What are the 4 Stages of Accounting?

accounting desk

Accounting can be a simple or complex task depending on the size and complexity of a company and the skills of whoever is in charge.

As discussed previously in our blog “Can I do Bookkeeping Myself?”, we uncovered why so many business owners eventually hire a bookkeeper and the benefits it brings.

However, regardless of hiring a bookkeeper or keeping track of your company records yourself, it’s important to know the 4 basic stages of accounting to gather a better idea of the field.

4 Stages of Accounting:

1) Recording Transactions

The step of recording transactions is typically what people refer to as “bookkeeping.”  Every transaction that occurs within a company, whether within or out, will be recorded by a company’s bookkeeper. This process is usually done systematically over time in chronological order as the transactions occur.  Every single activity that affects the business in any way will be recognized and recorded.

In today’s technological era, everything gets recorded in software as opposed to the ancient way of recording by hand physically. While recording all the transactions, bookkeepers will often utilize the company bank statements, credit card statements, receipts, checks, invoices, assets, and liabilities.

To ensure this process goes smoothly, clear communication is needed between the bookkeeper/accounting department and the company’s management.

2) Classifying Transactions

Classifying transactions involves grouping similar items in designated accounts within the company ledger. A company ledger is the book that all transactions are recorded within each designated account. You may think of the ledger as a book with a table of contents and accounts as the titles within the table of contents. Examples of types of accounts include titles like, “Sales,” “Automobile Expenses,” and “Office Expenses.”

Accountant/bookkeepers may say things like, “Let me know so I can classify it correctly” and “We already booked it.” These phrases are regarding recording and classifying company transactions.

3) Summarizing

Summarizing is the stage of ensuring all the transactions are presented in a way that can be used for the final step of interpretation.

Summarizing occurs after each accounting period. This period is up to the company’s management to decide. It can be monthly, quarterly, bi-annually, or annually. It’s important to remember that a frequency which will best aid decision making should be determined. Companies typically do not choose annual periods since it creates large gaps in decision making and slows company growth.

Financial statements such as an income statement, also called a profit and loss (P&L), balance sheet and cash flow statements are helpful tools that summarize the data. Charts and other supplemental visuals may also be utilized.

4) Interpreting Financial Data

Interpreting financial data is the crucial step for decision making and creation of company goals.

This step will often utilize an accountant’s expertise and company management to analyze the financial status of the company and plan what can be done to meet goals.

 

Need help with one or all the stages? Speaking to a skilled professional will help you reach a solution that works best for you. Contact us today to set up a 1:1 consultation.

Can I Do Bookkeeping Myself?

bookkeeping

Can I Do Bookkeeping Myself?

 Ah, yes. A question every business owner likely asks themselves at one point early in the life of their business.

Let’s get straight to the answer: Yes, you can do bookkeeping yourself, but only to a certain point.

Many small business owners will likely start out doing their own business bookkeeping. This could work early on when a business has just begun and has minimal activity going on. Owners can research and familiarize themselves with the basics of bookkeeping and accounting to try to get started. However, as a business grows, hiring a bookkeeper leads to many benefits that owners will eventually realize.

Benefits of Hiring a Bookkeeper:

Time

Time is precious, especially for a busy business owner. Once a company begins to have too many transactions and expenses, bookkeeping can become a time-consuming task that owners eventually do not have time for.  Having a dedicated bookkeeper will ensure that the owner gains time to focus on more important business tasks.

Expertise

Bookkeeping may be simple early on, however as a company grows it can become a complex task. A skilled bookkeeper will come with the expertise needed to record activities properly and prepare financials with accuracy.

Not Missing Out

When you hire a qualified bookkeeper, their expertise will allow business owners to take advantage of various methods to book expenses and record activities strategically. This means you won’t miss out on future tax benefits that could be unveiled in the future.

Proper Software

The software needed to keep track of the company books is important to sustain long-term business growth. Early on having an Excel sheet or manually recording expenses, may work. However, overtime as activity continues to duplicate, an accounting software such as QuickBooks, is needed to store the company’s history and prepare the books with accuracy.

Insights

When you hire a bookkeeper, you will have constant access to your company financial statements. Important statements owners will benefit from analyzing are the profit and loss statement and the company’s balance sheet.

Your bookkeeper will prepare the financial statements and with their help, or an accountant’s guidance, owners can gain insights into their company’s financial standing to make better business decisions. This will help uncover company strengths and weaknesses to discover methods to sustain or change to create and reach goals.

Audit Protection

Having a bookkeeper will help shield your company in the unfortunate situation of an IRS audit. This is one of the most daunting and stressful events that can occur as a business owner. However, with a bookkeeper who is familiar with the rules and regulations of accounting, your company should be following regulations that will prevent and protect you from audits.

Having financials that are ready to present due to regular bookkeeping will lighten the stress during the time of an audit. No need to stress when your company has been well prepared and following regulations regularly.

Help You Save

Having your own bookkeeper can help save you money. By discovering company insights and preventing costly audits, the investment you spend on a bookkeeper can help you save down the line.

