Custom fields in your accounting software are data fields that you can define yourself. They are typically associated with customers, vendors, employees, and items, and they can help you store and categorize additional information about these stakeholders and your products and services in your business.

An example custom field that can be associated with customers is their anniversary date with you. You could also decide to store their birthday, their spouse’s name, their favorite color, or their shoe size.

Custom fields add functionality to your accounting system. Here are a few examples of practical uses for custom fields:

  • Staff contact for customer – if customers are assigned a particular staff member, you can add their name in a custom field
  • Frequency of service – daily, weekly, monthly
  • Warehouse location
  • Type of customer; for example, hospitals, pharmacies, retirement homes
  • Referring physician
  • Preferred method of contact: email, phone, fax, text, chat
  • License number

Some software allows you to choose the type of custom field you want to add. In some cases, this allows for cleaner data as the data can be limited to a certain type or certain values upon entry. Here are the most common types:

  • Free form text – this is the default type; it can come as a single line or paragraph
  • Check box – choose one or more values from a limited number of choices
  • Radio button – choose only one value from a limited number of choices
  • Drop down – choose a value from a dropdown list
  • File upload – add an attachment
  • Image upload – upload an image that will be displayed
  • Date/time – enter a date or time
  • Number – enter a number; it can be currency, integer, or another mathematical type of number

Custom fields allow you to meet your company’s unique needs over and above what the software provides by default.  It’s a great way to make your data more meaningful. If you have some ideas for custom fields in your accounting software and want help setting them up, feel free to give us a call anytime.

When you pay a bill in your business, are you 100 percent comfortable that the bill payment is correct and justified? Is there ever a chance that that bill is fake or fraudulent? What about duplicates? With so many fake bills being mailed to businesses these days, it makes sense to think about controls you can put into place to reduce the risk that you might write a check out of your hard-earned profits that should never be written.

Accounts Payable Controls

In the accounting profession, the term “internal controls” refers to processes, procedures, and automations you can put into place to reduce errors. In accounts payable, there is a specific subset of rules and controls you can put into place to reduce risk in this area. Here are just a few ideas.

1. Approvals

All bills should be approved by the appropriate level of staff in your business. Sometimes a bill gets approved that is fake or shouldn’t be approved, especially in areas where the approver doesn’t have technical knowledge of what they are buying. Be sure to read the fine print on the bill and make sure you know what you are paying for.

2. Segregation of duties

The person who pays the bill should be different from the person who submitted the bill. These people should be different from the one who signs the check. This reduces employee fraud.

3. Receipt confirmation

A packing slip or other confirmation of receipt of the goods or services should be matched to the invoice, line item by line item.

4. Math check

A prudent step is to check an invoice’s math, at least for reasonableness.

5. Duplicate payments

If a vendor emails their bill as well as mails a hard copy, controls should be put in place (usually automated) to avoid duplicate payments on the same bill.

6. Reconciliation

If there are a significant number of transactions between you and a vendor, an accounts payable reconciliation should be performed each month via a statement.

7. Missing check numbers

Most systems provide a missing check numbers report that you can use to make sure all checks are accounted for.

8. Bank reconciliation

A bank reconciliation is a sure way to see exactly what checks cleared your bank account.

9. Coding

Coding each transaction to the correct expense account, inventory, asset, or cost of goods sold account is an essential part of the process.

10. Income statement review

Each month, a review of the balances in your expense accounts as well as a disbursements ledger review for reasonableness can provide added peace of mind.

11. Purchase order

Requiring purchase orders is another control you can add to your process. Purchase orders should be matched to packing slips and invoices before payment or approvals are made.

12. In-depth knowledge of your business’s numbers

The more you get to know the numbers in your business, the greater chance you’ll have of accurate accounts payable handling.

And if you’d like to discuss your accounts payable function with us and how it can be improved, we’re happy for you to reach out any time.

Each month, your accounting system yields actionable information for you to run your business better. Here are some key reports that all business owners should review every month.

Balance Sheet

A quick review of the balance sheet can tell you the balances of your current assets and current liabilities. Current assets should always be larger than current liabilities; if it’s not, you may have liquidity issues.

You can also take a look at these accounts: cash, accounts receivable, and accounts payable. They should look reasonable to you based on your business history.

Accounts Receivable Aging

Your gaining report can alert you to who has not paid their invoice, so that you can take action to collect that money. Any balances over 30 days should trigger a collection process since the older the receivable gets, the less likely it is to collect.

Accounts Payable Aging

Hopefully, this report is clean and you are able to pay all of your bills on time. If you have an unusually large amount in this account, you’ll want to make sure you have the future cash to pay the bills.

