HOODS TAX
  • Home
  • The Hoods Family
  • Services
    • Tax Preparation
    • Bookkeeping / Payroll
    • Quickbooks Services
  • Contact
  • Blog
  • Login
  • Home
  • The Hoods Family
  • Services
    • Tax Preparation
    • Bookkeeping / Payroll
    • Quickbooks Services
  • Contact
  • Blog
  • Login

​Hoods Tax &
Accounting Blog


​​​THE INFORMATION IN THIS BLOG IS INTENDED TO PROVIDE GENERALIZED INFORMATION DESIGNED FOR A BROAD SEGMENT OF THE PUBLIC; IT IS NOT PERSONALIZED TAX, INVESTMENT, LEGAL OR OTHER BUSINESS AND PROFESSIONAL ADVICE. YOU SHOULD ALWAYS SEEK THE ASSISTANCE OF A PROFESSIONAL WHO KNOWS YOUR PARTICULAR SITUATION FOR ADVICE ON YOUR TAXES, YOUR INVESTMENTS, THE LAW OR ANY OTHER BUSINESS AND PROFESSIONAL MATTERS THAT AFFECT YOU AND/OR YOUR BUSINESS. ​

Basics of Accounting

10/27/2021

1 Comment

 
Picture
​Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation!
 
We just finished a three-part series on Bookkeeping Basics, which explained bookkeeping fundamentals in an easy-to-understand format. From understanding different kinds of accounts to the nature of double-entry, our series breaks down bookkeeping into its requisite parts. What’s the difference between a debit and a credit? Does single or double-entry bookkeeping suit your business better? How do you prepare financial documents? What are the bookkeeping best practices which will take your business to the next level? The answers to these questions can be found in our previous posts. Bookkeeping is one of the most essential building blocks of any successful business and the precursor to accurate accounting. Therefore, we recommend giving this series a read before delving into today’s article. 
 
The topic for today is accounting. Many are unsure of the difference between bookkeeping and accounting. To be sure, there’s plenty of overlap between the two professions and many small business owners find themselves donning the hats of both accountant and bookkeeper. However, there is a notable difference between the two. Bookkeeping, on the one hand, deals with compiling raw data. Transactions must be recorded into the proper accounts and underlying subtypes. These entries must be entered accurately to ensure the financial statements derived from the data truly reflect the health of the business. Bookkeeping must be done regularly (i.e. weekly or monthly), as businesses continue to accrue transactions. Accounting, on the other hand, uses the financial information yielded from bookkeeping to plan and file taxes, as well as give advice to improve the health of the business. Both bookkeeping and accounting are fine financial arts. We hope to give you the information you need to understand the purpose of both and determine whether to invest in a bookkeeper or accountant for your business’ needs. If you’re interested in learning more about the basics of accounting and how proper accounting can increase the growth of your business, read on! 
 
Why is accounting important?
 
It’s important to keep track of expenses, right? Would you say it’s also important to pay back outstanding debts? A company’s liabilities, revenues, and equity all play an equal role in determining how well a company is performing and where changes should be made to improve performance. If you agree it’s necessary to understand the unique demands on a company’s cash flow, as well as the federal and state obligations concerning a company’s taxes, then you agree accounting is a vital aspect of any company’s organizational structure. 
 
From the bottom upwards, accounting uses business transactions to assist management in developing expectations for the future of the company and adjust their strategy accordingly. For example, accounting can be as simple as an employee retaining receipts from a business trip and these receipts being written off come tax season. Accounting could be utilizing quarterly revenue statements to estimate yearly tax payments and setting aside this money preemptively. Accounting could also be the complex process of using financial statements to plan hiring patterns for the next year and to draw investors.
 
Accountants are responsible for a host of business necessities, from filing financial statements with authorities such as the Internal Revenue Service or the stock exchange, to creating budgets which allow for full operations while maximizing profitability. You might think of accountants as doctors, attempting to diagnose the illnesses of companies and recommending lifestyle choices which will help companies achieve optimal health. 
 
Types of Accounting
 
Just as bookkeeping is divided into distinct types—single-entry and double-entry—accounting is similarly divided. The first type of accounting is cash accounting. This is the simplest method, as only cash transactions made by the employees of a business are recorded. This can include a number of business expenses, including transportation, lodgings, and food. The basis of these records are receipts retained by employees. This can also include expenses paid for with cash, such as supplies and equipment. Also known as cash-basis accounting, this method records payments and expenses when the cash exchanges hands (i.e. bill paid, product bought). This type of accounting is, of course, better used by cash-heavy businesses. This type of accounting would not work well for large corporations with complex financial structures, as this type of accounting would fail to show the true position of the company’s accrued liabilities. 
 
