couple of laws governing the issue of invoices and bills. For example, the goods and services tax or GST has many laws associated with invoicing formats and specific mandatory fields. Moreover, from 1st October 2020, India has made mandatory e-invoicing requirements.

All this can seem confusing and cumbersome if you aren’t equipped with all the information and resources. But you don’t need to worry when you have assistance from ProfitBooks. 

ProfitBooks can take care of all your invoicing needs and track your bill payment status. The modern accounting software helps you speed up, automate, and smoothen up the invoicing process to get paid without any delay.

You can use premade invoice templates and enjoy complete freedom over your invoices. You can also connect ProfitBooks with a payment gateway and start accepting online payments from your customers when you bill them. 

Find out how ProfitBooks can help you with your accounting needs!  Create your account for free today.

Also read:

The post Is an invoice the same as a bill? appeared first on ProfitBooks.net.

It’s been a few years since you are running this business. You are about to end this financial year and now you want to know – What is my actual business worth?

Most small business owners consider only revenue while assessing their business worth. However, they rarely consider one fundamental thing in the calculation – Fixed Assets. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. It is a critical component for evaluating your business valuation.

In case you don’t know the definite asset value, your financial accounting will be incomplete and it won’t give you a real picture of your business.

In this article, we’ll cover what is fixed asset, examples of it, various types of it, how it is calculated, and much more.

What Is A Fixed Asset?

A fixed asset is a long-term part of a property that a company possesses and utilizes in the generation of its revenue and is not anticipated that would be devoured or consumed into cash in the coming next year. A typical case of fixed assets is a producer’s plant resources, for example, its structures and hardware. The word “fix” indicates that these assets won’t be sold in the current bookkeeping year.

Let’s consider that ABC firm plans to purchase an office worth 20 lakhs rupees. The building has a physical shape, will last longer than a year, and creates income, making it a fixed asset. Thus ABC firm will now have a place from where they can maintain their business operation and are solely responsible for the building as well.

Fixed assets additionally incorporate any property that the organization doesn’t sell directly to the customer. This can be furniture, engine vehicles, PCs, and much more. Let’s assume it cost around five lakhs. Thus, ABC firm acquired a fixed asset worth Rs. 25 lakhs, and this will also reflect in their balance sheet. This fixed asset is useful in calculating the overall revenue of the company.

Fix assets will help you build companies

Importance of Fixed Assets

Detailed documentation of an organization’s capital adds to the understanding of the financial well-being and estimation of that business. Data including fixed assets and depreciation is additionally utilized by potential financial specialists when they are thinking about whether an organization is a profitable or non-profitable firm. While deciding the estimation of a fixed asset, the strategy for depreciation must be considered.

Learn more about depreciation.

Since the value of the assets depreciates as it is utilized, as they ages, or as the latest models are presented, it is critical for a firm to enlist and track depreciation from the time of procurement. Fixed assets are incorporated into the asset report at their initial expense, and after that depreciation all through their life until they are sold, supplanted on the accounting report at their residual esteem.

Different Types of fixed assets

Accounting For Fixed Asset

If your business has fixed assets, sound accounting standards can fill in as a manual for properly representing these long-haul goods on your bookkeeping records. Particular exchanges influence capital to incorporate the buy, revaluation, devaluation, and sale of the asset. This trade is vital to the exactness of your business’s financial records and reports.

Good accounting software can help you record it easily.

What is the Fixed Asset Turnover Ratio?

Fixed assets turnover proportion is an activity proportion that measures how effectively an organization is using its fixed resources in producing income. Financial specialists utilize this equation to see how well the organization is using its devices and equipment to produce sales. This idea is imperative to financial specialists since they need to have the capacity to gauge the exact profit of their venture.

Check this formula:

Fixed Assets Turnover Ratio = Net Revenue / Aggregate Fixed Assets
Where Net Revenue = Gross Revenue – Sales Return
Aggregate Fixed Assets = Fixed Assets – Total Depreciation
For example, consider the above example of an ABC firm with a fixed asset worth 25 lakhs and the depreciating cost is five lakhs yearly. Consider their net revenue is 50 lakhs. If we calculate the fixed assets turnover ratio for ABC firm, it comes out to be 2.5. This ratio is considered a critical factor for investors.

