Accounting job involves way more than just tax preparation – part III

Accounting is the language of the business. The main purpose of accounting is passing any relevant information related to the financial performance of the company to various users such as investors, creditors, management, and government agencies.  Such information is necessary to make rational decisions regarding the investments, credit, and timing of cash receipts or resources of the company and other.

In order to present fairly, and completely company’s financial operation accounting must comply with detailed standards and procedures such as GAAP.  Generally accepted accounting principles are the framework of guidelines for financial accounting. The principles include the standards, conventions, and rules that accountants follow in the preparation of financial statements. GAAP policies relate to financial operations and they provide uniform criteria for communicating data.

 In my earlier posts I started describing accounting as a discipline which goes way beyond just tax preparation. I will not describe GAAP here but I would like to emphasize the importance of GAAP in relation to fixed assets in attempt to point another very important area of accounting.

According to GAAP Companies must allocate the cost of depreciable assets to expenses over certain time (useful life of the assets). However the tax laws are different than GAAP rules. The biggest fixed assets difference between GAP and IRS is the timing when calculating the depreciation.

According to GAAP for book purposes, the company may use straight-line depreciation, while for tax purposes, it may use a more accelerated method, such as Modified Accelerated Cost Recovery System (MACRS). That is why the company has to maintain two different sets of records. I had an opportunity to work with fixed assets at one of the local mining companies. I was truly surprised when I found out that the company had 7 different books each with applicable depreciation methods for various reporting agencies and purposes.

At some point of my career I was involved in the acquisition of another company and huge batch of fixed assets uphold to the company’s current ERP system. That was truly challenging task to balance each book however once completed it was very rewarding experience. Overall I always thought that property, plant and equipment required one of the higher level of the accounting knowledge but once you dive into it becomes easier as you keep learning new things about PPA and various standards and regulations.

Very often I hear comments regarding fixed assets from other accountants who say that this is very ‘messy’ area of the company. Yes, indeed fixed assets management requires discipline and following very complicated rules. Such rules involve asset acquisitions, improvements, transfers, disposals, depreciation. Any extraordinary activities of the company such as acquisition of new company or fixed assets revaluations need to be carefully implemented since we can assume that those activities will be reviewed in smallest details by the auditors.

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Accounting job involves way more than just tax preparation – part II

In order to help you gain full understanding on what accountants do I would like to share my own experience and different roles as the accountant in various organizations I had opportunity to work for through last decade. Hopefully that would be the best example of the accountant job, duties and responsibilities as well as the work environment. I am confident that by describing numerous tasks I was responsible for I can prove how diverse and complicated accounting job is and that it can be extremely interesting profession.

My true accounting career stared as Staff Accountant at one of the local casinos where I worked for over 6 years. The casino was a public company operating in a gaming industry with a medium size annual revenues. Due to the company’s organization I have to admit that it was one of the most interesting places to work for. The company has various departments such as casino, hotel, gas station, RV Park and general store what gave me amazing opportunity to observe interdepartmental relations affecting various aspects of the business.

In the casino I was called ‘inventory queen’ since I was responsible for the inventory control as well as the cost of goods sold variance explanation (relating to food & beverage, retail items and fuel). In addition to that, I was responsible for the reconciliation of monthly gaming income and filing gaming income tax with the Nevada Gaming Commission (which in my opinion is one of the most complex taxes). I also had an opportunity to prepare and calculate other taxes such as sales and use tax and hotel revenue tax or live entertainment tax (a levy applied to some forms of entertainment in both gaming and nongaming establishments, which generates in State of Nevada more than $150 million a year).

Once you are involved as the accountant in any tax preparation it becomes inevitable that you will assist outside auditors during the audits. In the casino I gained great exposure to the interaction with the auditors and their requests as well as following their recommendations.

