Monthly Archives: July 2016

Tips to Account Reconciliation

The process of account reconciliation is used when the transactions are recorded using the double entry system. In a double entry bookkeeping system, a single transaction has effects of debit and credit. These two effects can be cross-confirmed by tallying the account. Owing to this, all the accounts, if recorded properly, have balancing figures at the end of the month or year (or whenever the account closes).

For carrying out the verification and comparison of your accounting records and of the bank statement or credit and debit card statements, it is important that you collect all your deposit and payment slips or receipts. On comparison, you will come to know whether the transactions on your slips tally with the bank statement or not. The most important thing that people tend to forget is including deposits or payments that have been made but not cleared, towards the end of the month.

If you find that there are bank errors, deduct or add them to the ending balance. If your calculations do not tally with the bank statement, inform the bank about the mistake, so that the bank can prepare a reconciliation statement of its own. You may even have to omit a wrong entry for payment or add a posting which you may have forgotten. Inaccurate deposits and deductions need to be corrected. You may also check for bank charges like account handling fees. You will also have to add any kind of interest earned on the deposits.

What is Account Reconciliation?

Nowadays, this term mostly refers to what we know as bank reconciliation. The term account reconciliation has a deeper meaning. It refers to the tallying of two sets of transactions. For example, after you use your credit card, you receive a receipt that you stack away. After you receive the monthly bill from your credit card company, you compare it with your stack of receipts. This is known as account reconciliation and if the reconciliation is regarding your bank account, it is referred to as bank reconciliation. Reconciliation is done by companies and individuals alike. The only difference is that companies use accounting software for this purpose (considering the size of the transactions) while individuals need to do it manually.

The comparison of the two (accounting records and bank statement) is done in order to find the outstanding records and to correct errors. It is also carried out to find how many transactions went unrecorded in the previous accounting period.

What are the Steps for Account Reconciliation?

  • First, gather all the relevant accounting information. This includes, updating your checkbook, getting a bank statement and gathering all your ATM withdrawal slips together.
  • Jot down the last balancing figure from the bank statement. Deduct the bank charges from the balance of your bank account. Compare the deposit slips with your bank statement. If there are any checks (deposits) that have not been cleared or approved in the statement before the last day of the month, add the amounts to the balancing figure. You can also add to the balancing figure, any kind of interest that is due, but not received. This final balancing figure is also termed as the ‘running’ balance.
  • In this step, start comparing your payment receipts with that of the bank statement. Compare the ATM withdrawal slips, the checks paid and the payments that are due but have not yet been passed by the bank. Take the sum total of all the amounts of the payments and withdrawals and subtract it from the running balance. Note down any monthly bills that are deducted directly from your bank account. Deduct the same from the running figure. For example, if your electricity bill is directly deducted from your bank account, then reduce its amount from your running balance. Once you are done with the deductions, the balance amount that you have should tally with the total balance in your bank statement.
  • Make a comparison of the amounts in your check register and bank statement. If the balance of the bank statement and running figure does not tally, there is some error. Use a calculator and find out the error in the ending balance of the checkbook register, beginning from the end of the last month’s statement. Next, confirm all the payments and withdrawals (those that have been cleared or not cleared). Use your payment and withdrawal slips, while doing so. You will come to know whether the transactions on your slips tally with the bank statement or not. If it is not tallying, re-check the amounts.

Tips

It is recommended that you prepare an account reconciliation statement every month. You will find it difficult to prepare one initially, however, with practice you will be able to master it. Here are some useful tips for making an account reconciliation statement.

Always maintain a record of all your debit and credit transactions in your check register.

There are chances that you record a payment of $15 as $51, for instance. Hence, be careful while writing the numbers.

Check if you have mistakenly added a transaction twice.

Check if you have mistakenly cleared any item or missed clearing an item.

Whenever you visit the ATM, collect the printed slip of the transaction and put it aside safely. Continue collecting the printed slips for every transaction, till the end of the month.

Collect the deposit slips of checks and stack them sequentially.