Types of Fixed Asset

Fixed assets are classified into two main types: Tangible and Intangible Assets. Let’s look into these two in detail.

Tangible Assets

These incorporate things, for example, buildings, land, hardware, various equipment, vehicles, furniture, and much more. Think about your tangible resources as things you need to maintain your business. To value them, you begin with what you obtained or rented them for and after that apply the fitting depreciation strategies to diminish their value.

Some fixed assets, for example, land or structures may appreciate and not depreciate in long tenure. You need to consider this factor as well in your balance sheet.

Intangible Assets

These can incorporate goodwill, licenses, registered or trademarked names, and even phone numbers, any innovation, and websites if you ever plan to sell. For assets such as phone numbers and trademarked or patented things, it’s somewhat harder to decide the value.

Goodwill is an elusive resource, and this kind of asset is simpler to calculate by finding the difference between an organization’s actual cost and the cost at which it is sold or purchased. Most of the other intangible resources are hard to estimate.

What is a Current Asset?

A Current asset is a money or any other resource that will swing to cash within a year from the date it was included in the organization’s bookkeeping record. If an organization has a working cycle that is larger than one year, a resource that will turn to cash at the length of its operating cycle is considered to be a current asset.

Current assets are for the most part listed first on an organization’s accounting report and will be introduced at the request of liquidity. That implies they will show up in the accompanying order: money which incorporates cash, financial records, little money, transitory speculations, debt claims, stock, supplies, and prepaid costs. Supplies and prepaid costs won’t be changed to cash.

It is essential that the measure of each current resource not be exaggerated. For instance, records of sales, temporary investments, and inventories ought to have calculated accounts so that the sums announced won’t be greater than the sums that will be received when the resource turns to cash. Current assets are additionally alluded to as short-term resources.

Commonly Asked Questions On Fixed Assets

Let’s have a glance at some of the FAQs that many business owners have.

1) Is the cost of buildings, machinery, and land a fixed cost?
Yes, they are considered fixed cost.

2) Are insurance premiums considered a fixed cost?
The cost of the premiums for an organization’s property insurance is probably going to be fixed.

3) What is reported as property, plant, and equipment?
Hardware, vehicles, furniture, Land, and Structure are utilized as a part of the business.

4) What are concurrent and fixed assets and how do they differ from each other?
A noncurrent asset contains fixed assets. They are typically used in the balance sheet of the property report as property, plant, and hardware.

5) What is the current ratio?
It is a financial ratio that demonstrates the extent of existing resources for current liabilities.

6) Is a money market account a fixed asset or a current asset?
It is a current asset unless it is confined for a long-term reason. It is mostly considered a short-term asset for any organization.

Final Words

Although many entrepreneurs have an unclear idea of what their company’s worth is, most are just speculating – and after some time, such mystery can prove costly. Thus it is worth knowing the total asset your business is holding.

It is highly recommended to take advice from your accountant while calculating the value of fixed assets. If you want to manage it on your own, you can try ProfitBooks accounting software.

Please free to share your feedback or queries in the comments section below.

Also, Read
What is depreciation
How to set salary as a business owner
How to write effective invoice terms

The post What Is Fixed Asset? (Updated in 2023) appeared first on ProfitBooks.net.

What is Depreciation?

In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible.

An example of fixed assets are buildings, furniture, office equipment, machinery etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time.

Depreciation allows a portion of the cost of a fixed asset to the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue generation transaction.

An example of Depreciation – If a delivery truck is purchased by a company with a cost of Rs. 100,000 and the expected usage of the truck are 5 years, the business might depreciate the asset under depreciation expense as Rs. 20,000 every year for a period of 5 years.

How to calculate depreciation in small businesses?

