Five Types of Depreciation

Over the useful life of an asset, there will be some depreciation in its value. Due to wear and tear, the asset value of an item will decrease. There are many ways to determine the depreciation value of an asset. Some of these depreciation values are only applicable to specific industries. With these depreciation methods, you want to make sure to choose the one that offers the best economic benefits for your company. Here are a few tips that you need to know about calculating the depreciation value of your assets.

Five Types of Depreciation

Before you can calculate depreciation, you should know about the various types. There are five types of depreciation, including:

Units of productions
Straight-line
Sum of the years’ digits
Declining balance
Double-declining balance

Let’s look at how to determine these values.

Units of Production Depreciation Method

This depreciation method uses the expected number of units produced as the basis for your calculation. With units of production depreciation, the more units made, the more depreciation expenses can be charged. The depreciation expenses are calculated using the total number of units produced in a certain period of time compared to the expected number of units that the asset will produce over its useful life. You can use that rate to multiply with the asset net cost. Make sure to use the following formula:

Depreciation expense = unit production rate / units produced x cost + residual value

Between all of the depreciation methods, the units of production depreciation model are the most difficult to determine because the company must decide how many units the asset can produce over a specific period. For example, if your company purchased a machine for $40,000 and was expected to produce 1,000 units over its lifespan, it has a residual value of $2,000.

Straight-Line Depreciation Method

Straight-line depreciation is a little easier to determine for your business. This method spreads the costs of assets evenly over the asset’s useful life. The depreciation expenses are fixed for every year. With that, the depreciation expenses are the same from the first year to the end of its lifespan. Straight-line depreciation is the most common depreciation method used by companies and accountants. You can determine straight-line depreciation by using this formula:

Depreciation expenses = fixed asset cost – residual value / useful life

For example, a company bought a delivery truck for $45,000 and planned to use it for five years. When the company is ready to sell after the period, they list it for $1,000. The straight-line depreciation would determine the depreciation as $45,000 minus $1,000 and multiply by 5 (years). The depreciation value would be $8,800.

Sum of the Years’ Digits Depreciation Method

The sum of the years’ digits method for depreciation focuses on the fact that the fixed asset’s productivity will decrease over time. The depreciation amount of the fixed asset is higher in the early years, and depreciation will reduce as time passes. The type of depreciation sums up each digit of the year, from the ending years to the first year. For example, if your asset has a useful life of five years, the sum of the year’s digits depreciation would amount to 15, which comes from 5 + 4 + 3 + 2 + 1 = 15.

Declining Balance Depreciation Method

The declining balance depreciation method reduces the net book value of the fixed asset by a fixed percentage rate. With these methods, the depreciation amounts tend to be higher in the early years of the asset. The amount of the depreciation will decline or reduce as time passes. The method assumes that the fixed asset is more beneficial to a company when it is new. Declining balance depreciation uses the following method:

Net book value = cost – accumulated depreciation

For example, if a company bought a machine for $25,000 for production, they can expect the device to last for eight years with a residual value of $800. The company estimates that this machine will depreciate at a rate of 35% on an annual basis. The depreciation value will stop when the net book value is less than the residual value. In this case, the net book value would occur after the eighth year, when the depreciation value is $797. If the asset does not have a residual value, the depreciation will stop when the net book value is insignificant.

Double-Declining Balance Depreciation Method

As the name suggests, double-declining balance depreciation reduces the net book value of the fixed asset by a fixed percentage rate. The fixed depreciation rate for this method is double the amount of a straight-line depreciation rate. Along with that, the double-declining balance depreciation method also charges a higher depreciation amount in the first years. The formula to determine double-declining balance depreciation is as follows:

Depreciation expenses + net book value + depreciation value

For example, when a company purchases a computer, they expect to use it for about four years. By the time the company sells the computer, the company expects the sale price to be $150. Before you can determine the double depreciation rate, you need to figure out the initial depreciation rate, which would be four years = 1/4 = 25%. After that, you can determine the double depreciation rate at 25% x 2 = 50%.

Why You Need an Accountant for Determining Depreciation

As you can already tell, determining the depreciation value for your asset can be a challenge. While some formulas are easy to calculate, others can be highly complicated. An accountant knows which formula to use for your business. Plus, these professionals have experience calculating these numbers to get the correct amounts for your depreciating values. If you want a reliable way to calculate deprecations, make sure to use small business accounting services.

Need an Accountant for Your Small Business?

