Bookkeeper, Accountant or CPA?

Article written by EricBank

 

Have you ever been mixed up by the precise meaning of bookkeeper, accountant and CPA? Each is involved in the financial records of organizations and individuals, but they each have different tasks, work scopes and licensing requirements. Let's explore the differences among these three jobs, and also glimpse at a fourth one, enrolled agent.

Bookkeepers

Bookkeeping requires less training and has the smallest work scope when compared to the others. Bookkeepers maintain the financial books of organizations. They enter transactions into accounting software for activity associated with financial accounts, including payables, inventory, payroll, receivables, and cash. They also reconcile receipts and cash, and may prepare financial reports. They can monitor credit cards and ensure all payments are timely. Bookkeepers may issue W-2 and 1099's and pay the organization's sales tax. Bookkeepers often have an associate's degree or other credentials.

Accountants

Next up are accountants, who might do some bookkeeping tasks but normally busy themselves with detailed financial reports, audits and tax returns. Accountants are formally educated, holding a bachelor's and perhaps a graduate degree. Unless they have the right to represent you before the IRS, they can't sign your tax return. Some accountants go on to become CPAs.

Certified Public Accountants

A CPA is a certified public accountant and passes a set of examinations. Each state sets its own regulations for certification. CPAs file tax returns for individuals and businesses and prepare financial statements for organizations. They can sign a tax return and can represent clients to the IRS. The American Institute of Certified Public Accountants educates society about CPAs and represents members on various issues.

CPAs often create partnerships and may employ a staff of accountants and bookkeepers. Certification requires passing the Uniform CPA Examination. Before taking this test, the accountant must have sufficient coursework. This usually means a BA degree in accounting and about 150 semester hours of study. Some states insist that coursework include topics in economics, business administration, finance, business law or marketing. New York State, among others, requires one year of accounting work experience before a candidate can become certified.

CPAs receive continuing education throughout their working careers. For instance, Florida mandates almost 50 hours of CE credits every two years, and at least 5 percent of these credits must address ethical considerations that affect accountants.

Enrolled Agents

Like a tax lawyer and CPA, an enrolled agent can represent clients in front of the IRS. Many EAs are former employees of the IRS. EA candidates have to pass an exam that the IRS administers. Frequently, an EA is also a CPA, and has the right to prepare, sign and file tax returns.

Normally, small business owners must hire competent persons to take care of their books, or else do the job themselves. Bookkeepers charge less than do accountants, CPAs and EAs, and if your business is a simple sole proprietorship or partnership, you may be able to get by with a bookkeeper alone. However, if you need a qualified person to prepare, sign and file your taxes, you'll need an EA or CPA.

Business Owners Prepare For New Tax Form

Article written by EricBank

The Affordable Care Act has provisions that come due in 2016 affecting small businesses with at least 50 full-time employees or equivalents. These provisions are an extension of existing ones covering businesses with 100+ employees. Although 2016 is a while off, the preparations are occurring right now, because employers have to keep track of the monthly costs per employee of employer-sponsored health plans. Employers must report the out-of-pocket health care expenses of each employee, a daunting task to say the least.

Form 1095-C

The new tax form, 1095-C "Employer-Provided Health Insurance Offer and Coverage," is formatted such that one copy is needed for each employee, and only one employee's information is reported on each copy. The form has three sections:

       I.          Identification Information: The identity of the employee and employer, including Social Security Number and Employer Identification Number.

     II.          Employee Offer and Coverage: A three-row table with entries for each month and for the total year. Row 1 records two-character codes (e.g. 1A, 1B, etc.) that denote the type coverage offered (or not offered) to the employee and the employee's family. If the same coverage was offered all 12 months, you can enter the code in the 12-month box only. For example, you would enter 1A for a qualifying offer of minimum coverage that met certain criteria. Row 2 reports the employee share of lowest cost monthly premium for self-only minimum value coverage. This is the amount the employee would have to pay to get minimum coverage, not the amount the employee actually paid if electing better-than-minimum coverage. Row 3 reports a "safe harbor code" explaining why a particular was or wasn't offered health care insurance for all or part of the year, for reasons such as not being employed in a particular month.