There are three methods commonly used to calculate depreciation. These are:

1. Straight-line method
2. Unit of production method
3. Double-declining balance method

Three main inputs are required to calculate depreciation:

1. Useful life – this is the time period over which the organisation considers the fixed asset to be productive. Beyond its useful life, the fixed asset is no longer cost-effective to continue the operation of the asset.
2. Salvage value – Post the useful life of the fixed asset, the company may consider selling it at a reduced amount. This is known as the salvage value of the asset.
3. The cost of the asset – this includes taxes, shipping, and preparation/setup expenses.

Unit of production method needs the number of units used during production. Let’s take a look at each type of Depreciation method in detail.

Types of depreciation

1) Straight-line depreciation method

This is the simplest method of all. It involves the simple allocation of an even rate of depreciation every year over the useful life of the asset. The formula for straight-line depreciation is:

Example – Suppose a manufacturing company purchases machinery for Rs. 100,000 and the useful life of the machinery are 10 years and the residual value of the machinery is Rs. 20,000

Annual Depreciation expense = (100,000-20,000) / 10 = Rs. 8,000

Thus the company can take Rs. 8000 as the depreciation expense every year over the next ten years as shown in the depreciation table below.

2) Unit of Production method

This is a two-step process, unlike the straight-line method. Here, equal expense rates are assigned to each unit produced. This assignment makes the method very useful in assembly for production lines. Hence, the calculation is based on the output capability of the asset rather than the number of years.

The steps are:

Step 1: Calculate per unit depreciation:

Per unit Depreciation = (Asset cost – Residual value) / Useful life in units of production

Step 2: Calculate the total depreciation of actual units produced:

Total Depreciation Expense = Per Unit Depreciation * Units Produced

Example: ABC company purchases a printing press to print flyers for Rs. 40,000 with a useful life of 1,80,000 units and a residual value of Rs. 4000. It prints 4000 flyers.

Step 1: Per unit Depreciation = (40,000-4000)/180,000 = Rs. 0.2

Step 2: Total Depreciation expense = Rs. 0.2 * 4000 flyers = Rs. 800

So the total Depreciation expense is Rs. 800 which is accounted for. Once the per-unit depreciation is found out, it can be applied to future output runs.

3) Double declining method

This is one of the two common methods a company uses to account for the expenses of a fixed asset. This is an accelerated depreciation method. As the name suggests, it counts expense twice as much as the book value of the asset every year.

The formula is:

Accumulated depreciation is the total depreciation of the fixed asset accumulated up to a specified time.

Example:  On April 1, 2012, company X purchased a piece of equipment for Rs. 100,000. This is expected to have 5 useful life years. The salvage value is Rs. 14,000. Company X considers depreciation expenses for the nearest whole month. Calculate the depreciation expenses for 2012, 2013, 2014 using a declining balance method.

Useful life = 5

Straight line depreciation percent = 1/5 = 0.2 or 20% per year

Depreciation rate = 20% * 2 = 40% per year

Depreciation for the year 2012 = Rs. 100,000 * 40% * 9/12 = Rs. 30,000

Depreciation for the year 2013 = (Rs. 100,000-Rs. 30,000) * 40% * 12/12 = Rs. 28,000

Depreciation for the year 2014 = (Rs. 100,000 – Rs. 30,000 – Rs. 28,000)  * 40% * 9/12 = Rs. 16,800

The depreciation table is shown below:

Depreciation for 2016 is Rs. 1,120 to keep the book value same as salvage value.

Rs. 15,120 – Rs. 14,000 = Rs. 1,120 (At this point the depreciation should stop).

Why should small businesses care to record depreciation?

So now we know the meaning of depreciation, the methods used to calculate them, inputs required to calculate them and also we saw examples of how to calculate them. Let’s find out why small businesses should care to record depreciation.

As we already know the purpose of depreciation is to match the cost of the fixed asset over its productive life to the revenues the business earns from the asset. It is very difficult to directly link the cost of the asset to revenues, hence, the cost is usually assigned to the number of years the asset is productive.

Over the useful life of the fixed asset, the cost is moved from the balance sheet to the income statement. Alternatively, it is just an allocation process as per the matching principle instead of a technique that determines the fair market value of the fixed asset.