Depreciation can be tricky to calculate for your business. For that reason, you will want to speak to an experienced accountant. At TMD Accounting, we have over 40 years of experience in Gloucester County. Our team has helped individuals and small businesses manage their financial books. You can schedule a consultation by calling 1-856-228-2205.

14 Feb

How is the Depreciation of Construction Equipment Calculated?

When you think about depreciation, it sounds like a complicated business term. Once you understand how this term is essential for your construction company, you will come to appreciate depreciation. Construction equipment costs money. When equipment is sold, the price diminishes. Depreciation is the value deducted from the initial costs over the lifespan of the equipment. If you want to calibrate your equipment’s depreciation accurately, make sure to keep reading this article.

What Is Equipment Depreciation?

Equipment depreciation shows how much value your equipment loses on a yearly basis. Unfortunately, your equipment is worth less than when you first purchased it, no matter how much you maintain the asset.

With depreciation, you can tell how much value your asset loses over a period of time. Depreciation allows you to plan for maintenance. In some cases, it might not be a financially feasible decision to maintain the equipment when the asset loses much of its value. As the older equipment breaks down, it is often a wiser choice to purchase a newer model.

Along with that, depreciation can help with your taxes. You may be able to write off the equipment as a company expense, saving your business money. In some situations, you can choose to spread the costs over several years instead of making a one-time payment. With depreciation, you will need to determine the exact costs of your construction equipment to figure out its value.

What Information Is Needed To Calculate Depreciation?

Calculating depreciation is a straightforward process if you have all the required information. However, there are some criteria. You can only depreciate construction equipment that is expected to last for more than a year. Plus, this equipment must have a useful lifespan that you can put into a number. You must own these assets. Along with that, these assets must be used to help your construction company earn revenue. Any equipment that doesn’t meet all of those criteria cannot have its depreciation calculated. There are several methods to determine your construction depreciation.

Cost Value

If you want to know the value of your construction equipment, you need to know its purchasing price. The cost value is the value of the initial purchase price, including transportation, taxes, and set-up fees. Anything that your company purchases can be considered an asset of the business.

Before you can start depreciating equipment, you need to know how much you paid for it. You want to make sure you have receipts and other proof of purchases for your equipment. For example, if your construction equipment has a purchase price of $5,000, and there were additional costs, such as $400 in taxes and $400 in transportation costs, the total cost of the asset is now $5,800.

Salvage Value

With salvage value, that is an estimated sale amount for your asset. Mostly this value is calculated at the end of its useful life. In construction accounting, you can receive the amount after the typical useful life period of the equipment. If you want to calculate this value, you will need to use this formula:

Salvage value = cost value – (annual depreciation x useful life)

If you have construction equipment that you bought for $200,000, you can use the depreciated value at $18,000 for every year, adding up to a total of $180,000. According to the formula, you should be able to sell the equipment for $20,000 after 10 years. Remember that salvage value is just an estimate.

Book Value

Finally, the book value is the value of the construction equipment used for tax purposes and not the resale value. This value is determined by small business accounting services to find out the amount to write off for depreciation. You cannot calculate the book value of items that do not depreciate, such as money. If you want to calculate book value, use this formula:

Book value = cost value – (annual depreciation x age)

For example, if five years ago, you purchased construction equipment for $20,000, it will depreciate about $2,000 every year. With that, the book value would be $10,000. When you purchase the equipment, the book value is also known as the cost value. After a certain period of time, the book value might only equal the salvage value.

How To Calculate Depreciation for Construction Equipment

Now that you know about values, you can start to calculate depreciation. One accounting term is called “useful life” depreciation. This is how long the piece of equipment is expected to last before you need to replace it. You can measure the useful life in years. Even the IRS uses useful life values to determine how long the asset can be depreciated. The age of the equipment at the time of purchase, equipment usage patterns, and technological advances can affect the useful life of an asset.

Straight-line depreciation is calculated by dividing the cost of the construction equipment by the number of years for its estimated life. The construction equipment will depreciate equally over its useful lifespan with the straight-line depreciation model.

Finally, the declining balance depreciation method is based on an accelerated depreciation calculation. The cost of the equipment is not distributed over a period of time. Instead, the depreciation is determined early in the life of the equipment. The rate of depreciation will decrease over time. Equipment that is used more heavily during the early years of its lifespan will use the declining balance depreciation method.

Determining Depreciation Is Important

With equipment depreciation, you can write off the cost of the equipment over several years. Some methods allow you to determine depreciation at various rates. Figuring out depreciation can be challenging for many construction companies. With that in mind, you might want to let a small business accountant determine those sales for your construction company.