Income Statement

The first number most entrepreneurs look at on the income statement is profit. It’s a good idea to review every account balance on this report to see if it is what you expected. Some questions to ask yourself include:

  1. Did I generate the amount of revenue that I expected? If not, should I ramp up marketing for the next few months?
  2. Do all of my expenses look reasonable? Are there any numbers that look too high?
  3. Are my payroll expenses in line with what I was expecting?
  4. Which accounts caused me to generate more or less profit?
  5. What I can I do next month to improve performance and increase profit?

Sales Reports

There are many excellent sales reports to dive deeper into your revenue so you can see what sold and what didn’t. Sales by Item and Sales by Customer are two good options for you to get more detail about your revenue balances. By analyzing your revenue, you can see what promotions worked and how you might take action to increase sales.

These five reports are very basic, but they are also very key to your business. To profit from these reports, it’s up to you to take action in your business to improve your success.

The account on your income statement called Cost of Goods Sold can be confusing to non-accountants. In this article, we’ll attempt to de-mystify it and explain how it works.

Cost of Goods Sold is an account in your Chart of Accounts that is a very special type of expense. It is the amount of direct costs of items that were sold by the company. It is related to inventory, and it helps to see the flow of transactions to understand the big picture.

When you purchase an inventory item for sale, it’s considered an asset (not an expense yet) in your company. When you sell an inventory item, the asset is reduced and the Cost of Goods Sold account is increased, moving the item from an asset to an expense. It’s no longer an asset once it’s sold, and the cost of the item sold reduces your profit and is expensed into the Cost of Goods Sold account.

Some accountants will abbreviate the Cost of Goods Sold account to COGS, and you might hear them call it that.

In the case of wholesale and retail businesses, the cost of goods sold is the amount that was paid for the inventory items to be sold. In the case of a manufacturer, the costs can include the cost of raw materials, labor to produce the item, and sometimes additional allocations of other related costs. Construction businesses may have a Cost of Construction account or Contract Costs instead of COGS. Service businesses will typically not have a balance in the Cost of Goods Sold account. If they do have direct costs, the costs are often coded to a Supplies account under expenses.

At any point in time, the cost of items you purchase are in two different accounts:

    1. The unsold items are reflected in the asset account, Inventory, on your Balance Sheet report.
    2. The sold items are reflected in the Cost of Goods Sold account, on your Income Statement report.

It’s important that the Cost of Goods Sold balance is accurate, because there are many good things you can learn from it when you compare it with inventory. You can learn how fast your inventory is selling, and you can determine your gross profit margin.

If your inventory purchases have not been coded correctly, you can take inventory and arrive at the correct cost of unsold items. If your physical inventory does not match your books, your accountant can make a correcting entry between Cost of Goods Sold and the Inventory account so that both of them are accurate.

If you have further questions about the Cost of Goods Sold account, feel free to reach out any time.

Artificial intelligence (AI) has arrived in the accounting profession in a big way. The good news is it’s streamlining accounting tasks, finding patterns in data you can take action on, and generally making things better. Here are just a few places we’re seeing AI and machine learning impact accounting.

Transaction Coding

Most systems have incorporated some form of machine learning into transaction coding. When bank feeds are imported, each transaction needs to be coded to add the account code in the chart of accounts.  Class, tracking codes, and other custom data may need to be added as well. Rules can be set so that the accounting application can pre-code the transactions; in this case the accountant simply approves or corrects the entry.

Invoice Fetching

It starts with a picture of a receipt. Invoice fetching applications can turn pixels into data using sophisticated OCR (optical character recognition). The data is then turned into a business transaction that can be imported into an accounting system.

Auditing

The books of many government agencies, nonprofits, and large businesses need to be audited on a regular basis. Auditing is an expensive process. Smart programs can review a company’s data and assess where the risks and anomalies are so that the audit program can be modified to focus on the more important parts. This reduces risk and cost for everyone involved. 

Accounts Payable

Artificial intelligence can help to speed up the matching of purchase orders, packing slips, and invoices so that accounts payable tasks are streamlined.  It can also automate approvals and look for duplicate invoices to avoid overpayments. 

Accounting Tasks That Are Clerical

Robotic Process Automation (RPA) is a platform that allows users to create automation without involving the IT department. Think Excel macros or Zapier on steroids. Any workflow with a mind-numbing set of clerical steps is a candidate for RPA. 

AI allows accountants to spend less time on routine tasks and more time on higher-level analysis work. As AI becomes more affordable for small businesses, everyone will benefit from this long-term trend.

When you purchase a new vehicle, you get the fun of riding around in a new car with the new car smell! Our job has just begun – to get your new asset recorded properly on your books. We thought it’d be fun to give you a behind-the-scenes sneak peek at our part. 