Accounting entry – DEBIT depreciation expense account and CREDIT accumulated depreciation account.

If we do not use depreciation in accounting, then we have to charge all assets to expense once they are bought. This will result in huge losses in the following transaction period and in high profitability in periods when the corresponding revenue is considered without an offset expense. Hence, companies that do not use the depreciation expense in their accounts will incur front-loaded expenses and highly variable financial results.

Final Notes

Depreciation is an important part of accounting records which helps companies maintain their income statement and balance sheet properly with the right profits recorded. Using good business accounting software can help you record the depreciation correctly without making manual mistakes.

You can try ProfitBooks. It is a simple accounting software that lets you create professional invoices, track expenses and calculate taxes without any accounting knowledge.

Also Read:
What is a Fixed Asset?
What are accounts receivables?
Difference between LIFO and FIFO methods

The post What Is Depreciation? appeared first on ProfitBooks.net.

On paper this might sound simple and easy, but one day to get some groceries from your client’s advance, nothing much just a packet of milk or you are paying your vendor from your accounting, and slowly you are overwhelmed because you no longer remember which money is which.

When you first started your business, like many entrepreneurs, you may have used your assets for startup capital or may have secured a business loan based on personal assets.

As your business grows, creating a clear boundary between your personal and business finances is crucial to staying on the right side of the law.

Even if you’re just starting, it’s essential to split up these two parts of your money life. Treat your business, no matter big or small, like a viable entity.

Don’t know where to start with separating your personal and business finances? Let’s start with expenses.

An expense can be defined as money spent or cost incurred in an organization’s efforts to generate revenue which is also known as the cost of doing business. However, some expenses are carried for satisfying our wants and needs that are personal and do not result in any incremental revenue.

Business expanses vs Personal expanses

Therefore, the separation of both these expenses is a very necessary exercise. Some of the reasons why this exercise should be carried out:

1) The cost of doing business

As a business person, you would always want to ascertain your cost of doing business and analyze various expenditures carried out during the year.

There might be some expenses that you might want to control or avoid altogether, but the same cannot be ascertained if personal expenses are also clubbed with them.

There might be even cases where a major portion of a particular expenditure is of personal nature but is clubbed and claimed as an expense in the books of business, hence increasing the cost of doing business unnecessarily.

For example, if you travel to your office by your car and also use the same car for personal purposes then the vehicle maintenance and fuel expenses should be allocated between personal and business uses appropriately.

The best way to identify and manage your business expenses is by recording them, for this purpose, it’s recommended to use a bookkeeping or accounting software like ProfitBooks.

2) Statutory Compliances

Among numerous laws, the Companies Act and Income Tax Act particularly require ‘persons’ to separately account for personal as well as business expenses. The Income Tax Act requires adding back any personal expenses if deducted while ascertaining book profits to arrive at taxable profits as the same. Hence, separation is necessary as well as mandatory to avoid non-compliance with laws in force.

3) Treatment Of Assets

Most of the time, personal assets are added to the block of business assets, and depreciation is claimed which ultimately leads to a reduction of tax liability. This is a classic case of tax evasion. Often, laymen don’t even know that they are a part of such activity due to unawareness and improper guidance by their income tax professionals.

Hence, to avoid unwanted and unexpected repercussions one should maintain separate books of accounts for personal as well as business expenses. For example, you have bought a video game console as a gift to your son and maintained the same as a business asset as you do not maintain any separate personal account.

Depreciation on such machines will lead to understating of income which ultimately results in lower taxes. The same goes for all the sorts of personal assets which you are carrying on your business balance sheet.

4) Know your assets and liabilities and ratios

Intertwined books of accounts will not give a proper and fair view of your assets and more importantly your liabilities. This may even lead to chaos and result in delayed and even non-payment of liabilities that require immediate attention.

For example, you have deposited a huge amount in a certain portfolio to be used in the future only for personal purposes. Such investments do not add any value to the business and mixing them with your business investment portfolios may give you a wrong picture of your business net worth and assets available for business.