Let Us Help With Depreciation

At TMD Accounting, we have served the Gloucester County area for over 40 years. Our team has helped small businesses and individuals with their payroll, taxes, and other financial matters.

Need an accountant for my small business? Make sure to schedule a consultation by calling 1-856-228-2205.

11 Feb

4 Healthy Accounting Tips for Your Medical Practice

As a physician, the main focus in your practice is on providing high-quality patient care. However, it still makes sense to pay careful attention to your medical practice’s accounting. While you are a doctor, you are also a business owner who strives to operate a profitable practice. Making sure that your practice is successful and highly profitable requires you to keep accurate financial records so that you can see areas where your practice might need tightening. It is also critical for ensuring that you remain compliant with the relevant state and federal tax laws. Here are four accounting tips from TMD Accounting to help you keep your medical practice financially healthy.

Be Careful When Choosing Your Accounting Software.

Many doctors are unsure which accounting software they should use for their medical malpractices. You might think that all accounting software is basically the same and to simply choose the cheapest software you can find. Some doctors rely on spreadsheets, believing they are cheaper and easier to use.

However, trying to keep track of everything on spreadsheets can mean that you are expending too much labor costs and effort, and it can also result in simple inputting errors. Spreadsheets can also make it difficult for you to review your financial information and make fully informed forecasts about your practice’s future.

Choosing the cheapest accounting software off the shelf might also not be the best idea. You need to find software that is relevant to medical practices. When you choose the right accounting software, it can reduce your need to expend added effort, provide you with a better insight into your practice’s profitability, make the tax season easier, and allow you to share information with your accountant via the cloud.

The best way to find the right software for your medical practice is to talk to your accountant and ask for suggestions. At TMD Accounting, we work with many different types of accounting software every day, and we can provide some suggestions about which one will work best for your business.

Choose the Right Accounting Method for Your Medical Practice.

As a medical practice, you can choose from one of two types of accounting methods for your business, including cash basis accounting or cash accrual accounting. In most cases, your practice manager, administrator, or accounting firm will pick the type of accounting that will work best for your medical practice.

No matter which type of accounting method your practice uses, it is critical that your manager has a deep level of understanding of how the chosen method works and the applicable financial terminology used while performing day-to-day operations.

Cash Basis Accounting Method for Medical Practices

If your medical practice uses the cash basis accounting method, you will account for expenses at the time that they are paid. Account receivables will be counted when you receive payments. Most physician-owned medical practices prefer the cash basis accounting method.

If you are using this method, you will receive your payment on a predetermined schedule after all of your practice’s expenses have been paid. It is important for your manager to also think about larger expenses, including your malpractice insurance. Since these types of expenses are normally paid each quarter, it is important for your manager not to distribute money that should be earmarked for these quarterly expenses.

Accrual Accounting Method for Medical Practices

If your practice uses the accrual accounting method, expenses will be accounted for as soon as you receive the bills instead of when they are paid. You will also account for your receivables at the time you send a bill to a patient instead of when you actually receive the payment.

Under this accounting method, your income will have already been accounted for at the time your patients pay their bills. Most medical practices do not use the accrual method because of its difficulty. However, the accrual method of accounting might provide a more accurate picture of the health of your practice at any point in time.

Schedule Profit and Loss Statements

One accounting tip that medical malpractices can borrow from how big businesses conduct accounting is to produce profit and loss statements on a quarterly basis. Depending on your medical practice’s size, your profit and loss statement can be fairly simple or quite complex.

Producing profit and loss statements can be an effective way for you to quickly check the overall financial health of your medical practice. Profit and loss statements help by validating your practice’s daily records, identifying discrepancies, and providing insight into your practice’s patient flow and where you might want to invest money in your business.

While profit and loss statements can be invaluable, most medical practices do not use them because of having fairly simple business models. However, producing profit and loss statements each quarter can provide you with important insight and can be a powerful tool to use for your practice.

Choose the Right Accountant for My Small Business

Many doctors who have their own medical practices are very busy and find accounting to be overwhelming and confusing. If your practice is very busy, your office manager might also have his or her hands full and feel overwhelmed by the practice’s accounting needs. Hiring the right accountant can help to simplify your practice’s accounting and ensure that you understand exactly where your practice is at financially and areas in which improvements can be made.

At TMD Accounting, we offer experienced small business accounting services for medical practices. When you work with us, you can focus on delivering the best level of care to your patients while we handle your accounting. Our accounting services are comprehensive and scalable, and we can customize your services to meet the particular needs of your medical practice. Some of the types of services we offer include accounting and bookkeeping for medical practices, tax preparation, medical practice controller services, and more. To learn more about how we can help with your accounting needs, contact us today to schedule a consultation at 1-856-228-2205.