For this reason, accrual accounting is the method often used by bigger businesses. While accrual accounting does record cash transactions, this type also takes into account credits, debits, and other forms of transactions. This can include money owed by customers on store credit or money owed to customers on store credit. Essentially, regardless of whether a cash transaction occurs or not, a transaction can still be recorded in the corresponding accounts with accrual accounting. 
 
Corporations (or any business with over $25 million in gross revenue) are forbidden from using anything other than accrual accounting. However, small businesses have a choice between accrual accounting and cash-basis accounting. How do you decide? The method of accounting you choose has everything to do with time. When do you want your books to reflect a transaction? If you choose to follow the cash-basis accounting method, your books will reflect a payment or expense when the payment or expense is fulfilled. For example, if your business makes a sale on the 13th of November but the invoice isn’t paid until the 12th of December, the transaction will not be recorded until the 12th. If you choose to follow the accrual accounting method, however, your books will reflect a payment or expense as soon as the transaction occurs. Accrual accounting is considered more accurate because you can plan for incoming and outgoing cash flow. Cash-basis accounting will give you an accurate reflection of what’s currently in your accounts, but may struggle to reflect the full picture. That said, cash-basis is often less complicated to learn.
 
As well, it’s important to note, with cash-basis accounting certain expenses and revenue may not be recorded until the following year. For example, an expense incurred in late 2021 but not paid until early 2022, could not be deducted from a businesses 2021 tax return. The same is true for revenue. Consider the tax implications of whichever type of accounting you choose. 
 
Should I hire a professional accountant?
 
There is a certain diligence and attention-to-detail required to perform accurate accounting. As well, accountants are held to a set of widely accepted standards, including (but not limited to) the generally accepted accounting principles (GAAP) and the rules of the Financial Accounting Standards Board. Accountants are privy to a long set of principles which govern their recordkeeping, financial reporting, and advice. We’ll cover a number of these principles in later parts of this series, but many accountants train for years to understand the complex inner workings of businesses, both big and small. Many new entrepreneurs and business owners can benefit from the expertise of a seasoned accountant, even if they believe they are equipped with the mathematical skills to perform their accounting duties themselves. Of course, you must make the best decision for your business, but investing in an experienced accountant is almost never a bad decision.
 
 
You’ve made it to the end of the first part of our Basics of Accounting series! Thank you for taking the time to read about cash-basis and accrual accounting, as understanding the difference between these two types is the first step to understanding accounting. In the next part of this series, we’ll cover the financial principles which govern accounting. We’ll also delve into the tax responsibilities of accountants, as well as a few best accounting practices for small businesses. The health and sustainability of your business is the foremost concern of any good accountant. That’s why our highly-trained accountants at Hoods Tax & Accounting take ample time to study the structure of your business and learn your unique goals. We offer bookkeeping, accounting, and business consulting services. As well, we offer tax preparation, payroll, and QuickBooks training! If you have any questions or are interested in a consultation, do not hesitate to reach out. We do offer virtual consultations over Zoom, as part of our effort to accommodate everyone in these trying times. We look forward to hearing from you! Until next time, thank you for reading! 

1 Comment

    Author

    Write something about yourself. No need to be fancy, just an overview.

    Archives

    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    January 2018
    November 2017
    October 2017
    May 2017