5) Claim on assets

Separating personal assets from business assets is a must. For example, if you have taken credit by mortgaging your business assets, then if things go south only your business assets shall be seized and the lending company will not have any right to seize your assets. However, non-separation may result in the seizing of personal assets as well.

How to separate your personal and business finances?

separated business expanse for better financial health

6) Make it official

Consider establishing a partnership firm, limited liability company, or private entity for your business.

You can refer to the Ministry Of Corporate Affairs’s website or sit down with your advisors – like CAs, lawyers, CPAs, or financial planners and determine what entity makes the most sense, and how this business will impact your taxes and financial planning.

These business entities will also give your finances a new level of liability protection, which could come in very handy if your business is ever sued.

7) Classification of business and personal finances

Keeping separate records of accounts, one for personal and another for the business nature of finances is one of the oldest methods. However, maintaining two separate books of accounts can be cumbersome and prone to errors. Hence, proper classification of heads of accounts is a must for keeping personal and business expenses and incomes separate.

For example, you have purchased two desktop computers, one to be used at home. Then in such case, the cost of that one computer to be used at home should form part of the amount drawn out of business for personal purposes and not of a business block of assets.

8) Open separate expense accounts for business and personal finances

If you are paying for some services or products which are used for your business as well as your personal needs, then you must keep in mind to open separate expense accounts due to the similarity of expenses. For example, the UBER cab booking application provides you the choice to select whether a particular trip is for personal or business purposes. Before riding, you can select the appropriate head and avoid either overcharging or undercharging the workplace with cab fares.

9) Separate bank accounts and credit cards

Separate bank accounts and plastic currency such as debit cards and credit cards enable you to maintain a tally of such finances separately, and there will be no need to group and analyze every expense/income from the bank statements, as the process is lengthy and cumbersome.

For example, open a separate bank account and a credit/debit card for that account and it should be solely used for business expenses. The same goes with your account and plastic cards, they should not be used for carrying out business expenses.

10) Pay Yourself a Salary

One should fix a particular amount to be withdrawn every month from the business as personal drawings for carrying out household expenditures.

Open another separate personal account meant only to carry out expenses of personal nature. By adopting this practice, the amount withdrawn as drawings will not affect the profit and loss statement of the business, and the separation of accounts and bank statements will ultimately provide clarity and proper maintenance.

11) Separate loan accounts

Imagine, you want to avail home loan from a bank with which you even have your business account, and the bank official offers you to adjust interest periodically from your business account. This looks good as you will not be required to keep track of your periodical payments and the bank will do the same for you. However, a house is a personal asset, and interest on such assets if adjusted from the business account will ultimately end up forming part of business interest expenses.

Therefore, one should adjust the same from the separate drawings account in the bank, and linking with the business account shall be avoided.

12) Hire a professional accountant

If you want to manage finances, you ought to hire a professional accountant. A professional accountant will guide you through the classification of expenses, accounting treatment, taxation impacts of transactions, etc. Hence, hiring a professional accountant will enable you to keep your books clean and clear.

13) Implement a dedicated accounting system

If you’re comfortable with a Do-It-Yourself approach, several tools are available for tracking your business income and expenses. For example, ProfitBooks allows you to create invoices, record expenses, track inventory and manage taxes. It’s super simple to use and you don’t need any accounting knowledge to operate it.

Final Notes

Business owners intertwine business and personal finances all too often. After all, you are your business, but muddling up the two will mean a mess at tax time.

Maintaining clear lines between your business and personal expenses doesn’t need to be challenging. Setting up a clear distinction between your personal and business finances, and consistently keeping them separate, is fundamental to your business’s success.

Please feel free to share your feedback in the comments section below.

FAQs

Can I use personal funds for business expenses or vice versa?

It is generally recommended to avoid using personal funds for business expenses or vice versa. Mixing funds can complicate financial tracking, make tax filing more challenging, and blur the separation between personal and business finances. It’s best to keep a clear distinction between the two and use appropriate channels to transfer funds between personal and business accounts if necessary.