7 Feb

What are the Major Roles of Accountants for Law Firms?

Accounting can be intimidating even for the most seasoned attorneys. Law school might teach about torts and statutes, but there are no classes for accounting or bookkeeping. Whether you have a small firm or large corporation, accounting is vital to keep your books compliant with ethical rules and prevent you from leaving money on the table.

What Can an Accountant Do?

Accountants play a vital role in almost every business. Law firms are no exception. Many lawyers don’t want to handle monetary transactions or keep up with their financial records. For that reason, they often hire someone to manage those accounts. While you could hire a part-time bookkeeper, law firms should look for an experienced and trusted accountant to address these financial matters.

Legal accounting includes recording and analyzing the financial transactions of the law firm in an accurate manner. These professional accountants can help in other ways as well. They can act as an advisor and interpreter. An accountant needs to have strong attributes like attention to detail, an understanding of business ethics, and excellent monetary skills. These professionals can help finish audits, ready tax returns, and investigate fraud. A legal accountant has many different roles in a law firm.

Legal accounting contributes to the success of the practice. All financial statements need to be accurate, up-to-date, and complete. Your law firm can meet all of those obligations to your clients, partners, and the state bar with a clear financial picture. With all that in mind, here are some of the major roles that accountants can play in your law firm.

Provides Professional Financial Advice

If you are searching for financial advice, a trusted accountant can help with future plans. Accountants track your expenditure and revenue trends. In addition to that, they can help your law firm make important decisions, such as taking out a loan. If there are irregularities or discrepancies in your financial records, an accountant will straighten out those problems.

Helps With Taxes

No one wants to deal with filing taxes, especially busy attorneys. Hiring a professional accountant can help this stressful process become a little easier for your firm. Everyone knows that tax preparation can be a headache, especially if records are not appropriately managed. As a result, your practice might face penalties from the state and federal tax departments. With an accountant, you can ensure that all tax returns are filed and completed accurately and timely. You will not have to worry about missing out on deductions or paying extra penalties.

Deals With Outside Parties

Law firms have to deal with outside parties on a day-to-day basis. An accountant will act as a firm representative while speaking to tax authorities or loan officers. By allowing the accountant to handle these tasks, law firm members can focus on those other duties within the practice. Plus, an accountant can smoothly move these financial issues through the appropriate processes without any snags.

Handles the Law Firm’s Payroll Process

When you have employees, they will expect to be paid promptly. Payroll is a critical process for any business, especially legal practices. With an accountant, you can have a professional manage these processes to pay all your employees correctly and on time. An accountant can also take care of other payroll aspects of your law firm’s business.

Chooses the Right Financial Tools

There are so many choices on the market for accounting tools. It can be challenging to choose the best accounting software option for your law firm. An accountant will help with these decisions. Your accountant understands the needs of your law firm, and they are better equipped with financial knowledge. With that guidance, the accountant can help you find the best software for the practice.

Accounting Practices for Your Law Firm

Need to find a great accountant for your law firm? Before you begin the search, you must understand some basic accounting practices. With this basic knowledge, you can keep an eye on your financial records and understand the processes in your practice. There are plenty of functions that an accountant will handle on a day-to-day basis, including reconciliation and reports, accounts payable, invoice accounting, and financial compliance.

Why You Need a Professional Accountant

You can streamline your books and not worry about those financial inaccuracies when you work with an accountant. Hiring a professional accountant just makes sense for your law firm. As an attorney, there is enough on your plate. You don’t want to add the title of accountant or bookkeeper to your list of responsibilities. Outsourcing these duties helps your law firm focus on growing your practice and assisting the local community.

As you can tell, a professional accountant goes beyond just checking your books. These professionals will ensure that your paperwork and finances are ready for tax season. They can advise you during the process for a bank loan, and accountants are a great option to help with office tasks, such as payroll and revenue tracking. When you need help with those financial records in your law firm, make sure to hire a trusted and experienced accountant for your practice.

Let Us Help With Your Legal Accounting

You want to find the right accountant for your legal practice. Thomas M. Ditullio has nearly 40 years of experience offering small business accounting services. He has built a solid reputation throughout Gloucester County, providing services for businesses and individuals. At TMD Accounting, you can access a wide range of services, including financial management, tax services, and payroll. If you would like to schedule a consultation, please give us a call at 1-856-228-2205.

