Aug 4, 2010

Top 10 Accounting Myths

So many times I am out at a restaurant, store, or outing and someone in my family or group of friends says “You’re the accountant, how much is this?” and wants me to calculate something in my head. I am going to let you all in on a little secret… I am not a mathematician, I am an accountant. If my calculator is not near, don’t ask me to calculate anything. I am going to let you in on a few more secrets as well. Read below to find the top 10 Accounting myths I have put together.
Accounting Myth #1: Accounting is about math.
This could not be further than the truth. Yes, you use math, but so does an engineer, salesman, marketing person, lawn man, hair stylist, etc. If you want to get paid, you will have to calculate the amount you are owed, the change if paid in cash, your commission percentage, etc. Accountants use math similarly. Accounting is accounting for assets, liabilities, income, expenses, etc… yes; however, the “meat and potatoes” of true accounting is research and storytelling. Do you enjoy putting a puzzle together? Well, in accounting, when you look through those numbers you are looking for holes to put that right piece into. You have to use those numbers to tell the owner of a business, shareholder, bank, or manager what they mean; how they can use them; and what to expect in the future. It’s analytics, not algebra.
Accounting Myth #2: Accountant = Tax Preparer or IRS Agent.
Oh so wrong, wrong, wrong. Understand that when you enter a major tax franchise or chain your taxes are most likely being prepared by a trained “tax preparer” NOT an accountant. The true definition of an accountant is one who has a degree in Accounting. Yes, I prepared taxes right out of college when I worked for a public CPA firm, but the only reason that I was required to do such was because the partner I worked for had a few tax clients. Mainly, I audited companies. This does not mean a tax audit. This means that I went in, looked at their books and spot-checked for accuracy. After this, we would give them a report on needed improvements and areas that looked good. This is a very brief summary of a company audit. Many accountants work in private companies compiling financials for the managers and owners, some work in fraud examining where they help companies detect or investigate fraud, while others simply consult on various topics.
Be careful when someone says they are an accountant. I hear bookkeepers and secretaries say this all the time and they don’t know the difference between a journal entry and the coffee pot. Not to undermine secretaries and bookkeepers. I respect them all and I greatly appreciate their work as I have many working on my team, but they are NOT accountants. I will not tell my clients that they are such. This is not a fair description of who they are and their qualifications.
Accounting Myth #3: Accounting is for Men only.
In every company where I have been employed or worked with, the ratio of women to men is either 50% or higher in the women’s favor. As a matter of fact, most are dominated by women. Yes, I have seen mostly men in the executive positions, but women are growing quickly in this area as well. As many companies see that women can balance family and work [most times better than you guys], they are respecting the abilities and qualifications of women in these fields. Now guys, you are not being pushed out. This is a great place for both sexes to show their potential. Just don’t expect your gender to determine your place in the accounting world.
Accounting Myth #4: Accountants are introverted or boring and really don’t like working with customers.
Even a tax accountant has to be a people-person. We all have to work with clients, employees, vendors, client’s customers, etc. I love this field because of the people interaction. I love to talk [I’m sure my husband would agree] and I love to teach. To take accounting and turn it into understandable language for my clients who range from Funeral Homes to Hair Stylists. I get to teach them how their numbers can tell them the stories they need to hear and what their futures may hold.
My colleagues and friends in college were awesome and we were all accounting students. We went out for drinks, went dancing at clubs, went to the lake swimming and skiing, worked out at local gyms, etc. Life is not dull for us at all and as a business owner and accountant now, I can guarantee you that my life is anything but boring. I have 2 small children, a husband (business partner), employees, family, friends, clubs and organization meetings and the list goes on. If I have time to take care of chores, this is a perk in the week.
Accounting Myth #5: Small businesses don’t need accounting or it can just wait until becomes too much for me to handle myself.
Ok, so this means that as a small business owner, you would say that you don’t need to budget, forecast financials, know about trends in your business, or know the latest, greatest tax advantages. I have clients that are as small as a one-man service business making only about 20K a year.
Every business needs an accountant watching their back. Now, this person or company needs to be trustworthy and competent, but you need them, all the same. A business cannot and should not be run based on whether or not there is cash in the bank at that current time. At the end of the year, how do you know whether you are going to report a loss or income to the IRS? You need to report as much loss as you can to pay as little taxes as you can or you are just cheating yourself. Many tax firms will charge you an arm and a leg if you go in with a box or in some cases, a trash bag, full of receipts and say, “Here. Please do my taxes.” They have to charge you the time they are going to allocate to thumbing through these receipts and most likely they will not take the time to be sure they put every little nickel and dime they can to losses so you pay as little as possible in taxes.
Your accountant will be following your financials the entire year and everything should be neat and clean come time to file your taxes. Also, your accountant should be able to give you monthly financials that tell you where you can improve in an area, have reports ready for possible loans, help you make financial decisions, help you make the most of recent tax advantages, and tell you if your business will trend towards lower or higher revenue in certain months based on history. This is all needed information and once my clients come into my services, they are amazed that they were ever able to run their business without my services.