How do I handle business transactions involving personal assets or vice versa?

To maintain separation, it’s important to establish clear documentation for any business transactions involving personal assets or vice versa. This includes maintaining proper records, such as invoices or loan agreements, and treating such transactions as arm’s length transactions to ensure transparency and compliance with tax regulations.

Can I claim personal expenses as business deductions?

No, personal expenses should not be claimed as business deductions. Deductions should be limited to legitimate business expenses incurred for business purposes. Claiming personal expenses as business deductions can lead to tax penalties and raise concerns during tax audits. Keep accurate records and consult with a tax professional to identify eligible business expenses.

How can I ensure compliance with tax regulations while separating personal and business finances?

Maintaining compliance requires diligent record-keeping and accurate reporting. Keep separate financial records for personal and business transactions, maintain receipts and invoices, reconcile accounts regularly, and consult with a tax professional to ensure proper tax reporting. Staying informed about updates to tax regulations and seeking professional advice can help navigate the complexities of tax compliance.

Are there any legal obligations or reporting requirements associated with separating personal and business finances in India?

While there are no specific legal obligations related to separating personal and business finances, maintaining separation is advisable for legal, accounting, and taxation purposes. However, certain legal structures like private limited companies or limited liability partnerships have specific reporting requirements and compliance with those obligations is essential. Consult with a legal professional or chartered accountant to ensure adherence to relevant laws and reporting obligations based on your specific business structure.

Also, Read
How to maintain positive cash flow in your business
How to write effective invoice payment terms
20 Tax saving tips for a business owner
30 Cost-cutting tips for surviving cash flow crunch

The post Tips To Seprate business And Personal Finances in 2023 appeared first on ProfitBooks.net.

1. Fixed Asset Purchase.

Depreciation allocates the cost of a fixed asset over its useful life. The entry involves debiting depreciation expense and crediting accumulated depreciation. Methods like straight-line, declining balance, or units of production are used. Spreading the cost over the asset’s life matches expenses with revenue, providing an accurate financial picture.

2. Depreciation Entry.

When a business purchases a fixed asset, it cannot fully expense the cost in the year of purchase. Instead, the cost is allocated over the asset’s useful life through depreciation. For instance, if a company buys a computer server for $5,000 with a five-year useful life, using straight-line depreciation, the annual expense would be $1,000. The depreciation entry involves debiting the depreciation expense account and crediting the accumulated depreciation account. By spreading the cost over time, businesses comply with accounting principles, ensuring expenses match revenue and providing an accurate portrayal of financial position and performance.

3. Taxes ledger adjustment entry.
During the book closing process in India, taxes related to different financial transactions, such as GST, income tax, and customs duty, must be accounted for and adjusted. To determine a single payable amount, the relevant tax ledgers are reconciled. This involves analyzing business transactions to identify tax implications and creating entries like GST payable. Adjustments are made to reconcile the tax ledgers and present a comprehensive financial picture in the income statement and other financial reports. Proper adjustment of tax ledgers ensures an accurate determination of tax liabilities, compliance with regulations, and an accurate representation of the business’s financial position.

4. Discounts, Writing off balances, and other adjustments.

In business, it is common to provide discounts to loyal customers as a gesture of appreciation or to incentivize continued patronage. Additionally, there may be instances where old outstanding balances become uncollectible and need to be written off. These adjustments are recorded through journal vouchers (JVs).

When a discount is given, a credit entry is made to the customer’s account to reflect the reduced amount payable. This adjustment recognizes the discount as a reduction in revenue for the current accounting period.

Similarly, when writing off old outstanding balances, a credit entry is made to the customer’s account to clear the unpaid amount. This adjustment acknowledges the loss in revenue as an expense for the business.

