Capitalized Leases and Section 179 Affects Local Business Accounting

Below is information that Business need to know about capital leases and how it affects their accounting. If you are getting new equipment changes may occur in the deductions. It looks as if the deductions are going to drop back to 25,000 in 2011.

If equipment can be purchased in 2010 it is highly recommend so tax codes changes will not effect your business.

Equipment can be a great way to get the benefits of a refund and using the increased revenue from the equipment to pay for the lease payment.

Medical equipment sales for units that provide ROI are going to be very strong towards the end of the year. Please plan accordingly and try to make purchase early to take advantage of low prices and not get stuck in a buyer frenzy.

For financial statement and tax purposes, a lessee should capitalize a lease if it meets at least one of the following criteria:

a. Ownership transfer test. The lease passes title to the lessee by the end of the lease term.

b. Bargain purchase option test. The lease contains a bargain purchase option.

c. 75% test. The lease term is at least 75% of the property's estimated economic life.

d. 90% test. The present value of the minimum lease payments is at least 90% of the property's fair value.

If the lease meets any one of these criteria, the leased asset should be recorded on the Company's financial statements along with the corresponding lease liability net of deferred interest. For tax purposes, the leased asset may be depreciated by the lessee and qualify for the Section 179 expense election. The maximum Section 179 dollar limitation is $134,000 for tax years beginning in 2010.

Clearwater CPA Accountant - Call Today To Schedule a Free Consultation.
Judy Driscoll CPA (Certified Public Accountant) Located at:
250 N. Belcher Road, Suite 100, Clearwater, FL 33765
Office 727-441-6829
Specializes in Business Accounting for: Audits, 401k Audits, and Financial Statement Reviews.

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Nominal Ledger in Computerized System

The nominal or general ledger is an accounting record which summarizes the financial affairs of a business. It is the nucleus of an accounting system. It contains details of asset, liabilities and capital, income and expenditure and so profit or loss. It consists of a large number of different accounts, each account having its own purpose or "name" and identity or code.

A nominal ledger will consist of a large number of coded accounts. A business will, of course, choose its own codes for its accounts.

It is important that a computerized nominal ledger works in exactly the same way as a manual, although there are some differences in terminology. For instance, in a manual system, the sales and debtors accounts were posted from the sales day book. But in a computerized system, the sales day book is automatically produced as part of the "sales ledger module". So it may sound as if you are posting directly from the sales ledger, but in fact the day book is part of a computerized sales ledger.

Inputs to the nominal ledger

Inputs depend on whether the accounting system is integrated or not.

�If the system is integrated, then as soon as data is put into the sales ledger module (or anywhere else for that matter), the relevant nominal ledger accounts are updated. There is nothing more for the system user to do.

�If the system is not integrated than the output from the sales ledger module (and anywhere else) has to be input into the nominal ledger. This is done by using journal entries.

�Regardless of whether the system is integrated or not, the actual data needed by the package to be able to update the ledger accounts includes:

1.Data

2.Description

3.Amount

4.Account code

Outputs from the nominal ledger

The main outputs apart from listing of individual nominal accounts are:

�The trial balance

�Financial statements

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Accounting Packages

Computer programs are the instructions that tell the electronics how to process data. The general term used for these is software.

Some application software is devoted specifically to an accounting task, for example a payroll package, a fixed asset register or a stock control package.

Other applications have many uses in business, including their use for accounting purposes. Packages of this sort that we shall describe are databases and spreadsheets.
One of the important facts to remember about computerized accounting is that in principle, it is exactly the same as manual accounting.

Accounting functions retain the same names in computerized system as in more traditional written records. Computerized accounting still uses the familiar ideas of day books, ledger accounts, double entry, trial balance and financial statements. The principles of working with computerized sales purchase and nominal ledgers are exactly that would be expected in the manual methods they replace.

The only difference is that these various books of account have become invisible. Ledgers are now computer files which are held in a computer-sensible form, ready to call upon.

Advantages and Disadvantages of Accounting Packages

Advantages
Advantages of accounting packages compared with a manual system are as follows.
�The packages can be used by not-specialists.
�A large amount of data can be processed very quickly.
�Computerized systems are more accurate than manual systems.
�A computer is capable of handling and processing large volumes of data.
�Once the data has been input, computerized system can analyze of data rapidly to present useful control information for managers such as a trial balance or a debtors schedule.

