4 Accounting Myths Busted

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accounting firms in Midrand

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.

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.

2. 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.

3. Small Businesses don’t need accounting or it can just wait until it’s get to be 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, like with these accounting firms in Midrand. 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.

4. 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 bill from here. 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.