Finally working as the staff accountant in the casino I was highly involved in the general ledger side of the accounting preparing numerous adjustments and recluses as well as I was assisting in the monthly financial statement closing. In addition to this, one of my tasks was monthly financial report budget variance explanation. And let’s not forget about monthly balance sheet accounts reconciliation!

As illustrated in the above description the responsibilities of the accountant just in one company can be very diverse, complicated and require ability to understand many complex aspects of the business. They also make accounting job very interesting giving the accountant opportunity of the unique insight into the business.

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Accounting job involves way more than just tax preparation – part I

There is a common perception of the accounting as a filed mainly relating to the tax preparation. Many people think about accountants as the people who are crunching numbers all day long especially during the tax period. Yes, this is partially true. But what accountants do when the tax season is over? In fact accountants oversee various functions of the business.

The primary responsibility of the accountants is to prepare and examine financial records. The main task is to ensure that the records are accurate.  In other words accountants examine the financial operations of the business and help create plans of action for its efficient financial well-being.  The responsibilities and the nature of the accounting work depends highly on the size of the business as well the type of the business.

In small businesses (where the accounting team may consist of 2 to 3 accountants) the accountants are responsible for the entire accounting system and procedures. Due to the volume of the transactions accountants in smaller businesses may have a bigger picture of the financial operations of the business.  The bigger the company gets the accounting jobs become more specific and these jobs are very often more tedious.

The main areas of the accounting jobs are:

  1. Cash Collections
  2. Cash payments (disbursements)
  3. Payroll
  4. Inventory
  5. Property accounting

In addition to that, accountants have many other tasks in other areas. For example they verify and reconcile contracts, orders, and vouchers, and prepares various reports to justify the figures in the contracts. Accountants are also responsible for the preparation of numerous analyses such as profits and losses or revenue and expenditure analysis to track different trends and make appropriate recommendations to the upper management. Accountants also prepare and review budgets to ensure expenditure control within appropriate budget levels. Finally, accountants are involved in completing audits therefore their job often involves interaction with internal and external auditors.

The above examples illustrate the variety of responsibilities the accountants have. It also describes the variety of opportunities of the accountants making the accounting one of the most promising career and the accounting job one of the highly demanded profession.

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Why your accountant should know how to count bees?

I will tell you a little secret: form a beekeeper perspective it is almost impossible to count all the bees in the bee hive. From the accounting perspective it is useless attempt. Since accounting is the ’language of business’ and it is also the measurement of the company’s activities and the communication process of those measurements to the others. The accountants must know what to count and how to communicate those numbers to others.

As the beekeeper I know that on the average in the summer the bee hive can have up to 35,000 bees dropping to around 5,000 in the winter time. In a good season one bee hive can produce on the average up to 60 pounds of honey. And this is the relevant information I need form the accounting perspective to predict the volume of honey one beehive can produce.

Accounting is not really a math class, algebra or calculus. Accounting is truly a system of maintaining records of company’s operations, it is ability of precise interpretation of those records and effective communication those records to others. Let’s go back to the beekeeping example – a good accountant should be able to figure out how to count how many bees are in the beehive but an excellent accountant (the one you want to hire) will know that he does not have to count any bees at all! He will know what kind of information has the most important qualitative characteristics such as relevance and reliability to become useful accounting information. Therefore, he will know that he truly does not have to know the number of bees but the amount of honey produced on the average by one bee hive.

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Bean Counters are no longer nerds wearing glasses!

Our professional life is going through tremendous transformation. Every aspect of the business is changing on a daily basis. Even though we may not notice this continuous process of the change happening to our jobs every day, looking at our company we may easily notice many differences between now and a year or two years ago.  The technology is getting more advanced and is clearly pushing people out of the cubicles replacing human labor with the computers. There is less paper around, huge printers suddenly disappear, and laptops replace PC’s.

This constant change affects people working in the offices, especially accountants.  The stereotype of the typical accountant is no longer valid.