Disadvantages
The advantages of computerized accounting system far outweigh the disadvantages, particularly for large business. However, the following may be identified as possible advantages.
�The initial time and costs involved in installing the system, training personnel and so on.
�The need for security checks to make sure that unauthorized personnel do not gain access to data files.
�The necessity to develop a system of coding (see below) and checking.
�Lack of 'audit trail' it is not always easy to see where a mistake has been made.
�Possible resistance on the part of staff to the introduction of the system

Coding
Computers are used more efficiently if vital information is expressed in the form of codes. For example nominal ledger accounts will be coded individually, perhaps by means of a two-digit code: example
�00 - Ordinary share capital
�01 - Share premium
�05 - Profit and loss account
�22 - Purchases
�30 - Debtors ledger control account
�40 - Creditors ledger control account
�55 - Interest
�56 - Dividends etc

In the same way, individual accounts must be given a unique code number in the sales ledger and purchase ledger.

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Purchase Ledger in Computerized System

A computerized purchase ledger will certainly be expected to keep the ledger up-to-date, and also it should be able to output various reports requested by the user. In fact, a computerized purchase ledger is much the same as a computerized sales ledger; expect that it is a sort of mirror image as it deals with purchases rather than sales.

Input to a system

Bearing in mind what we expect to see held a ledger, typically data input into a purchase ledger system is:
�Details of purchase recorded on invoices
�Details of returns to suppliers for which credit notes are received
�Details of payments to suppliers
�Adjustments

Process in a ledger system

The primary action in updating the purchase is adjusting the amounts outstanding on the supplier accounts. These amounts will represent money owed to the suppliers. This processing is identical to updating the accounts in the sales ledger, expect that the sales ledger balances are debts (debtors) and the purchase ledger balances are credits (creditors). Again, the option item approach is the best.

Outputs from a system

Typically outputs in a computerized purchase ledger are as follows.
�Lists of transactions posted - produced every time the system is run.
�An analysis of expenditure of nominal ledger purposes. This may be produced every time the system is run or at the end of each month.
�List of creditors balances together with reconciliation between the total balances brought forward, the transactions for the month and the total balance carried forward.
�Copies of creditors' accounts. This may show merely the balance b/f, current transactions and the balance c/f. If complete details of all unsettled items are given, the ledger is known as an open-ended ledger.
�Any purchase ledger system can be used to produce details of payments to be made.
�Other special reports may be produced for, costing purposes, updating records about fixed assets, comparison with budget, aged creditors list.

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Know Your Basic Accounting Functions

The core functions of accounting are bookkeeping and financial reporting to managers and investors. However, the accounting department of a business is usually also responsible for payroll, cash inflows, cash payments, purchases and inventory, and property accounting. If these functions are not done efficiently and on time the business will not survive.

Many of these functions, and much of accounting, focus on business transactions. These are economic exchanges between the business and persons or other businesses that the business deals. Accounting means understanding how these transactions are accounted for. Most businesses carry on economic exchanges with six basic groups:
1) customers, who buy products and services,
2) employees, who are paid wages and salaries and are provided benefits for working for the business,
3) suppliers and vendors, who sell to the business,
4) debt sources of capital, who loan money to the business,
5) equity sources of capital, who invest in the business expecting a profit on the capital invested, and
6) the government, who collects various taxes.

There are also other events that have economic impact on the business that must be recorded, such as lawsuits, uninsured flood or other loss, severance pay to laid-off employees, and other non-planned circumstances and events.

The first core function of accounting is too keep track of and record all the above economic exchanges, while the second is to report it. Accountants prepare financial statements for businesses to report to managers and investors. The three most basic financial statements are the statement of financial condition or balance sheet, the income statement and the cash flow statement. Everyone in business should understand and know how to read these three statements.

The Balance Sheet

The balance sheet, or statement of financial condition, summarizes the assets owned by a business on one side and the sources of its assets on the other. Sources of assets are divided into two basic categories: liabilities and owners' equity. Some assets come from borrowing money or buying on credit that has not been paid yet. These are liabilities. The remaining assets come from owners' equity which consists of the money invested in the business by the owners and the profit the business has earned and retained. It is important to remember that the balance sheet is like a snapshot and only shows how much the business is worth on the day the balance sheet is drawn up.

You generally see balance sheets like this:

Basic Balance Sheet

List of Assets List of Liabilities

Owners Equity
Total Assets = Total Liabilities + Owners' Equity

Sometimes you will also see owners' equity referred to as net worth. This is computed as Assets - Liabilities = Net Worth. While this may imply that the business is worth the amount recorded in the owners' equity accounts, it does not necessarily mean the business could be sold for this amount. Much more needs to be addressed when determining the selling price of a business. Nevertheless, the balance sheet is an important report that indicates how much you have and how much you owe at a certain point in time.

The Income Statement

The Income Statement, or profit and loss statement, measures income and expenses. It summarizes the profit-making activities of the business over a period of time. One section of the report lists all income: earned, passive or portfolio. The other section of the report lists all expenses. It often looks like this:

Basic Income Statement

Income
- Expenses
= Net Income

Preparing income statements on a regular basis assist in measuring financial progress. Most managers and investors pay more attention to the income statements and you will often see abbreviated versions in the financial pages reporting the top line of sales revenue and the bottom line of net income.