Through JVs, these adjustments are properly recorded, maintaining accurate financial records and reflecting the impact of these business transactions on the company’s credit balances and overall financial position for the current accounting period

5. Below-the-line expenses like Payment of Income Tax, Dividend Declaration, Deferred Tax, etc.

In the accounting cycle, below-the-line expenses such as payment of income tax, dividend declaration, and deferred tax are recorded separately from regular operating expenses. Income tax paid on profits is not considered a typical business expense but is recorded as an appropriation. These below-the-line expenses are accounted for through journal entries, reflecting the financial transactions related to income tax payments and dividend declarations. They are treated as account payables deducted from the net profits, ensuring accurate financial reporting and proper allocation of funds for tax obligations and shareholder distributions.

6. Provisions.
In certain situations, businesses may incur expenses in one year but make the payment in a subsequent year, creating a time gap between the expenditure and the actual outflow of funds. These types of expenses are recorded as provisions in the financial statements. Provisions represent the estimated amounts to be paid in the future for these expenses. The provisions are recorded through journal entries, typically involving a debit to the expense account and a credit to the provision account. This ensures accurate reporting of account payables and account receivables, reflecting the timing of expenditure and cash flow.

7. Investments.
Having extra money idle in a current account that earns zero interest is not financially wise. Smart individuals and businesses opt to invest their surplus funds to generate returns. When such investments are made, they are recorded through journal vouchers (JVs) to properly document the transaction. By investing the surplus, individuals and businesses can potentially earn interest, dividends, or capital gains. These investment activities are reflected in the balance sheets, showcasing the value of the investments and their impact on the overall financial position.

8. Returns/Losses on Investments, like Accrued interest, etc.
Investments come with inherent risks, and as a result, there may be returns or losses associated with them. These returns or losses on investments, including accrued interest, dividends, or changes in market value, are accounted for through journal vouchers (JVs). In the accounting cycle, these transactions are recorded to reflect the financial impact on the business. The gains or losses on investments are subsequently reflected in financial statements, such as the income statement and balance sheets, providing a comprehensive view of the business’s investment activities and their impact on its financial position.

9. Loan and repayment.
One of the most popular methods of financing is borrowing. The same can be accounted for through a journal voucher.
See how to record loan transactions using journal entries.

10. Owner’s Contribution.
Owners or co-founders keep investing in their businesses during the early stage of their startup or even at a later stage. It is very important to account for the same using a journal entry. See how to record the owner’s contribution to the business using a journal voucher.

Once you get the helm of basics, the whole accounting can be done through journal entries.

FAQs

1. How do you reverse a journal entry in advanced accounting?

In advanced accounting, reversing journal entries are used to cancel out the effects of previously recorded entries. To reverse a journal entry, you create an entry with the same amounts but opposite debits and credits. Typically, the reversal entry is recorded on the first day of the subsequent accounting period. This helps in simplifying the accounting process and ensures that the original entry doesn’t affect the financial statements of the new period.

2. What are some common types of adjusting journal entries in advanced accounting?

Adjusting journal entries in advanced accounting are made to ensure that financial statements accurately reflect the financial position and performance of a company. Common types of adjusting entries include accruals for revenues and expenses, depreciation or amortization adjustments, provisions for doubtful accounts, inventory valuation adjustments, and prepaid expenses or deferred revenue recognition.

3. How are complex business combinations recorded using journal entries in advanced accounting?

Complex business combinations, such as mergers and acquisitions, require special journal entries to record the transaction. The specific entries depend on the nature of the combination, including whether it’s a purchase or a pooling of interests. Generally, the acquiring company records the fair value of the acquired company’s identifiable assets and liabilities, and any excess is recorded as goodwill. The entry also involves eliminating the acquired company’s equity accounts and recognizing any non-controlling interests or minority interests.

4. What is the role of intercompany eliminations in advanced accounting journal entries?

Intercompany eliminations are necessary for advanced accounting when dealing with transactions between entities within the same group or company. These entries are made to remove the effects of transactions or balances between intercompany accounts, ensuring that the consolidated financial statements accurately reflect the group’s financial position. Intercompany eliminations can involve eliminating intercompany sales, intercompany loans, intercompany revenues and expenses, and intercompany dividends, among others.