4 Feb

Bookkeeping in the Medical Office: How to Help Profitability

As a doctor or other medical professional, you mainly focus on patient care. However, your medical practice is still a business, and you want it to be profitable. You can have a thriving practice with a solid business plan and the right bookkeeping system. Before you can do that, you need to keep your financial records in order. Here are a few ways that bookkeeping can help boost the profitability of your medical practice.

Bookkeeping Tips for Your Medical Office

You want to ensure that all of your books are up-to-date and accurate in your practice. If you are a solo practitioner, that can be stressful. There are a few ways to manage your books. First, you need to choose your accounting method. There are two types of accounting practices in the medical industry: accrual or cash basis accounting.

For the medical industry, accrual accounting is the most common form of bookkeeping. With this method, you count for all the expenses when you receive a bill. Along with that, you will note any receivables from your patients at the moment of billing. While using accrual accounting is common, it is not always the best practice.

Some medical practices use cash basis accounting. The method is similar to accrual accounting, but billables and receivables are logged when paid, not received. Many physicians and medical professionals prefer this type of accounting. With that, medical practices will have the most up-to-date view of their finances. There is a drawback. Cash basis accounting cannot help practices prepare for large quarterly expenses, such as malpractice insurance. If you are not careful, big expenses can sneak up in your practice.

Managing Your Practice’s Health

When you accurately manage your books, you can keep an eye on the health of your medical practice. If you want to know the pulse of your business, make sure to create a schedule for profit and loss statements. When you create these statements, you have an overview of your losses and gains. You can eliminate any discrepancies and decide where to invest your money with that information. While these statements are not required to operate a medical practice, they will provide you with some insights into your finances. That information can help you to improve your business.

Now that you know the basics of medical practice accounting, here are a few ways to improve your medical practice’s profitability.

Review Your Fee Structure

You want to take time to review your fee structure. Make sure that you are charging your patients the correct amount. It might be appropriate to bulk bill your patients in some situations, but you need to have strict criteria and policies for this type of billing. Reviewing your fees can ensure that your practice maintains a higher level of profitability.

Control Your Costs

Your medical practice is like any other business. When you manage your costs, you can improve your profitability ratios. Make sure to look at those areas of high expenses, such as rent and wages. While managing wages for a highly trained staff is difficult, you can find ways to reduce rental costs. In some cases, sublet those empty rooms to other practitioners. Not only can you mitigate rental fees, but you will provide better medical options for your patients.

Maintain an Efficient Patient Management System

Matching supply and demand can be a complicated process for your medical practice. You could be the best doctor in the area, but you will not earn income without any demand. For that reason, you need to find the right balance between these two factors. You will want to review your system for patient management. Take a look at your booking system. It might not be efficient at creating appointments. Untrained staff members can also lead to ineffective patient management. For example, they might not know which questions to ask to schedule appointments correctly. Along those same lines, you want to make sure you have medical assistants and nurses to help with patients.

Hire Professional Accounting or Bookkeeping Help

If you are extremely busy, you will want to have someone look at your books. Your primary focus should be on the patients. However, if you don’t spend time on your finances, your practice might not increase its profitability. You will want to work with a professional accountant or bookkeeper. These experts can give you the right advice about your business. Don’t forget that professional accounting services can save you time and money. Plus, you won’t have to deal with the headaches of straightening out your books.

When you have the best medical accounting management for your books, it can help to keep track of those day-to-day transactions. Along with that, the information becomes more valuable as you gain insights into your business. Once you have a clearer picture of your financial health, you can make those decisions that boost profitability.

It never hurts to speak with a professional who can help you take full control of your medical practice. When you partner with a professional accountant or bookkeeper, you will have more time to focus on patient care rather than struggling with the confusing business side of your practice.

Yes, your medical practice can be profitable, but you need the right system and a solid business plan in place. With some accounting and bookkeeping help, you can achieve those goals.

Let Us Help With Those Next Steps

Whether you are starting your own medical practice or need help with an established one, don’t forget about your bookkeeping. There are several areas where you can cut costs to boost profitability throughout your practice. Removing any inefficiencies can turn your medical practice into a successful business.

If you need small business accounting services, make sure to schedule a consultation with TMD Accounting. Thomas M. Ditullio Accounting has over 40 years of experience, and we can help with various services, including payroll, tax services, and financial management. Schedule an appointment by calling 856-228-2205.