The Cash Flow Statement

Cash flow refers to the stream of cash coming in as income and going out as expenses. The cash flow statement summarizes the sources and uses of cash in the business during a financial period. A successful business must manage both profit and cash flow, they do not equal each other. Cash flow statements often look like this:

Basic Cash Flow Statement

Part 1. Operating Activities. Cash flow from the profit making transactions of the business
Part 2. Investing Activities. Cash inflow and outflow from investing activities.
Part 3. Financing Activities. Cash inflow and outflow from the financing activities.

Summing the three types of cash flows from above determines the bottom-line net increase or decrease in cash during the period. Net cash flow from part one, operating activities, will not always match the profit reported in the income statement. This is because actual cash flow and expenses from sales are on a different time table that when sales revenue and expenses are recorded on the books. Profit performance of a business gets the most attention, but it is also important to understand and know the cash flow from profit and that is found in this important statement.

You do not need an MBA, nor do you need to be a CPA, to run a business. However, understanding basic accounting will assist you with the financial aspects of your business, investments, taxes, and financial management. You will be at a disadvantage if you do not understand accounting basics. If the accounting functions and three basic accounting statements covered in this section are new to you, it is imperative you seek out resources to learn more on this subject. If you already have a basic understanding of accounting principles and statements, make sure you are keeping on top of them in both your business and personal life.

Alain Burrese, J.D. is a performance and personal development expert who teaches how to live, take action, and get things done through the Warrior's Edge. Alain combines his military, martial art, and Asian experiences with his business, law, and conflict resolution education into a powerful way of living with balance, honor, and integrity. He teaches how to use the Warrior's Edge to Take Action and Achieve Remarkable Results. Alain is the author of Hard-Won Wisdom From The School Of Hard Knocks, the DVDs Hapkido Hoshinsul, Streetfighting Essentials, Hapkido Cane, the Lock On Joint Locking series, and numerous articles and reviews. You can read more articles and reviews and see clips of his DVDs as well as much more at http://www.burrese.com and http://www.aikiproductions.com

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QuickBooks Job Costing - Determining Equipment Costs Per Hour

Determining the cost-per-hour for each piece of equipment or machinery that your company owns and uses on a job site is a great tool for understanding, and even eventually, recouping the actual cost of the machine itself. Once you have this information, you can improve the accuracy of your bidding, book equipment and machinery costs in your accounting software, and even identify ways in which you can maximize expenditures throughout the year.

Equipment and machinery cost-per-hour rates are calculated by adding together three distinct pieces of information:

What it costs to own or lease (acquisition cost-per-hour) What it costs to maintain (maintenance cost-per-hour) What it costs to run operate it (running time fuel consumption cost-per-hour)

1. Calculating Acquisition cost-per-hour (ACPH)

Formula: Divide the total price paid (including interest paid) by the projected number of lifetime hours.

Example:

21" rotary mower purchase price: $1,100.00

Interest none

Lifetime hours: 750 hours (2.5 hours/day, 5 days week/30 weeks/year for 2 years)

Salvage value: none

Acquisition cost-per hour: $1,100.00 divided by 750 hours = $1.47 per hour

2. Calculating Maintenance cost-per-hour (MCPH)

Formula: Divide the estimated lifetime maintenance cost (repairs, parts, labor, blades, spark plugs, oil changes, filters, etc.) by the number of lifetime hours.

Example:

Lifetime maintenance cost: $600.00

Maintenance cost per hour: $600.00 divided by 750 hours = $0.80 per hour

3. Calculating Running-time Fuel Consumption cost-per-hour (RT/FC CPH)

Formula: Determine how long one gallon of fuel lasts for the piece of machinery. Divide the price per gallon of the fuel by the hours used each day.
Example:

Cost per gallon of fuel: $2.50

Running-time fuel consumption cost-per-hour: $2.50 divided by 2.5 hours = $1.00 per hour

Total Cost-Per-Hour: $1.47 Acquisition cost-per-hour (ACPH)$0.80 Maintenance cost-per-hour (MCPH)

$1.00 Running-time Fuel consumption cost-per-hour (RT/FC CPH)

$3.27

Let's look at another example, this time determining the cost-per hour for a compact tractor.