You may also check if you have recorded a deposit as payment or vice versa.

Whenever you hand out a check, make it a point to record it in the checkbook register (the one that is attached to your checkbook).

Today, many banks have online reconciliation forms. Also, there are many financial software which enable easy reconciliation of accounts. The process of account reconciliation will not only assist you in keeping a tab on your transactions but will also help you in managing your money effectively.

How to Saving Money on Business Travel

Business travel is very different from traveling for pleasure. Traveling for work has its limitations with respect to duration and expense. Since economic viability is of importance when it comes to any business undertaking, one has no choice but to consider ways in which unnecessary outflow of cash can be harnessed without much ado. Fortunately, there are several things you can do to make your business travel easy, affordable, and smooth. We have mentioned these things in the form of simple, easy-to-understand tips. Once you’re equipped with these tips for saving money on business travel, you can effortlessly save hundreds to thousands every year. Shall we start noting them down?

Evaluate phone charges.

Thanks to the perpetually skyrocketing roaming call and data charges, one of the most exorbitant bills you pay after a business trip is your phone bill. An intelligent way to tackle this problem is to buy a local SIM card every time you visit a new place where you are likely to spend a substantial amount of time. By cutting down on roaming charges, you’ll save a LOT of money by paying for only local outgoing call charges. As far as internet data charges are concerned, the best advice I can give you is to use Wi-Fi. Mostly all airports and hotels now offer free Wi-Fi services, so this shouldn’t be a problem. Finish as much work as possible using the Wi-Fi connections at these places; it’ll drastically reduce your costs later on.

Carry enough reading material.

This may look like a weird, quite unconventional a tip that may not really be of any help, but before you jump the gun, hold your horses. Think about it, don’t we usually end up buying a magazine or a book at the airport in order to keep ourselves entertained throughout the journey? While working on the flight is a good option to finish pending work, sometimes you only want to unwind. Instead of spending a few dollars here on reading material at the airport, load a few articles, books, and even movies on your cell phone. This way, you won’t add to your luggage and your expenses.

Say yes to public transport.

By using the public transport in any city, you can further reduce your business travel expense exponentially. How does this work? Seek details of the area of your travel for the day from the hotel reception. Ask them to provide commutation details, such as modes, alternative routes, and approximate charges. This way, you can cut back on almost 80% of your commutation costs when compared to the amount you would have to shell out for a cab. If the hotel doesn’t have these details, use Google Maps. It’s one of the best apps for such kind of information. You might pay for Internet data charges, but they’ll still be lesser than the cab fare you would be required to pay.
Lookout for deals.

There are a million travel deals you can tap and cash in on if you keep an eye out for them. The best and most profitable of the lot is the frequent-flyer program (FFP). Almost every airline, old and new, offers this loyalty program. Under this, you become entitled to several discounts, privileges, and offers, especially if you fly quite often. The best places to find these deals are airline magazines. Always go through these magazines, usually kept in the seat pocket in front of you, and you’ll be surprised to find some of the best deals you’ve ever come across. Apart from this, you can also apply for a debit/credit card that has a tie-up with an airline.

Never fall prey to luggage fees.

The most unforgivable mistake you can make is to create situations to pay luggage fees. It’s not always possible to weigh your luggage at the last minute, but it’s always possible to save a lot of money in this area by being a smart packer. Business trips don’t need much luggage and there are a few tips you can follow to reduce your luggage just in case you’re combining meetings or planning on a long trip. You already know how you need to replace magazines and books with eMagazines and eBooks. In a similar way, cut down on multiple gadgets and instead carry one that functions as an all-in-one cell phone, music player, tablet, camera, and laptop. Apart from these, don’t carry too many clothes, food items, and/or stationery. Calculate the number of days you are going to spend at a place and pack the exact number of clothes in keeping with your itinerary. Fill the empty spaces inside your shoes with jewelry, socks, handkerchiefs to save on space. Keep things as minimal and compact as possible.

Go for rooms with kitchens, not minibars.