The stereotype of the accountant is represented by man, way past middle age, winkled, wearing glasses, who is serious, polite but is staying rather on the cold side and the most important characteristic ids that he is extremely boring with dull job crunching numbers all day long…

The reality is far from the above stereotype. Constantly changing financial laws and regulations have created demand for people who are open minded, have ability to learn quickly and are flexible enough to apply their knowledge to many various scenarios. In addition to that, most of the accountants should have computers skills which go far beyond advanced level. Knowing only one ERP system is not enough since many companies are not using only one ERP system but the mix of various software applications serving different functions (for example there may be separate application for payroll, fixed assets, and inventory or expense reports). Moreover very experienced accountants are expected to  have the knowledge of the ‘back’ side of each system such as posting controls, as well as how the system communicates with another system by particular ‘mapping infrastructure’.

Let’s get less technical and let me tell you a little about the accountants I know. Majority accountants I came across are people with amazing personalities, passions and great families. Some of them travel a lot, some of them are backpackers, some of them are driving cabriolet Mustang taking funny selfies, some of them are diving with sharks for a hobby!!!

And the most important fact is that most of the accountants I know have great people skills what gives them the opportunity for effective communication of the financial information to the upper management.

Let me give you some of the examples of very talented accountants:

  • Phil Knight – co-founder and chairman of Nike Corporation
  • Walter Diemer – inventor of… Bubble Gum!
  • Thomas Edison – inventor and businessman
  • Ray Romano – comedian
  • John Grisham – novelist
  • Robert Plant – lead singer of Led Zeppelin

Therefore choosing accounting as THE CAREER may be a best option for multitalented, flexible, creative and very smart people!

Continue reading “Bean Counters are no longer nerds wearing glasses!”

Universal truths of accounting

Accounting is timeless

Accounting is this amazing field which always stays true. To be specific the accounting equation (assets equal liabilities plus owner’s equity) is truly timeless.  This is my favorite part about the accounting in today’s world where everything is constantly changing.  We know that technology, social norms, environment, even relationships between people will not be the same tomorrow as they are today. However the accounting fundamentals will always be the same. Yes, there may be some changes in the accounting rules due to the changing markets, evolving new industries, business requirements etc. but the accounting basics will stay constant forever.

Accounting has no borders

Another characteristic which makes accounting so special is that this field has no borders. I will be able to take my accounting experience and knowledge and apply it to any business entity in US, Europe or Asia. From today’s global perspective of business the universal accounting application as well as its sustainability makes this field extremely unique and the accountants very valuable players.

Accounting is applicable to our everyday life

Accounting influenced the way I look at my life, manage my money, my time and energy I put into contacts with other people!

  • Approach to life

Since I am very passionate about mindfulness; I do believe that the balance in life is the key to the personal happiness. That is why as the accountant I like to compare our life to the balance sheet with a strong emphasis on the balance between both sides of the accounting equation. I do believe that each choice we make in our life will always affect both sides of the accounting equation. And the most important factor in each decision is to be aware that accounting equation must always balance. Let’s say that assets are the things we value in our life (health, family, education, talent, career etc.), the liabilities in this case would be the claims against those assets. The claims can come from any sources who supplied us with those assets (parents, schools, creditors, our bosses and society in general).

  • Personal finance management

In order to stay financially in balance it is extremely important to be aware that your liabilities should never exceed your assets. Therefore one should be aware of what is affordable within his own means and not how I call it ‘stretch’ his financial resources.

  • Time management

Time is the most valuable resource we have – with every second passed by we have one second less left in our life. That is why my approach to my time management is very simple – every minute beneficiary to myself has its respective cost. Yet time ‘wasted’ may be truly worth it!

  • The importance of reciprocity in personal relationships.

The aspect of dual character of things is crucial to the personal relationships. The reciprocal relationships where both sides exchange things with others for mutual benefits should be the ones we focus our energy on.  Perceiving relationships from cost-benefit approach could allow us to create healthy relationships with others.