24 Jan

How to Do Accounting for Your Construction Business in New Jersey

Construction accounting is very different from those other types of businesses. You must keep track of the accounts receivable, accounts payable, and payroll transactions. Along with that, construction companies need to monitor job costs, change orders, retention, customer deposits, and progress billing. All of these components can make construction accounting a challenging task. Here are a few tips that you need to know about construction accounting.

Record All Financial Transactions

The double-entry methods are the best techniques for recording financial transactions in the construction industry. With this, there must be two entries on the ledger for every single transaction. Some companies track these transactions with the help of accounting software or an outsourced bookkeeper.

Keep a General Ledger and Chart of Accounts

A chart of accounts lists all of your general ledger accounts to categorize those transactions. You have the names and a brief description of every account in the list.

Some of these account types could include:

Current assets
Current liabilities
Equity
Cost of goods sold
Indirect expenses
Administrative expenses

Know the Common Cost Types of Construction Accounting

There are several types of cost types associated with construction accounting.

They include the following:

Job costing: Construction accounting keeps track of the costs of the job. You need to know the project costs as they relate to specific jobs. All of the expenses must be tracked throughout the project’s life. The actual costs and projected estimates are compared during several points of the project. With that information, you can see whether the project is on or over budget. Job costs affect the income of the construction company. In some situations, companies can receive financial incentives for delivering a job under the projected budget.
Work in progress: Any active or under contract job is known as a work in progress. Construction companies need to track these jobs since it can help to indicate the income and cash flow. Some companies use this cost type to determine the current project’s progress, recognize any revenue, and list other costs coming from the job.
Cost of goods sold: These costs refer to the expenses incurred for those projects in progress. These costs include labor, equipment rentals, material, and other costs tied directly to the project.

Recognize Your Revenue

In the construction industry, there are several ways to recognize revenue. Those methods can change depending on the type and duration of a project. For example, some companies recognize their revenue through cash or accrual accounting. Income and costs are recognized when cash changes hands with cash basis accounting. With that, the payables are not recognized until the bill is paid, and there is no record of the payment until the money is in the company’s account. This type of reporting allows the construction company to represent its cash flow. Unfortunately, it does not accurately recognize all costs and revenue.

Accrual accounting is much more accurate. The income and costs are recognized when received from the vendor, and the client is billed. Many companies use accrual accounting over the cash accounting method.

Completed Contract vs. Percent Completed Income Recognition

You can track income in two ways: completed contract or percent completed. With percent completed, the revenue is recognized on the percentage of costs for the project. When revenue comes in from the project, it is tracked. A completed contract only records revenue once the project is considered completed. Many companies track their revenue with the percent completed method for better accuracy.

Construction Accounting Common Reports

If you want to know the financial health of your construction business, you should know these common reports.

Accounts Receivable Aging

Within your accounts receivable (AR), you can track all of those outstanding payments that have been billed but not paid. The accounts receivable aging report shows which companies need to pay their bills by indicating the age of the invoices. With that, you can know which accounts are heading to collections by splitting them into categories for 30, 60, and 90 days past due. You will have healthier accounts receivable reports when there is a shorter time between billing and collection. Keep in mind that the construction industry has some of the longest payment delays out of any sector.

Accounts Payable Aging

On the other side is the accounts payable aging report. This report keeps track of the money you owe to other contractors or vendors. Like the accounts receivable, this report shows when those invoices were created. You can prioritize vendor payments with these accounts payable aging reports.

Profit and Loss/Income Statements

As you may have guessed, a profit and loss report shows the amount of expenses and income accrued during a specific period. You can also view the net loss and profit for any period of time.

Balance Sheet

This report shows your liabilities, assets, and equity holdings in the company. You can use these numbers to determine your financial position to lend or borrow money.

Job Cost Report

During a specific project period, you can get a breakdown of the costs. These reports are helpful to show the progress of the project and inform the customer of billing amounts.

Job Profitability Report

You need a job profitability report to analyze the difference between the actual and estimated costs. These reports show you whether the project is profiting or losing money in the process.

These tips are some of the basics of construction accounting. It can be complicated for anyone to figure out, especially if you don’t have experience with accounting or bookkeeping. These duties should be left in the hands of a professional. For that reason, there are small business accounting services for the task. These accountants understand your company’s needs, and they can help you reduce the headaches associated with managing your finances.

Finding an Accountant for My Small Business

At TMD Accounting, our company has over 40 years of experience. We will help you manage your finances with various services, including payroll help, financial management, and tax assistance. Schedule a consultation by calling 1-856-228-2205.