Though a business trip may not give you time to cook, it’s advised that you pick hotels that have rooms with kitchens. This way, you can cook your own meals even if you choose to make just an omelet. Minibars seem tempting; all you have to do is open the door and serve yourself. However, bills that come with the usage of minibars are usually far from attractive and highly inflated. Items available at a minibar are always charged at a higher price, sometimes as much as 30% more. A room with a kitchen will also enable you to save the money you would otherwise spend on eating out. By choosing this option, you can work, eat, and rest in just one place.

Club trips to save thousands.

Most of the time, an executive travels to a specific place to work with a specific set of clients. In such cases, it is always advised to combine trips. For example, if you’re meeting a client in Italy, you might as well make arrangements to meet another one in Spain right after your schedule in Italy. Imagine the amount of money you will be shelling out if you go to Italy, come back to your original country of work, and then fly out to Spain again! You can actually save yourself a lot of money by avoiding at least two extra to-and-fro trips by planning your travel smartly. This not only applies to places that are located in the same geographical area but also to places that are halfway around one potential business area. For example, if you have to travel from India to France, you might as well also plan meetings in New York and finish it off at one go. This way, you can save thousands. By planning multiple meetings in the same city, you save on both traveling and staying costs. The basic tip is to get maximum work done in one single trip in order to economically use financial resources in the best possible manner. Of course, it is not always possible to club your trips because the schedule of different clients may not always match. The point is to try to schedule trips in such a manner as frequently as practicable.

Befriend locals.

The best people to help you when visiting another city are not guides or agencies, but locals. They know the city the best and have no hidden motives; they don’t gain or lose anything by cheating you. They’re the best people to approach when you need help with directions, prices, or suggestions. Just by asking a local for something as simple as directions, you save on Internet charges by not using apps, on money you may end up spending while commuting via wrong or longer routes, and in the end, time – the most crucial element while on a business trip. They also come to your aid when you’re looking for inexpensive places to eat, relax, or work.

Understand taxes and use them to your benefit.
Taxes levied on income from any source are waived off to a specified extent when certain stipulated types of investments/expenditure made can be shown. Travel expenses are one of them. Though only a portion is eligible to be waived off, the sum still amounts to quite a lot. So, educating yourself about how these benefits can be reaped optimally can result in saving money in the long run. Similarly, a lot of things come with additional taxes while an individual is traveling. These include food at the airport (sometimes), items at the minibar, services like laundry in a hotel, etc. Though a person learns more about these from experience, it’s good to at least know the basics in theory.
Look out for opportunities to make multiple bookings together.

Always remember that there are certain advantages and incentives of booking more than one ticket, especially in flights. It is always better to book tickets together in order to avail group discounts. This way, your company poses as a potential customer to the airline – a reason why they’ll always offer you certain privileges that they won’t offer other passengers. A company is a more respected entity with a higher brand value and credibility score than an individual in the eyes of airlines, hotels, and other business houses. A company is always more trustworthy than an individual. Also, in many ways, having your company as a client works in the favor of these houses when it comes to building their own brand value.

Tps for Avoid Emotional Investing and Handle Finances

Taking emotional decisions for your financial investments can prove to be highly devastating. Emotional investments are often short-term choices, which affect the long-term benefits in an adverse way. If you observe the cycle of market emotions, you will find that an investor is ruled by the sentiments of optimism, thrill, euphoria, anxiety, denial, fear, desperation, panic, capitulation, despondency, hope, relief, etc. Owing to these emotions, an investor may take decisions, which may not benefit him in the long run.

Take a simple example: When you see on television that the market condition is not favorable for investment, you may panic and start thinking about selling at a low price. In another scenario, when you realize that the price of a stock is going to rise even further, you may get excited and buy at a very high price. However, think about the consequences if things do not go as predicted. Apart from losses, you may even suffer a financial setback.