Sales Contract

The first thing we’ll ask you for is the sales contract.  It will give us the payment price of your car, and we’ll use that number to record your new asset on your balance sheet.  If you paid cash with no trade-in, the journal entry we’ll make is:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$25,500

Then we’ll decide on a depreciation method and book depreciation monthly or at year-end.

Debit: Depreciation Expense

$5,100

Credit: Accumulated Depreciation

$5,100

Trade-in

If you traded in a vehicle that is on your books, we’ll need to make an adjustment to your books. Effectively, your old car will be eliminated from your balance sheet. If this asset had a book value and it was not fully depreciated, the net value would be compared to the trade-in value and a gain or loss on the asset sale would be recorded on your income statement. 

Let’s say the balance sheet value of the three-year-old car you traded in was $10,000 and you got $8,000 on the trade-in. Here’s what we would record:

Debit: 2019 Toyota RAV4

$25,500

Debit: Accumulated Depreciation

$15,000

Debit: Loss on Sale of 2016 Car

$ 2,000

Credit: Old 2016 Toyota RAV4

$25,000

Credit: Cash

$17,500 ($25,500 – $8,000 trade-in)

We’d also start the depreciation for the new car.

New Car Loan 

Most often, a new car purchase will be financed, so we have a new liability to record too.  We’ll need to get a copy of the loan documents from you and an amortization schedule of the payments. Let’s say you made a ten percent down payment with no trade-in.  Here’s how that would look:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$2,550

Credit: Toyota Loan

$22,950

Then, each time you make a monthly payment, the amount will need to be split between principal and interest and those amounts will need to change each month.

Debit: Interest Expense

$390

Debit: Toyota Loan

$60

Credit: Cash

$450

We left out a few trade secrets just to keep it intriguing. There are a lot of other numbers on a car purchase: taxes, licenses, warranties, add-ons, fees, and more. Some of these can be directly expensed, while others need to be included in the value of the asset. So if you’re happy that we’ll take care of this for you, we’re happy to do so. 

Let us know if you purchase an asset this summer so we can get it booked right for you. 

In small business, accounting refers to a set of tasks that revolve around maintaining a general ledger – your books — and preparing financial statements. Beyond small business accounting, there are many more aspects to accounting. In this article, we’ve prepared a glossary of accounting terms so you can discover the larger world of accounting.

Cost accounting. This type of accounting looks at the cost of items for sale. It’s especially useful in manufacturing, construction, or even restaurants where dozens or even hundreds of components are purchased and assembled to make the items that are for sale. Cost accountants account for and evaluate these costs to determine when they are too high or low and need to be repriced or purchased in a different way. 

Cost accounting can be applied to small businesses to help them with pricing, determining breakeven points, controlling costs, and budgeting.

Government accounting. Government accounting is simply accounting that’s done for government entities. Government accountants are concerned with maintaining government regulations as well as learning a different way of keeping books.

Nonprofit accounting. Nonprofit accounting is unique to nonprofit organizations in that they often need to track and mark specific donations, manage grants and meet reporting requirements, fulfill public disclosures and reporting, and maintain a fund accounting process.

Financial accounting. Financial accounting is the preparation of financial reports for external use and includes providing financial statements. 

Attest. Attest accounting is where a CPA goes through a process of verifying financial reports of a business to interested third-parties, such as banks and the public. The three main services in this area include compilations, reviews, and audits. Only a CPA can perform these services.

Fraud or forensic accounting. A specialty role in accounting, forensic accountants can help a company that has been the victim of fraud. There are also services available to help reduce the possibility of fraud. 

Tax accounting. Tax accounting can be many things: the preparation of federal and state income tax returns for businesses, individuals, and other entities like estates and trusts; state and local tax assistance with collection, filing, remittance, and compliance; franchise tax support; and payroll tax collection, filing, and payment. There are more, but these are the big ones.

Budgeting. Making a revenue and spending plan is an important accounting function.

Internal auditing. Large companies have internal audit departments that maintain checks and balances for the company. In small companies, having someone in charge of monitoring internal controls would be the equivalent function.

Accounting systems. Some accountants are technology-savvy, and this type of accountant can help solve technology issues, integrate accounting system modules, and streamline workflow.

Fiduciary accounting. A fiduciary is someone legally responsible for financial responsibilities in an organization. Fiduciary accounting typically refers to accounting for trusts, but can have a much broader meaning.

Public accounting. Public accounting is practiced by employees in a public accounting firm, which is one that serves many businesses with varying accounting needs.  This is opposed to private or industry accounting where an accountant goes to work for one company in their accounting department. Public vs. industry accounting is really referring to an accountant’s career experience. 

Managerial accounting. This type of accounting focuses on internal numbers and how the organization can reach its goals. It’s broader than cost accounting, but there is an overlap. Accountants who serve in an advisory capacity to businesses will focus on this area. 