17 Jan

Smart Accounting Practices for Independent Contractors In New Jersey

Under the law, an independent contractor is classified as a business. As a result, you are responsible for paying taxes and maintaining those financial records. You might have become an independent contractor to get away from those mundane tasks, but it is vital to keep up with accounting and bookkeeping for your business. Here are a few ways to track your finances as an independent contractor.

Differences Between an Independent Contractor and an Employee

Those who work for a company are classified as employees. The business will withhold and report a portion of the individual’s wages to the IRS. Unemployment, Social Security, Medicare, and tax liabilities are all deducted from those paychecks. All taxable income is listed on a W-2 form and filed with the IRS.

If you are an independent contractor, you are not an employee of a business. You get paid for projects, file taxes by yourself, and work when you want to work. In this role, you have more freedom than a regular employee. However, with the title comes plenty of responsibilities.

With that freedom, you are responsible for paying your own health insurance, unemployment taxes, and payroll taxes. For that reason, you need to keep accurate bookkeeping records of your finances. Any mistakes can lead to tax penalties and other problems down the road. While being an independent contractor has many benefits, all business responsibilities are in your own hands.

As an independent contractor, you are responsible for tax payments and other financial matters. While it might sound intimidating, there are a few steps that you can take to make it a less challenging process. Don’t think that this is an impossible task. You can use these smart accounting practices to keep accurate records and manage your finances as an independent contractor.

Becoming Financially Savvy With Your Accounting

There are many reasons why an individual chooses to become an independent contractor. Some people don’t like the 9 to 5 grind, while others want more freedom with their days. No matter the reasons, everyone wants to be successful in their careers. While it takes many skills to run your own business, you must pay attention to your finances.

Tax time can be challenging for anyone. If you don’t have the proper records and statements, it can become a headache. Use these smart accounting skills to get a better hold of your financial health. Not only will it help with your tax liabilities, but you can make better-informed decisions for your business.

Become Your Own Business

Make sure to request your own EIN or Employer ID Number from the IRS. With that, you will be classified as your own business rather than a “contractor for hire.” Becoming your own business provides you with the opportunity to receive tax breaks.

Separate Personal and Business Expenses

Along with an EIN, you should think about opening a separate bank account for your business. This process is a smart accounting move because it helps to separate finances. Along with that, if you happen to be audited, it can make the process a bit easier for you. A separate business account gives you the records to show that expenses are tied to your business. With one single account, you might have to justify whether the expenses were personal or business-related.

Track All of Your Expenses

Whether your business is large or small, you must record all of your expenses. With that information, you can take advantage of tax deductions. However, you need to back up your records with invoices and receipts. You always want to be prepared in case of an audit.

Always Pay Your Estimated Taxes

Those accurate financial records are the best ways to track your tax liability. If you fail to file your expenses and profits, you could be audited by the IRS. Unfortunately, all of your wages will be heavily scrutinized as an independent contractor. For that reason, you want to have accurate records of your estimated tax payments so that you are not hit with a large tax liability.

Plan for the Future

As a business owner, make sure to plan for the future. Even if your business is flourishing right now, things can change instantly. You should have a plan in place for times when business is slow. Think about what you would do to cover those financial humps. From getting sick to natural disasters, anything can impact your work and the demand for your services. Enjoy your current success, but always plan for the unexpected. With that, consider a few financial plans that can help during those tough times. If you are worried about your financial health, small business accounting services can provide some guidance to ease the stress of uncertainty with your work.

Learn About Tax Benefits

Take some time to learn about the advantages of business ownership and tax planning. You might be able to use some tax-saving benefits, such as retirement savings, family planning, and medical expenses.

Don’t Be Afraid To Ask for Help

If you are an independent contractor, you already know the benefits of outsourcing some parts of your business. When you focus on your projects, it can become a burden to record your own finances and handle those tasks for tax season.

When you work with a professional bookkeeper and accountant, you can eliminate some of that stress. In addition to that, you can stay on track financially and make better decisions for your business. Well-organized books even place you in a better position if you need to apply for a business loan.

Choose an Accountant Who Understands Independent Contractors

Need an accountant for my small business? Make sure to reach out to TMD Accounting. For over 40 years, small businesses and individuals have trusted Thomas M. Ditullio Accounting. Mr. Ditullio and his staff provide only the highest quality accounting services to the residents and businesses in the Gloucester County area. We understand that an independent contractor has specialized tax and financial needs. For that reason, you can count on us to get the job done for you. Schedule a consultation by calling 1-856-228-2205.