    III.          Covered Individuals: This part pertains only to employers who provide self-insured coverage. A six-row matrix identifies the months in which the employee and enrolled spouse and/or dependents were actually covered by the health plan. Each row identifies one individual, including Social Security number or date of birth, and a block of monthly check boxes. If the individual was covered the entire year, you check just the 12-month box. Use additional forms if the employee has more than five dependents.

Nightmare or Torment?

However you conceive of it, Form 1095-C and the work it represents is no day at the beach. The IRS instruction booklet for the form is 14 pages of tiny print, which is an improvement over the 84-pages of guidelines issued by the Treasury Department in 2014. To make matters worse, few tax-preparation services are stepping up to the plate and offering to take responsibility for preparing these forms. If outsourcing isn't available, a small business owner's accountant will need to have one good spreadsheet program to track all the information required. That might be hard enough to do month by month as 2015 progresses, but it becomes a tormenting nightmare if employers put it off until the end of the year. Hence the need for employers to scramble now to record all the required information while its freshly obtainable.

Intuit Bugs Out

Intuit, maker of the top-selling TurboTax and QuickBooks software, has decided not to support Form 1095-C. According to Intuit spokesperson Stephen Sharpe, "The vast majority of our customers are not required to comply with this mandate, and the data required by these forms is not fully collected in our payroll application." Cold comfort! However, some payroll services are providing outsourced support. One expert cites typical fees of $400 to set up the service and $0.40 to process each employee. That might sound pretty steep, but for many small business owners, the alternative of doing it themselves is far, far worse.

Accounting for Purchase Returns

Article written by EricBank

If you run a merchandising or manufacturing business, even a small one, you purchase many items that might include raw goods, inventory merchandise, equipment and supplies. You might occasionally receive miscounted, misidentified or defective items that you need to return. The procedure you follow for purchase returns is dictated by your inventory accounting methods and the type of item.

Inventory Methods

The periodic and the perpetual inventory methods are the two principal ways to track inventory:

·         Periodic Method: You take regular physical counts at least once a period (at the end), but more often if needed. Inventory is recorded when purchased. You wait until the close of the period to calculate cost of goods sold or ending inventory.

·         Perpetual Method: You book all sales, receipts and inventory movements immediately. This gives you real-time vision into your COGS and inventory levels. In return for this higher quality information, you need timely inventory tracking, perhaps with radio frequency or bar code technology.

Purchase Returns Under the Periodic Method

This inventory method requires the use of the purchases asset account and the purchase returns contra-asset account. When you buy inventory, debit the cost to the purchases account and credit it to accounts payable. Should you decide to return a purchased item, debit accounts payable and credit purchase returns for the original cost. As a contra account, the purchase returns credit balance decreases the net value of purchases. When the period ends, credit net purchases and debit inventory for the balance, and then prepare for the next period by zeroing out purchases and purchase returns.

Purchase Returns Under the Perpetual Inventory

Under this method of inventory accounting, you don't use a purchases account, because you add the cost of purchased items to the inventory account as the items are received. In the event you must return a purchased item, debit its cost to accounts payable and credit it to inventory. This method is less informative than is the periodic method, because the method doesn't employ a purchase returns account that would easily identify the returned items.

Other Returns

The purchases of office supplies and miscellaneous items are non-inventory expenses. Book them by debiting supplies expense and crediting accounts payable. If they sent you bad pencils or other defective supplies, you have to reverse the original entries. You use a different procedure for factory supplies, which must be included in the cost of goods sold. A return of factory supplies is also a reversal, but obviously of different accounts.

Equipment purchases, such as a truck, have a more complicated return accounting. When you buy the truck, you book the cost as a long-term asset, perhaps in a vehicles account. Then, at period's end, you make entries for depreciation and accumulated depreciation attributed to the truck. Now suppose that shortly after period close, you decide to return the truck, taking advantage of your state's "lemon law." In this case, you must:

·         Debit accounts payable

·         Debit accumulated depreciation

·         Credit vehicles

·         Credit depreciation expense

None of this bookkeeping is particularly difficult, but if you find it confusing or too time-consuming, let Small Business Financials handle your accounting for you.