Peace of Mind

Owners typically gain peace of mind when a skilled professional is hired to take care of their bookkeeping. They will gain the above benefits and can focus energy elsewhere. Peace of mind has no price tag.

 

Need to find a bookkeeper to partner with you and your business? Contact us today and we’re happy to explore what will work best for your needs.

Are Accounting and Finance the Same?

Introduction

 

Accounting and finance are two fields of numbers that are often used interchangeably.  Although they may seem like similar fields and work well together, they have their own distinctions and do not perform the same activities.

A handful of clients will come and ask us to perform their accounting services and manage their finances. It may all seem like the same thing, but this article will dive deep into why the fields are so different but work so well together.

What is Accounting?

Accounting is the process of recording and categorizing business activities to create financial statements which are used to make business decisions. This activity captures moments in time for a particular business.

Accounting can be further split between managerial and financial accounting.

What is Finance?

Finance is the field of wealth management that explores how an individual or business generates and uses their profits. This field utilizes functions such as borrowing and investing.

Finance can be further broken down into public, corporate and personal finance.

Accountant vs Fianancial Analyst

An accountant will perform the day-to-day tasks required to create company financials. They are focused on balancing the books and following legal regulations to ensure accurate company records. Accountants are also typically responsible for tax preparation and may recommend certain strategies to improve company profitability and strategies to decrease tax liability.

A financial analyst is focused on the company’s overall financial health and is responsible for managing investments and ensuring adequate cash flow. They continue to project outwards and forecast the future to predict a company’s financial standing to meet goals.

A Simple Distinction between Accounting and Finance

Accounting is rooted in the past; finance is rooted in the future.

Accounting focuses on accurate reporting of what has already happened in the past.

Finance focuses on the future and how to grow the pot of money.

Both Fields Help Business "Growth" Differently

When we use the term “grow” specifically for the finance field, it is regarding literally increasing capital that you have with methods that are unrelated to your daily business functions/service/product.

For example: You may utilize a money market account to generate more interest than your bank’s savings account. You are playing with the money at hand, not with your business’s daily functions.

When we use the term “grow” specifically for the accounting field, it is regarding utilizing or changing daily business functions to improve processes within the company itself.

For example: You may discover certain expenses you have could be cut and make strategic decisions to increase your profitability.

Both fields can forecast to help you “grow” with the specialties each field has. The distinction is between the types of strategies used within each field and different methods of growing.

How do Accounting and Finance Work Together?

Accounting will do the daily, detailed grunt work that is needed to make decisions and grow.

Finance takes the end product that accounting creates to determine what is needed to create more capital in the long-term and mitigate losses.

For example: If you are a business owner and made $20,000 in net profit at the end of the year, you may want to put a portion of that profit aside to invest. Your accountant will create the financials needed for you to realize what your bottom line is ($20,000). After that, you may want to consult a financial advisor to determine what kind of investment you may consider such as stocks, bonds, EFTS, money market accounts etc.

Often, business owners may want to invest because they know they may not use the extra funds anytime soon and would rather have the capital grow over time to generate more compared to the minimal interest a bank’s typical savings account may generate.

Although the example detailed above is a specific instance where accounting and finance mesh together, these moments occur frequently and having the knowledge of how the two differ and interact will help when determining what steps you’d like to take within your personal and professional lives.

 

What is Managerial Accounting?

“Creating value through values” is today’s guiding statement in the world of accounting and business decision making. It is a strategic tool to propel business owners to make justifiable decisions. As a business owner, or someone simply interested in this field, it’s imperative to understand the basics behind accounting -not only for the success of the firm but to have a better picture of what’s going on to stay competitive within the market.

What is Accounting?

Accounting is the process of recording, estimating, summarizing, organizing, and analyzing financial transactions.

It is a fundamental aspect of every business, regardless of size or industry. Accounting serves as an important tool to track profitability and expenses to make informed decisions to stay relevant within the economic environment.

 

Financial Accounting vs Managerial Accounting

Financial accounting encompasses reporting financial information to external parties like stockholders, tax authorities, and regulators. It is primarily designed for decision makers outside of the company.

Managerial accounting is concerned with providing information to managers within a company. It is primarily designed for decision makers within a company.

See the table below for a quick overview of how financial and managerial accounting differ.

*GAAP is an abbreviation for generally accepted accounting principles

*IFRS is an abbreviation for international financial reporting standards

Both GAAP and IFRS are rules accountants follow to present financial statements to the public.

The 3 Main Functions for Managerial Accounting

Managerial accounting has three vital functions for management: planning, controlling and decision making.

Planning

Planning is an important process to set goals and think about the future. Typically there are budgets utilized within the planning process. These budgets help allocate funds to appropriate sectors that will accomplish a company’s goals.

Controlling

Controlling is the process of gathering and evaluating real life information to respond accordingly. This process typically involves the use of performance reports which compare budgeted data to actual data to draw insights.

Decision making

Decision making is perhaps the most important step that drives future success. In this stage, a manger may ask questions such as: “What should we focus on selling?” “Who should we be targeting?” and “How should we execute?”