Purchase Price: $23,000.00

Interest: $ 5,520.00

Salvage Value: $ 8,000.00

Life Expectancy: 3,000 hours (300 hours per year for 10 years)

Lifetime Maintenance Cost: $18,000.00

Fuel Price: $2.50 per gallon

Fuel Used per hour: 1.5 gallons

Acquisition cost-per-hour (ACPH): ($23,000.00 $5,520.00 - $8,000.00 = $20,520.00)

$20,520.00 divided by 3,000 hours = $6.84

Maintenance cost-per-hour (MCPH): $18,000.00 divided by 3,000 hours = $6.00

Running-time fuel cost-per-hour (RT/FC CPH): $2.50 divided by 1.5 hours = $1.67

Total Cost-Per-Hour: $6.84 $6.00 $1.67 = $14.51

Notes: Your dealer should have data regarding estimated lifetime maintenance cost and fuel consumption. If you buy used equipment, cost it out using the "new" purchase price. The total cost-per-hour is usually the same for new and used equipment, and useful life, repair and maintenance costs, are easier to determine for new equipment. Using the new purchase price also automatically adjusts your rates for inflation and price increases.You can cost out leased machines using the same formulas and adjusting the life expectancy, lifetime maintenance and fuel price, to account for the shorter term.

To determine fuel cost, you can also fill up the tank and divide the fill-up price by the total running hours.

Even if you prefer to base your estimates on a per-labor-hour rate, the Cost-Per-Hour method prevents you from understating or overstating the actual equipment cost for the job being bid.

You can verify your Cost-Per-Hour figures in several ways:

Compare your hourly rates to those of your local equipment rental company. Reduce their rental rates by 40-50% to remove their markups. Your rates should be reasonably close to theirs. Contact your local dealer to verify maintenance costs, production rates, fuel consumption, lifetime hours, etc. Contact your local Department of Transportation (DOT) office, they have manuals containing CPH data for maintenance, and will often share these figures with you for comparison purposes.

Ways in which you can reduce your Cost-Per-Hour figures:

Take advantage of multi-unit discounts offered by some manufacturers. Check with your local dealer about new engine technologies. Use the CPH calculations to develop a better understanding of which piece(s) of equipment will lower your field operation costs over time.

You can also use the Equipment Cost-Per-Hour (ECPH) to develop a better understanding of which pieces of equipment, or brand, could actually lower your field operation costs over time. By matching up the purchase price of several different pieces of machinery against long-term variables, such as annual maintenance cost and serviceability, production rates, fuel costs, etc., the ECPH will help you to confirm the truth of you get what you pay for.

Armed with the knowledge of equipment cost-per-hour, bring this into your accounting program and job costing. This will help you to take the "guess-work" out of future bidding and increase your company's bottom line.

Once you know your Equipment Costs per hour, use QuickBooks to track these costs for job costing purposes by downloading our FREE 17-page eBook "Advanced Job Costing - Getting Equipment Costs into Job Costing" by clicking here.

Nancy Smyth is a Certified QuickBooks ProAdvisor and Intuit Gold Developer specializing in offering QuickBooks users an easy and efficient means of complying with Federal and State Prevailing Wage Laws and generate certified payroll reports from QuickBooks data. For additional information on Certified Payroll Solution - which integrates with QuickBooks, visit http://www.sunburstsoftwaresolutions.com.

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Accountancy Services Delivered Online

Over the past thirty years of so, we have seen the dramatic growth in computer technology. This of course brings with it many problems, but on balance makes life easier. This revolution has also changed the accountancy world. With the advancement of technology accountants are now able to deliver many of their services to clients without the need to meet with them face to face. This means that it is now practical for many accountants to deal with their clients on a national or international basis.

As such many firms of accountants have developed their services so many of them can be delivered remotely online. This can be particularly beneficial to owners of businesses that spend a considerable amount of time working away from home or prefer to deal with their accounting issues at a time that suits them.

Although many accountants offer this service it is understood that most business owners, and indeed accountants, prefer to deal with matters face to face wherever possible. However, it is worth considering the potential benefits.

What are some of the benefits?

Your accountancy/tax/business affairs can be dealt with by you at a time to suit you You can choose a firm of accountants that are based in an area of the UK with relatively low overheads, keeping their fees very competitive It reduces any commuting time to see your accountant It is normally possible to meet face to face if this is required Information can be transferred instantaneously over the internet How does it normally work?

The accountant tries to deal with most communications by email You should have a Director of your firm overseeing their service to you, who you will be able to contact by telephone The quality of the accountant's advice should remains at the standard at which services are normally delivered.You may wish to consider keeping your accounting records online

There are now a number of electronic book-keeping packages that are accessed over the internet. As such, you would be able to login to your accounting software package at anytime and anywhere in the world where there is an internet connection. The use of such packages is rapidly expanding. With many of these packages, it is also possible for your accountant to login to your data to give you remote assistance or business advice. Another advantage is that, as your data is normally stored remotely and backed up, there are less concerns over backing up your files.

If your business is based in an expensive area of the UK then it may be worth considering using an accountant in South Wales, where the professional fees may be cheaper and the service may remain unchanged.

Harries Watkins Jones, South Wales Chartered Accountants with offices in Bridgend and Pontypridd.

http://www.hwja-accountants.co.uk
http://www.accountants-bridgend.com

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