5. How are complex revenue recognition scenarios handled using journal entries in advanced accounting?

Advanced accounting often involves complex revenue recognition scenarios, such as long-term contracts, multiple deliverables, or performance obligations over time. In these cases, journal entries are used to appropriately recognize revenue and associated expenses. The entries can involve recognizing revenue based on a percentage of completion, recognizing revenue when specific criteria are met, deferring revenue recognition until a future period, or allocating revenue to various performance obligations within a contract. The specific journal entries will depend on the circumstances and the applicable accounting standards (such as ASC 606 in the United States).

The post Advanced Accounting Using Journal Entry appeared first on ProfitBooks.net.

It is important to keep track of the principle and interest amount, and record them respectively in books for correct accounting. Classification is vital as ‘interest’ paid on loan is an expense incurred to avail the loan, whereas principle repayment is nothing but repayment of the amount borrowed.

Going by the golden rule of accounting for personal accounts, you should debit the receiver, and credit the giver. The same can be done by passing a journal entry.

There will be two aspects as far as the accounting is concerned.

1. Recording the loan/borrowing in the books, And

2. Recording the repayment of the same in the books,

Before recording transactions, you will have to create the following A/c Heads:

1) ‘Secured/Unsecured Loan’  under A/c Group – ‘Current/Non Current Liability’  (Depending on the nature of the loan)

2) Similarly, also create ‘Interest on Loan’ Under A/c Group – ‘Finance Expenses’

Let’s discuss these aspects in detail now.

1) Recording loan transaction.

Make a journal entry debiting the Bank A/c as we have received the money, while crediting the say, ‘Unsecured Loan A/c’ created earlier.

2) Recording repayment of the same i.e. installments

• First step is to bifurcate the principle and interest amount.
• Now, since we are making the payment, go to Expenses–> Make payment.
• Select the bank from which you are making the payment of installment, in the ‘Pay From’ field.
• Under Pay to, select ‘Unsecured Loan’ and enter the principle amount. This will ensure that the loan is reduced by the amount you have repaid.

3) Then repeat the process and pass another entry, this time select ‘Interest on Unsecured Loan’ A/c and enter the amount of interest paid.

One must always keep in mind that the crux of Accounting is to record the transactions as they happen in a way that reflects the true and fair financial position of the company.

Also read :
How to record credit card transactions in ProfitBooks.
How to account for owner’s contribution in business.

The post How to record Loan Transaction? appeared first on ProfitBooks.net.

According to this definition on Investopedia, Proforma Invoice is like a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. Typically, it gives a description of the purchased items, notes the cost, as well as other important information like shipping weight and transport charges.

Proforma invoices are also sometimes referred to as estimates or quotes. Purpose is to give your customers an idea about how much certain number of goods or services will cost.

How to create proforma invoice using ProfitBooks

General business practice is to first create a quote or an estimate and present it to the customer. Once customer agrees to the sales terms, quantity and pricing, a proper invoice is sent to him. ProfitBooks streamlines this process by allowing to convert an estimate to an invoice with one click.

Steps for creating a proforma invoice:

1)  By default, ProfitBooks refers to quotations as ‘Estimate’. To change this naming convention, go to settings and click on ‘Custom Fields/Preferences’.

2) Now, lets create a new Proforma invoice. Refresh the page and go to Income -> Estimate (menu label will be changed to ‘Proforma Invoice’ once you refresh the screen) and click on ‘New Proforma Invoice’ button

3) Select customer name, date and then enter product details. Click on ‘Add new row’ to add more products. Enter terms and conditions if applicable and click on ‘Save’ button.

4) You can email this proforma invoice directly to your customer by clicking on mail icon or print it for offline use.

5) Once your customer confirms that he is happy with the details mentioned on proforma invoice, you can either convert it to a Sales Order or an Invoice. To do this, open the proforma invoice and click on Edit button.

All the details of proforma invoice will be transferred to the new invoice. You can then email that invoice to your customer or add payment. Please note that once converted, the original proforma invoice will be locked for further editing.

Thats it! Now learn how to create an invoice.

The post How to create Proforma Invoice appeared first on ProfitBooks.net.