 

Why does Managerial Accounting Matter?

One might wonder why this subject matters to them, especially if they are not in the field of accounting themselves. However, managerial accounting is important to more than just accountants. Every business student will typically take a course in managerial accounting because it will help them build their understanding of the field and how it affects business as a whole. Becoming familiar with this subject will allow one to become more adaptable -a trait that every business owner could benefit from. Knowing how to plan for unpredictable/challenging times is important in every type of business, job, and position.

The field of accounting affects all the sectors of business such as marketing, supply chain management, and human resources. Planning, controlling, and decision making will be crucial to strategic management within every part of business. Although each business has its different departments, they all work together as a unified whole to help a company reach it’s needs.

Managerial accounting will allow managers and other stakeholders to “create value through values” and drive decisions to flourish long-term.  

Congratulations to Thalia Hagopian

On June 17th 2023, Thalia Hagopian received her Master of Business Administration degree from the UC Davis Graduate School of Management.

She completed her 2-year MBA program in 18 months while working at the firm full-time. She was also the youngest graduate in the class of 2023!

She says she now feels confident to continue pursuing her dreams and taking V&R Associates to the next level.

Her biggest takeaway was not only diving deeper into business management to become a better manager, but to be a genuine leader.

We are so blessed to have a team member as driven as Thalia.

Our team is all proud of her accomplishments and congratulate her for this milestone achievement!

Photo Gallery:

Read more from Thalia’s perspective here.

Founder Viviane Hagopian Honored for Service to the Community

On May 18th 2023, V&R Associates founder Viviane Hagopian was honored for her dedication and service to the San Diego community.

An extravagant luncheon took place in Burbank, California organized by the Western Diocese  of the Armenian Church of North America and Mexico. There were 5 honorees total from various locations and Viviane was the only one from San Diego. His Eminence Archbishop Hovnan Derderian (Primate of the Western Diocese) congratulated the honorees for their “steadfast support of the Armenian Church and Armenian-American community.”

Viviane Hagopian was particularly recognized for her dedication to the San Diego community. She has volunteered for decades and served as a primary role managing the accounting and financial records for the first Armenian Church establishment in Del Mar; which originally began in North Park. This vital role ensured the community would propel forward as they embarked on a journey to build a community campus which will one day have a youth center and retirement home open to all San Diegans.

Besides her dedication to the accounting of the Armenian community, she has volunteered in various other forms as Principal of the Sunday and Armenian school of San Diego and organization of the community annual galas which have raised millions throughout the years.

Pastor of the St. Sarkis church, Very Reverend Father Pakrad Berjekian publicly writes to Viviane praising her efforts to the community explaining, “You have selflessly offered your invaluable talents as an accountant, playing a vital role…your unwavering devotion and tireless efforts have left an indelible mark on the community and it is only fitting that we come together to honor and express our deepest appreciation for your remarkable service.”

The Pastor continues, “You have consistently demonstrated unbiased trust, objectivity, professionalism, and transparency in all aspects of your voluntary work…Your meticulous attention to detail and financial expertise have contributed immensely to the growth and stability of both churches…[we] are truly blessed to have you…”

The luncheon consisted of special certificates of commendation, one which was blessed by the North American Archbishop and another which was signed by the Los Angeles 5th district supervisor, politician Kathryn Barger.

Various other ceremonial practices took place with an appreciation video honoring her years of service, celebratory dance performance, and 2.5-foot cake that was cut to serve approximately 200 attending guests.

This type of recognition is rare in its nature and truly demonstrates the heart of gold our founder has always had. The V&R Associates team is truly honored to have Viviane Hagopian as not only a leader of the firm, but inspiration to all.

More photos and videos here.

5 Things to Avoid when filing Taxes

  1. Utilizing the wrong form and/or filing status. Be careful to know which forms and status to file with.

  2. Lack of organized documents. This can lead to missing crucial parts to file your taxes correctly! Have your backups and forms organized.

  3. Under reporting expenses. This will cause you to pay more taxes than you might need to!

  4. Under reporting income. Don’t do this! Depending on the situation, it can open up room for audits as the government has a way to track income.

  5. Last minute panic! Plan ahead and don’t leave it until the last second! No need to panic when it’s planned out.

When in doubt, we advise you to always consult with a professional tax preparer!

Need help? Contact us anytime. Let’s chat!

How can I get my taxes done?

A simple question we get asked frequently and it’s really quite simple.

Once you have all your documents ready, please mail them physically or electronically (PDFs please). We can also pick them up from you if you’re a San Diego local (whatever is most convenient).

If you’re unsure what to send us, we can chat on the phone and/or send you a list of all documentation needed.

If you’re a new client, please provide us a copy of your last year tax return, so we don’t miss a thing!

As soon as we get the information needed, the processing time is typically a week. If your case is complex or more information is needed, we will contact you.

After your taxes are ready, you will receive a DocuSign and then they’re sent! After that, you’ll receive a copy of them from us for your personal records.

That’s it! Really quite simple and we’re here every step of the way.

Registered Tax Preparer (CRTP)-CTEC ID #A281264