Did we get all of the terms you might be wondering about? If not, ask us, and we’ll add it here.

While “fetching” might be what some trained dogs can do, accounting systems are getting into the act too. This relatively new feature is called “receipt fetching,” and it’s when an app can retrieve documents directly from the vendors that you do business with so you don’t have to spend so much time on paperwork retrieval. 

Apps that can perform receipt fetching can integrate with your accounts and pull invoices into their system.  For example, if your business has an account with a utility or telecom company, the receipt fetching app can pull the electricity, water, or telephone bills into your receipt fetching app account and consolidate them. 

The benefits are simple. You save time, certainly. But the bigger benefit is you no longer have a monthly deadline to get your documents to your accountant  —  at least for all the documents that can be automated in this way.  This reduces stress and eliminates minutiae from your day.

Accountants benefit too.  No accountant likes to spend their time asking clients for documents over and over again.  We know you have better things to do with your time, and we know you probably hate doing the paperwork.  Receipt fetching is an easy way to get the job done.

To take advantage of receipt fetching, the first step is to select a receipt-fetching app. A few of the apps to select from include LedgerDocs, ReceiptBank, HubDoc, and Greenback. Some of these apps do receipt fetching only, and others have many more functions.

The second step is to detemine which vendor accounts are supported, and to connect with them. Generally speaking, the connection is based on your account credentials, so if those change, the connection will need to be updated. When many of your documents can be pulled into one place, you don’t have to spend time logging into each vendor portal to pull receipts. 

If you’re curious about how to benefit from receipt fetching in your business, please feel free to reach out.

Internal control is a very special phrase in the accounting profession. Tactically, it’s the set of processes that help a company produce accurate data throughout the organization, follow reporting requirements and laws, and maintain consistency and accuracy in its operations. Strategically, it’s an entirely new way of thinking and doing business.

Internal control helps to reduce organizational risk. A blunt way of putting it is internal control is what you put in place to avoid mistakes, intentional or accidental, and to control accuracy and quality. It impacts every aspect of an organization.

As a small business, you’ll want to be familiar with the concept because it can help you reduce risks you might not realize you have. Here are some practical examples of good ideas that support internal control:

  • When data is private and secure, provide access only to employees who need to know the data and restrict access of others. 
  • Have someone check that your bank balance matches the reconciled amount in your books, and that someone should be different from the person who does the reconciliation.  This is an example of what’s called segregation of duties. 
  • Lock up paper checks and use the missing check number report to make sure none of the stock could be used for nefarious purposes.
  • Have employees sign in and out equipment that they take home.  This is part of asset management.
  • Write and enforce a hardware and software use policy that includes items like employees should make sure their anti-virus software is active at all times, they should not bring in disks or CDs, and they should not download games or other unauthorized programs.  This protects from computer viruses and helps to avoid catastrophic network failures.

There are literally hundreds of internal control procedures that should be implemented in small businesses as they grow into larger businesses. 

Internal control is typically a big part of an audit or an attest function in accounting; it determines how many additional procedures an auditor needs to do in order to provide assurances about the reliability of the financial reports.  But it’s also just good plain common business sense to implement as many internal control processes as are cost-effective for your business to protect it at the level of risk you’re comfortable with. 

If you’d like to discuss the idea of internal control further, please feel free to reach out any time. 

A quick glance is all you need to check your fuel gauge, speed limit, engine temperature, and RPM when you’re driving down the road. Your car’s dashboard is designed to focus you on what’s important and what you need to know to have a safe trip.

Your car’s dashboard items, if they applied to business, would be called key performance indicators or KPIs. Unlike a car’s, the KPIs of your business vary depending on your business goals and what’s important to you. Common ones might include your cash balance, how fast you get paid, how much revenue is coming in, and whether you’re making plan. There are literally hundreds of them to choose from, and many of them are not derivable from your financial statements, such as number of orders, client satisfaction levels, and employee turnover. 

Would it be useful to have a dashboard of KPIs for your business so you can know what’s working and get alerted to what needs focus? Here are the steps to creating a dashboard for your business:

  1. Decide on the KPIs you want to track.  Selecting 6-10 to create and track is a good place to start. 
  2. Select a tool that will provide you with the KPIs in the format you desire. There are many great add-ons to your accounting software that will instantly crunch the financial KPIs for you and present them in insightful formats, including charts, graphs, dashboards, and reports.
  3. Create any new processes to calculate the new KPIs and get them entered into the dashboard app.
  4. Hold a review meeting to go over the KPIs and determine any action based on the review. 

There are many great KPIs available right in your accounting system, which might be plenty to get started with. And there are some real gems outside your accounting system that will take a bit of work to calculate. In any case, we can help you through this process.  Feel free to reach out to us any time to discuss the possibilities of having a dashboard in your business.