You must be able to keep your emotions away from investing decisions in order to attain your financial investment goals. Hence, it is important that you take concrete steps, which will eliminate any kind of financial investments as an emotional response. Here are a few strategies that will help you in preventing emotional investing.
Have a Strategic Financial Plan

It is important that you have a strategic financial plan ready, which can act as a driving force for your investment decisions. It should include your financial goals and means to achieve them. It is possible that your emotions will go on a roller coaster ride when you will hear alarming words, like ‘recession’, ‘slack’, ‘collapse’, etc. Also, there may be times when things, like herding, market speculation, or media hype will prompt you to take sudden financial decisions. Do not get swayed by all this, and make investments or sell assets based on such temporary changes. These short-term emotions can cause long-term problems to your financial goals. Align your investments with your financial plan for reaping benefits of good returns. It is advisable that you review the plan and update its strategies every year.

Dollar-cost Averaging

It is an effective way to avoid emotional investments. Equal amounts of dollars are invested regularly for a previously decided interval. This helps to sustain during all types of marketing conditions. For example, instead of investing $2400 in stocks or funds at once, you may contribute $200 to the holding every month. This will generate an average price for the investment over a period of one year. It immensely helps the investors to manage risks.

Avoid Herding

Investors often fall prey to what we know as ‘herd mentality’. When the word spreads that a certain stock or industry is going to perform really well, groups of investors start taking interest in it. They are even ready to buy at a higher price because they think that prices will increase further. However, we have already witnessed the problems that herding has caused in the stocks related to technology, real estate, gold, etc. Hence, avoid falling into this trap. Understand why you want to purchase a stock and have valid reasons for it.

High-quality Investments

You must always buy high-quality investments, which will perform for you in the long run. You should not go for stocks, funds, or other investments, which will not be feasible, especially in the wake of an extreme market condition, like recession or slow down. Hence, do your research thoroughly before choosing your investments.

Consult an Investment Adviser

If you have a history of taking impulsive and emotional investment decisions, it is better that you take professional help. A financial adviser can help you to take rational and accurate decisions. He can also guide you about when and where to invest. He may study your long-term financial goals and arrange to structure your portfolio accordingly. Also, he will be able to exercise control on what kind of investments you make and when you sell them according to the market conditions. He can be a great asset to help you to maintain a diversified portfolio.

Equilibrize Your Portfolio

You must balance your portfolio regularly. This will help you to ensure that your investments are within your risk tolerance limit and you have a diversified asset allocation in your portfolio. It helps to strategically align your portfolio with your investment objectives. Many times, people do not sell their assets that perform well; however, this may not be financially beneficial in the long run. Bringing a balance forces you to take a practical and critical look at your portfolio without getting emotional about it.

Acknowledge Your Emotions and Isolate Them

Whenever you start getting bombarded by positive or negative emotions regarding an investment, acknowledge and isolate them. Avoid the urge to make decisions based on these emotions. Try to recollect your investment mistakes, which you may have committed in the past because of an emotional surge. Try to get to the bottom of the facts and gain knowledge whether a certain thing that you have heard about the investment is really true. If you are satisfied with the results, only then go ahead and make the financial decision.

Invest at the Right Time

Due to the emotions of fear and anxiety, many people like to pull out of the market when the conditions do not seem good. They abandon their investments when they hear bad news. This is okay if you have allocated assets to short-term investments or if the investments may eventually challenge the limits of your risk. However, if you wait for the right time, you will reap huge benefits on your long-term investments. In 2008, many people pulled out of the market fearing the inevitable. However, the market soon regained itself after sometime, and these people lost huge benefits. Don’t let this happen to you.

Diversify Your Investments

Warren Buffett has rightly said that we should not put all our eggs in one basket. You should reduce the risk by diversifying your investments. These investments should be distributed on the basis of intensity of risk, country, industry, etc. You may also invest in hedge funds, real estate, bonds, etc. This ensures that even if one investment does not work the way it should have, there will be others who will continue to do well.

