Business Accounting Software: Important Things to Keep in Mind

Business Accounting Software: Important Things to Keep in Mind

Business accounting software is integral to the operating performance of a company. The accounting practices and standards should make things transparent, not opaque. Even public companies often use accounting methods and techniques that can make it harder to evaluate companies. 

The business accounting software needs to clearly establish financial metrics and operating performance measures for a company’s management. Business accounting can uncover the underlying levers that can improve the performance of a company, it can also help the company find the right growth areas to focus on. Here’s a look at some of the important metrics for business accounting.

Estate Planning 

Estate planning is one of the integral issues in running a business. Whether you are going to lease an office, build your own office, or purchase properties for your business, tax considerations and capital spending needs to be assessed. 

If your business generates good cashflow and your real estate investments can be recovered with earnings from your business, it is better to invest in land and real estate. If you are not sure about the cashflows or your market position, your business can opt for short term leasing options. 

The estate planning considerations can be assessed from the earnings or the profitability of a business. There are incentives for constructing your own office and capital spending that can be claimed by your company. A good business accounting software will be able to show you the projections and benefits of leasing or buying your office property. It can also show you cashflows, interests, capital taxes etc. to take the right decision for your business.

Earnings from Fixed Assets

The fixed assets for a business typically account for its capital spending. Whether a business spends on its property, plant, equipments, computers, furniture and fixtures etc, it shows up on the balance sheet in the fixed assets column. 

The fixed assets of an organisation are however mis-reported by many of the businesses, the fixed assets could be either undervalued or overvalued most of the time. The incorrect value of fixed assets leads to incorrect assessment of the net worth of a company. 

Take the e.g. of a company that invested in fixed assets whose value grew by 10X. These assets however are still reported with X value of the balancesheet. This leads to an incorrect networth of the business by 9X value. The realtime fixed accurately provides the networth of a business. 

Business accounting software can provide automated triggers for fixed assets appraisal. There are tax implications with revaluation of fixed assets too, these are reported under earnings header. A good accounting software can help the company maintain its financials upto date with highest accuracy that reflects the true value of its business.

Work in Progress & Inventory Surplus

The inventory value has a direct bearing on your income tax bills. For companies that operate with high inventories, they can incur signficant taxes upfront. However, business accounting software can help companies optimise their inventory value. It ensures optimised procurements using predictive demand forecasting.

The inventory value like the fixed assets needs to be reported real time. Many times, companies report the old inventory values that don’t reflect the present values leading to lower than actual inventory values. The underreporting of inventory values decreases the networth of a company. There could also be damaged or obsoleted inventory items that can be claimed for writeoffs to reduce the taxes. 

Business accounting should be able to provide reports regarding inventory value as on date. The AI based algorithms can show price revisions and value updates wherever required for inventory surplus. These are similar to fixed asset revaluations. The net effect of inventory and fixed asset revaluations can change the income tax bills for an organisation drastically.

The work in progress reports the ongoing projects for an organisation. These projects show up on the current assets column of the balance sheet. An accurate assessment of inventory value and work in progress items leads to an accurate balance sheet.

Tax Estimators & Checklists

Business accounting software can help companies manage their tax calculations in advance. The checklists and compliance calendars can be used by companies to plan their taxes. Companies can get assistance in some of the following aspects:

Is your company entitled for writeoffs? 

What are the types of subsidies available for your organisations?

What are the types of equity shares that incur no taxes?

What are the R&D waveoffs that your company qualifies for?

Are you compliant with federal, states and city tax authorities?

Are you managing full time employees & contractor compliances separately?

What are the capital taxes involved in your business for leases, properties and infrastructure costs?

The writeoffs, R&D expenses and financial reportings for various authorities can be managed with an accounting software. The tax estimator function can help companies calculate their taxes proactively. It mitigates last minute surprises for an organisation and helps them employ their cash effectively. 

Business accounting software can also be used for managing the payroll for the employees & payments to contractors. The taxes for the full-time employees and contractors vary drastically. They also need different compliance forms, which can be managed with an accounting software. 

Recognition of Revenues & Expenses

Many companies fail to report their incomes and expenses with accuracy. For e.g. if companies change the accounting period for an expense, it can change the earnings for the company. It leads to poor financial reporting and incorrect estimation of the company value. Business accounting software can automate revenue recognition as per applicable US standards defined in Section 446 for tax accounting. 

The accounting methods can be chosen to accurately determine the revenue and expenses for the applicable periods. The depreciations, tax write offs, revenues, expenses, credits etc can be calculated using the standard tax laws mandated by the IRS. 

The US tax laws make computation of the taxable income transparent. The writeoffs, R&D credits and carry forward of losses etc. can be done as per the tax accounting rules. Business accounting software can help to automate calculation of earnings and taxes that need to be paid by the organisation.

When companies report large income from adhoc sources instead of core business, it can be flagged to the management as a red flag. The checks and balances for any anomalies can be checked using the software. 

Enforce Accounting Standards 

Accounting standards can be enforced for a company using business software. Many companies use off balance sheet items, it leads to an inaccurate picture of an organisation. For e.g. a company could be sitting on huge piles of cash, but they are not captured on the balance sheet. There could  also be long term liabilities and debts not captured on the balance sheet.

Business accounting software improves compliance, mitigates risk and uncovers growth opportunities for an organisation. For e.g. SMBs are entitled  to receive a tax exemption on equity gains worth up to $10 million or 10 times the original investment, whichever is greater. There are opportunities to find growth levers for growth depending on how the company was setup and incorporated. 

Business accounting software helps companies uncover ways to improve their cashflow by taking advantages of the IRS schemes. These tax cuts, incentives and subsidies can have a major impact on the runway for the organisations.

 

Kreyon Systems offers end-to-end business accounting software. The solutions are geared for bookkeeping , accounting, compliance management & financial reports. If you need any assistance, please get in touch with us.