Accounting Myth #6: An Accountant will cost me an arm and a leg.
Well, this might be the case if you go to a high-dollar firm, but while looking for an attorney, if you retain the services of Robert Shapiro, it wouldn’t be cheap either. You have to find the right firm or individual for you. Check references, qualifications, and services. Be sure the price matches the industry standards in your area and be sure they make you feel good about working with them. You should be number one to them and you should be able to find a qualified person or firm to work with.
My firm is known for low rates because this is the way I designed it. I wanted to create a firm where I could cater to small and start-up businesses yet be affordable for them as well. I have always priced my services less than the cost of hiring a full-time employee and sometimes I have gone much, much less; depending on the client, their needs, and their financial situation.
Accounting Myth #7: I pay business expenses out of my own pocket. It’s really no big deal.
WRONG. If you own or operate a business, it is a business, not your spouse. You need to note when you have paid an expenses out of your own pocket. This is money that could be returned to you tax-free.
For example, I have a client that I met with recently. She owns a beauty salon. She does not have a business bank account and all expenses are paid through her own account. Now, she takes the income into that same account. Her husband is a full-time employee in another company. First, there is no way to tell if she is truly making a profit or not. Second, she is paid a salary. Her salary is taxable. If her business is breaking even, she has been paying double the taxes she should have. She was never reimbursed for her out-of-pocket expenses correctly which should have been TAX-FREE.
She should be able to at least be refunded for the expenses she has paid for out of her own pocket [tax-free] before taking a salary which is taxable. As her accountant, I have advised her to open a business bank account. At this point she will deposit revenues into this account and pay bills from it. If there is not enough cash to pay bills, she will pay them out of her own pocket but she will be sure to tell us when she does this. We record this as reimbursements that are due back to her tax-free and she will receive this money back when the company cash flow allows for this.
Accounting Myth #8: I don’t have time and don’t need to set goals for myself and my company.
Every company I have ever known, read about, or been involved in has used goal-setting as an intricate part of running their business. Life as we know it moves at a head-spinning speed. No matter the industry, changing times can cause chaos and in many cases put a company out of business if they do not stay up-to-date with trends, technology, and consumer information.
Sit down and write out 10 goals for yourself and your company. Once completed, put these goals in priority order from highest to lowest. Put them in a place where you will constantly be reminded of your goals. Each month sit down and review these goals. Write down what you have done to come closer to each one and if you have reached any of them. As you reach your goals, cross them off the list. Do not remove them. This gives you a sense of accomplishment and shows you that your hard work is paying off.
Accounting Myth #9: I really don’t need accounting reports to know how my business is doing.
If you are busy, this does not mean that your business is doing well. You need reports to tell you if your prices are where they need to be in comparison to expenses you are incurring. You need to run reports to show profitable areas and problem areas like theft, loss, waste, etc. Once you run these reports, you then need to understand how to use them. If you run a report that shows that you have a major area of waste in your manufacturing process, you then need to come up with a solution to the problem and either find a way to reap income from the waste material, find a way to reuse the material, or better the process to lessen the amount of waste.
In the service industries, reports can show how time is allocated. If time is allocated poorly, money is being lost and as 99% of businesses in the country, I am sure you are trying to make a profit. These reports can help reveal the problem area and help to shift employee duties or activities in a way that will bring profit back or increase the profit of your company quickly and efficiently.
Accounting Myth #10: I can handle my accounting myself. I have QuickBooks.
Ha! This one actually makes me chuckle a little. QuickBooks is an awesome program and one that I use on a daily basis, but it does not take the need for an accountant away. As a matter of fact, most open QuickBooks only to become overwhelmed and confused. Having this program is very good and can become an awesome tool, but your accountant needs to help you set it up, educate you on how you can and should use it, and come in periodically to be sure everything is in order, run reports, and fix problem areas. You can be wonderful in business but unless you know how to operate the accounting side of your business perfectly, you should really do yourself a favor and at least get advice from an accountant on this process.
As I said, this is a great program, but if you do not understand accounting, trying to figure out how to book figures can be confusing and create an even bigger mess. If you don’t enter your large assets correctly and depreciate them, you are missing out of expenses that can bring you tax advantages. If you don’t book expenses the correct way, you might be taking larger deductions than you should and this can cause problems with the IRS. If you don’t report all the income you are supposed to, you know how the IRS might feel about this. If you don’t book discounts or refunds correctly, you missed out on another tax deduction. Are you seeing a trend of problem areas? You really need to be educated by your accountant to properly use your accounting program before you try to dive in.

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