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12 Areas to Include in Your Financial Management Operations Manual

December 19th, 2011

From a process perspective, Financial Management is the easiest and simplest business process to take care of no matter what business you’re in. But it’s often the most avoided and neglected area of any business. So why is that? Well, in my experience it often comes down to our fears around money.

The best way to tackle fear is by using knowledge. Not avoidance. I work with many clients who at first will try their absolute best to avoid looking at their numbers, or not paying attention to it, in the hope that it will go away. But unless we know where you’re at right now, there’s no way we can improve it. This is where putting together a financial management process and documenting this in a financial management operations manual can be of huge benefit both to yourself as a business owner and to your business!

The type of Financial Management process that I take clients through is a method that I devised because I was probably way behind where you are now. It comes down to understanding some simple systems that you can then enhance to build your very own financial management process. Then putting that knowledge into a financial management operations manual so that your financial records are maintained in a consistent manner that you can get the information you want.

I have to be very clear with you here. I am not an accountant. My understanding of financial management comes from learning the hard way – by it costing me a fortune to NOT know. So over time, I developed my financial know-how and then devised systems and procedures to help me to be able to better manage my business finances.

And by the way, I have always had great financial people on my team. But they are made great by the fact that I have a system that they follow. This ensures that my data is recorded in a consistent manner, and that I’ve got my finger on the pulse of my business by having all the right reports available at the right time.

By Tabitha Wellman

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Online Resources Make Financial Accounting Easier and Cheaper

October 20th, 2011

Anyone who’s interested in running a business will need one very important thing: to learn the right accounting processes. Accounting is crucial to any type of business as this will show how profitable a company is. Just because you see there is money being paid on a regular basis doesn’t mean your business is doing very well because you have to take into consideration the expenses you have. Investors and stockholders need to know how the business is doing through financial statements. This is the reason every business owner has to at least know the basics of financial accounting. It is essential that you adhere to the Generally Accepted Accounting Principles guidelines when it comes to financial accounting.

To be frank, it’s not easy to record every single transaction. Accounting requires more than that. You’d have to keep tabs of the expenses and revenues on a certain month. You need to prepare balance sheets and income statements. These aspects of business accounting can be really hard to do if you don’t know much about the basics of financial accounting. Some business owners don’t even understand how to apply the accrual or cash method when recording how much has been spent and earned in a particular month. Without implementing a system in recording the money that goes in and out of a business for a particular month properly, it will be extremely hard to prepare financial statements. As a result, there is no way to identify if the business is actually making a profit, or already close to insolvency. Most companies would hire certified public accountants to help make the accounting aspect easier to handle. These experts know how to take care of every transaction, record expenses and revenues, and produce important financial statements without difficulties. With their training, skills, and experience, businesses will be able to properly and efficiently monitor how they are doing financially.

However, not all businesses can afford the salaries of such experts. This is why small businesses turn to financial accounting software. These programs can be easily downloaded from the internet. It’s like having your personal accountant who will do everything needed without a high price. Yes, it can be very hard to understand at the beginning but these resources are designed to make learning the concept of accounting a lot easier and bearable. With time and enough patience, you will be able to do accounting for your business properly.

By Ana Orwel

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Financial Accounting Course – Bank Reconciliation

October 9th, 2011

Financial accounting has different topics and one of them is Bank Reconciliation and its preparation. In this article you will explore this concept and find some examples which can be appear while reconciling cash book and bank statement in practice. Such exercises is done on a monthly basis, therefore is quite important.

Concepts

Considering the concept of Bank Reconciliation, it relates to the end of the accounting period, when we need to compare Cash Book and Bank Statement balances and clarify differences between these two balances. In practice it is a very rare case when these two balances are be equal, therefore reconciliation process is important and to be done at the end of each month.

During the Bank Reconciliation process we will need to identify types of the differences and decide whether adjustments to the cash accounting records are needed or not. Necessity to make such adjustments depends on the type of difference, i.e.:

  • Informational difference – it represents information which is included into the Bank Statement, but not reflected in the cash accounting records.
  • Timing difference – it is caused by different timing in recording items in the Cash Book and Bank Statement. No adjustments are made and these items are only explained in the Bank Reconciliation.

Examples

As mentioned difference between cash balance in the accounting book and balance in the statement from bank might be caused by certain items, which are not included into the cash accounting records during the accounting period, but need to be included.

The examples can be:

  • mistakes – items erroneously committed,
  • payments made directly to the bank account,
  • payments made directly from the bank account,
  • bank charges.

All these items have to be included into the Cash Book before preparing bank reconciliation. Therefore we start from the unadjusted Cash Book balance and record adjustments. Only adjusted balances goes to the Reconciliation.

Afterwards we proceed with timing differences. The examples are checks recorded in the cash book, but not yet presented to the bank at the end of the accounting period or checks proceeded by the bank, but not yet recorded in the cash accounting records.

To make a reconciliation between the accounting records and bank statement, we proceed further with the adjusted cash book balance, add or deduct timing differences and get the final bank statement balance. All the reasons for timing differences have to be explained in this process.

By Ana Orwel

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