Know and Manage Risks

It is not practically possible that an investment may be completely risk-free. You must understand about every aspect of the risk involved in your investment. You must take calculated risks in order to mitigate the probability of making losses. You can consult your adviser and tell him about the level of risk tolerance that you are comfortable with. Just because someone tells you that high risk is high gain, do not go on to invest your hard-earned money

Research the Alternatives Thoroughly
Many times, you think a stock is good because top-notch analysts on TV, print, and Internet are vouching for it. You may base your decision to buy or sell an investment based on these reports. However, it is essential that you conduct a research yourself before deciding about buying the stock. Look out for the trend that the stock in question is showing, and verify its financial documents. Do not make hasty short-term plans, which will affect your long-term financial goals.

As an investor, you should never invest more than you can afford based on ‘hot tips’ or market speculation. Also, no matter what, verify all the ‘hot tips’ before you get excited and execute. One more mistake that investors commit is that they concentrate on interest rates, inflation, market conditions, natural disasters, etc., for taking an emotionally driven financial decision.

Accounting Concepts and Principles

The main purpose of financial accounting is to provide necessary economic information required for decision-making in a business. Financial accounting follows certain rules and guidelines to prepare reports on the financial standing of an entity. These rules and guidelines are usually referred to as Generally Accepted Accounting Principles (GAAP). GAAP sets its accounting standards and guidelines for preparing financial reports for public, private, non-profitable organizations, and government-owned companies.

Readers of a financial report should be intimated if the information provided in the financial statements follow the GAAP guidelines. The accountant or auditor is responsible for ensuring this procedure.

Fundamental Concepts of Accounting

Business Entity
This principle treats the company as a separate entity from its owners. Personal accounts of owners/partners should be kept separate from profits and expenses of the company. So, the accounting reports are prepared from the viewpoint of business purposes and not from the owner’s outlook.

Cost
This principle states that the company has to consider the original cost of fixed assets like building and machinery, rather than market value. But today, most of the companies report only the market value.

Sincerity
According to this principle, the auditors should prepare the financial reports in order to project the real financial position of the company rather than fabricating facts.

Monetary Unit
This principle assumes that transactions should be recorded in a single currency and exchange rate. This will help the company compare its accounts to the previous years, in spite of a change in the rate of inflation. This principle actually supports the preparation of business reports in a uniform manner.

Prudence
The main objective of this principle is to show the real financial position of the company. The accountants should show the correct revenue accounts and provide a provision for expenses, which may occur in the future.

Matching
According to this principle, all the revenues and concerned expenses incurred should be shown in the same financial period. The main objective is to avoid any overstatements of income at any particular time.

Consistency
According to this principle, the accountants should use the same methods and functions for different periods of time. For example, the same rate of percentage should be applied for all depreciation. This principle is also known as the principle of regularity.

Accrual
This principle requires the company to record the revenue or income when it is actually earned.

Time Period
This principle specifies a particular interval of time for which the financial reports are prepared. It can be either year, fiscal year or short period like a quarter or a month.

Full Disclosure/Materiality
This principle states that the full disclosure of information and events should be ensured. The financial reports should not mislead the investors and should provide clear details of the financial position of the business.

Continuity or Going Concern
This principle presumes that the functioning of the company will be smooth and the business entity will continue to operate for a fairly long period. This principle mainly helps in preparing financial statements of the company as well as ensures that investors will get revenue on their investments.

Realization
This concept indicates the actual amount of revenue or cash inflows earned and realized from a business transaction. It means that realization occurs at the time of receiving the cash in the exchange of goods and services, and not at the time when the contract is granted.

Dual Aspect
According to this principle, all financial transitions have two effects. This concept, which is the cornerstone of accounting principles, assumes that making a record of transactions in the books of accounts has a dual outcome. For instance, getting goods for some amount of money has two effects: (1) paying cash and (2) receiving goods. A record of both should be made into the books of accounts. The dual aspect concept is expressed by the following equation:
Assets = Liabilities + Equity

Assets are owned by a business, and liabilities are the debts of a business, that the company owes to its creditors. Equity is what the company owes to its owners. So all transactions must comply to the above equation.