Does Your Accounting Service Provider Understand the Basics?
For a company to operate effectively, accounting could be a crucial component. Some growing businesses find it hard to create well-tuned accounting processes when their business activity increases and systems need to change. Having strong accounting practices helps you make better decisions based on real-time data.
To be able to evaluate the performance of your outsourced accounting service provider, you must check their understanding and application of the below basis concepts.
Itemizing Income and Expenses
The very first step for a good accounting is to correctly record all the cash coming in and the cash going out, both in amount and account. That is how a business can maintain a clean and accurate accounting record. In present times, technology has made things much simpler, as using apps like, Expensify and Shoeboxed, it is easier to track costs without keeping hundreds of receipts.
To be able to check whether all the income and expenses and their respective receipts and payments have been recorded, obtain a bank reconciliation statement from your accountant and review the same with them item by item at least for the first few months. This will allow you to understand whether your service provider knows the basics or no.
Choosing a Bookkeeping Method
There are two bookkeeping methods: cash or accrual. The cash method is the simplest, the revenue is recorded as cash is received, and expenses are recorded when money is spent. But it does not give a complete picture of a firm’s operations. On the other hand, in the accrual method, expenses are accrued even if not yet paid and revenue is recognized when it is earned rather than when it is received. This method provides a better picture of a company’s operations. However, consulting with your accountant is recommended to help decide which method is well suited for your organization.
The Right Accounting Software
Selecting a software to track your income and expenses is a very crucial decision. There are many software available, the most popular is QuickBooks and MyCorporateBooks, and others are Xero or FreshBooks. You must evaluate the options as each has its advantages and disadvantages. Ask your accounting service provider to evaluate the existing software and/or recommend a new software that suits your business along with reasons.
Identifying The Right Gateway
To collect your earnings, you must use a reliable, efficient, and legal method. Some common and popular names in collecting electronic payments are PayPal, Stripe, and Square. Real-time deposits can be made using a check scanner provided by your bank. Certain programs like QuickBooks, provide the opportunity to pay and receive money through the Intuit interchange.
Understanding Tax Obligations
Every company has to pay several different kinds of taxes. The taxes applicable to a business depend on the business’s legal structure, whether the business is subjected to sales tax/VAT. In the UAE, the applicable tax as of this date is only Value Added Tax. Mapping the business transactions with the right tax codes is crucial and must be done with due care as any compliance issue can land you in troubles and most probably fines.
Check your vat return filing records and reconcile them the actual returns in your FTA account. This will help you understand whether your accountants are closing the books properly or no.
Regular Reviewing and Evaluating Accounting Controls
Internal controls are backbone of any business. Creation and continuous review of internal controls is integral for any start-up as well as large scaled organization to avoid fraud and errors. Ask your service provider about the processes and controls they have implemented on your business and get them audited independently. Annual internal audits are highly recommended for every size of business to allow you to examine the control environment of your business through an independent internal audit firm. Internal auditors will not only highlight any weaknesses in processes and controls implemented by your accounting service provider, but will also suggest the solutions to overcome those weaknesses.