    Categories

    All
    1040
    1040-sr
    2019 Taxes
    2020 Tax Bill
    2020 Taxes
    2020 Tax Extension
    2020 Tax Return
    2020 Tax Season
    2021 Taxes
    2021 Tax Season
    2022 Tax Day
    401(k)
    529
    529 College Account
    529 Saving Plan
    Accountant
    Accounting
    Accounting Goose Creek
    Accounting Principles
    Accounting Services Goose Creek
    Agoraplaus
    April 15 2021
    April 15th
    Asama
    ATM
    Back To School
    Bankruptcy
    Basecamp
    Basics Of Accounting
    Black Shopping Alternatives
    Bookkeeping
    Bookkeeping Basics
    Bookkeeping Goose Creek
    Bookkeeping Goose Creek Sc
    Budgeting
    Buffer
    Building A Business
    Business
    Business Consulting Goose Creek
    CARES Act
    CARES Act 2020
    College Loans
    College Planning
    College Saving
    Common Questions
    Common Tax Mistakes
    Consulting Goose Creek
    Contact Hoods Tax And Accounting Goose Creek Sc
    Contact Hoods Tax Goose Creek Sc
    Coronavirus
    COVID 19
    COVID-19
    Cryptocurrency
    Cutting Costs
    Cutting Costs At Thanksgiving
    Cybersecurity
    Debt
    Deductions
    Digital Currency
    Documenting Your Taxes
    Donations To Your 401(K)
    Economic Impact Payment
    Effects Of A Global Pandemic
    Estate Taxes
    Evernote
    Expense Tracking
    Facebook Creator Studio
    Fake Covid Scams
    Fake Emails
    Fake Phone Calls
    Fake Text Messages
    FASFA
    Filing Taxes
    Financial Aid
    Financial Preparedness
    Financial Recovery
    First Time Tax Payer
    Getting Ready For Tax Season
    Gift Taxes
    GoDaddy
    Google
    Goose Creek
    Grants
    Hidden Tax Write Off
    Hidden Tax Write-off
    Home Owner
    Home Ownership
    Hoods Tax & Accounting
    Hoods Tax And Accounting Service
    HootSuite
    How To Claim Unpaid Stimulus Money On Your 2020 Tax Return
    How To Save Money At Thanksgiving
    How To Spend Your Tax Return
    How To Stay Safe At Thanksgiving 2020
    How To Stay Safe This Thanksgiving
    Hurricane
    Hurricane Fund
    Hurricane Plan
    Important Dates
    Important Documents
    Impulse Spending
    Income
    IRS
    Itemized Tax Deduction
    Jumpstart Your Day
    Last Minute Tax Deductions
    Last Will And Testament
    Lowcountry
    Lowering Your Tax Bill
    MailChimp
    Make Donations To Your HSA Account
    May 17th Tax Extension
    Medical Expenses
    National Podcast Day
    Online Scams
    Organization
    Owning A Business
    Pandemic
    Paying Your Tax Bill
    Payroll Services Goose Creek Sc
    Pension
    Phishing Scams
    Phishing Schemes
    Phone Call Scams
    Podcast
    Preparing For 2020 Taxes
    Preparing For Your 2020 Taxes
    Preparing For Your Taxes
    Productivity
    Productivity Tools
    Protecting Yourself From Stimulus Fraud
    Protecting Yourself From Tax Fraud
    Quickbooks
    Quickbooks Services Goose Creek Sc
    Quickbooks Small Business
    Quickbooks Training Goose Creek
    Quickbooks Training Goose Creek Sc
    Recovery Rebate Credit
    ResueTime
    Retirment Taxes
    Save Money
    Saving For College
    Saving Money
    Saving Money For Thanksgiving 2020
    Savings
    SC
    Scam Emails
    Scams
    Scam Text Messages
    Scholarships
    School Shopping
    Security
    Senior Taxes
    Senior Tax Filer
    Senior Tax Payer
    Small Business
    Small Businesses
    Social Security
    Social Security Administration
    Social Security Scam
    Spending Your Tax Return
    Squarespace
    SSI Benefits
    Standard Tax Deduction
    Stimulus Check
    Stimulus Payments
    Stiumuls Scams
    Strained Finances
    Student Loans
    Summer
    Tax Brackets
    Tax Credit
    Tax Day
    Tax Deductible
    Taxes
    Tax Extension
    Tax Fraud
    Tax Implications
    Tax Info
    Taxpayer
    Tax Payer
    Tax Paying Citizens
    Tax Planning
    Tax Preparation
    Tax Preparation Goose Cree
    Tax Preparation Goose Creek
    Tax Professional
    Tax Refund
    Tax Return
    Tax Season
    Tax Season 2020
    Taxtaxes
    Tax Tips
    Tax Write Off
    Thanksgiving
    Thanksgiving 2020
    The Dangers Of Stiumuls Scams
    Third-party Reporting
    Tips
    Tips For Financial Recovery
    Tips For Saving Money
    Todist
    Toggl
    Trello
    Tsheets
    Unable To Pay Tax Bill
    Unable To Pay Your Taxes
    Unemployment
    Unemployment Tips
    Unknown Tax Facts
    What Not To Spend Your Tax Return On
    What To Spend Your Tax Return On
    Will
    Will And Testament
    WordPress
    Working From Home
    Wunderlist

    RSS Feed

Hoods Tax & Accounting Service, LLC.
​105 Etling Ave, Goose Creek, SC 29445

Phone: 
(843) 797-5153
Email: admin@hoodstax.com
Site created by Creative Consulting
Site powered by
MadeSimply
quickbooks desktop certified proadvisor logo
online quickbooks certified proadvisor logo
Hoods Tax and Accounting service logo
Hoods Tax & Accounting Service, LLC.