10 Jan

Accounting and Bookkeeping Best Practices for Law Firms in New Jersey

As an attorney, you are already well-versed in the law. However, if you own a law firm, you also need to consider accounting and bookkeeping responsibilities. Proper bookkeeping allows you to monitor the success of your law firm and make the best-informed decisions for the future. You are already juggling plenty of responsibility for your law firm, but you still need to keep up on those books. When you fall behind, it can be a mess to untangle. Let’s look at the best law firm accounting and bookkeeping practices in New Jersey.

The Difference Between Law Firm Accounting and Bookkeeping

You might think that accounting and bookkeeping are the same, but they occur at different stages. Bookkeeping is the first step to help you track your cash. You can record every financial transaction, run payroll for your employees, and create invoices with bookkeeping. It is important to be diligent and accurate when recording this information.

On the other hand, accounting is a bit more subjective. You can use accounting practices to uncover business trends, plan for your taxes, and forecast your financial future. Accounting can also help capture those expenditures that were not recorded initially. Plus, accounting is a way to prepare financial statements and other reports.

Without the proper bookkeeping, you cannot get an accurate accounting outlook. You might want to hire someone to handle this task. Many small business accounting services are ready to help with those bookkeeping and accounting duties.

Now that you know the difference between accounting and bookkeeping, here are some tips for implementing these practices at your New Jersey law firm.

Keep a Chart of Accounts

There is one way to keep accurate records, and that is by maintaining a chart of accounts. This process provides you with the framework to organize your data into categories, such as expenses, revenues, client expenses, and trust accounts. Think of these charts as an index of your firm’s financial accounts.

Typically, the chart of accounts includes five categories: revenue, owner’s equity, assets, liabilities, and expenses. The chart of accounts helps ensure that your financial information is recorded correctly.

Make Sure To Separate Personal and Business Expenses

Always keep those business and personal expenses separate to avoid any financial headaches. Intermingling your finances is not only frowned upon by the IRS, but it can make it impossible for you to claim expenses at tax time. Along with that, you will have a hard time tracking the financial health of your business when you don’t separate those expenses. Always keep separate accounts for business and personal finances. If you spot a mistake, like depositing a personal check in your law firm’s account, make sure to correct it in your books.

Don’t Lose Track of Business Expenses

Unfortunately, many attorneys often lose track of their expenses. It is always a good idea to record those expenses daily. There is less chance to misplace or lose an invoice or receipt with that schedule. Don’t forget to go into detail about the expenses. For example, if you had a meal with a client, write down all of the pertinent information, such as the client’s name and reason for the meeting. If you happen to be audited, you can easily prove that the expenses were related to your business.

Ask for Professional Help

Many people believe that they can handle the tasks of bookkeeping and accounting. However, it can be so easy to fall behind on tracking expenses and other financial information. Running a law firm is challenging, especially if you have a small firm. You can take some of the responsibilities off your shoulders by hiring a professional bookkeeper or accountant for these duties. With a little experienced help, you can ensure that nothing falls through the cracks.

Never Procrastinate

If you wait until tax time to track your finances, you will run into many problems. Track these finances on a weekly schedule. Put it on your calendar and stick to the schedule. It is vital to keep on top of those expenses and other financial matters. When you let these bookkeeping duties slip, you will have to spend hours at tax time trying to reconcile your books. When that happens, there is an increased chance of making a mistake.

Double Check Your Entries

It can be easy to make a simple mistake in your books. However, one small mistake can cause pandemonium for your records. Take your time when making entries. You always want to double-check your information to ensure that everything is accurate.

Always Track Transactions

Get an accurate picture of your law firm’s current financial standing with proper bookkeeping. Any missing transactions can create inaccuracies that lead to financial problems. Losing track of those critical transactions often cause issues with your taxes. You can avoid these problems by hiring an accountant or bookkeeper. If you want to track transactions by yourself, use accounting software to help automate the process.

Don’t Mix Up Owner’s Draws and Pay

When you take money out of your business account for personal use, that is known as a draw. An owner’s pay is paying a salary for yourself from the business. These transactions are often confused with one another, leading to inaccuracies in the books. Whether you are paying or drawing, make a record in your accounts to ensure there are no tax mistakes.

As you can tell, there are plenty of things to consider if you want accurate financial records for your law firm. In most situations, you want to find an experienced accountant who can handle these records for precise bookkeeping.

Find the Right Accountant for My Small Business

Accounting and bookkeeping can be challenging to maintain, especially when operating a busy law firm. If you want professional assistance, make sure to speak to TMD Accounting. With over 40 years of experience, our Thomas M. Ditullio Accounting team provides financial management, tax assistance, and payroll services to businesses and individuals throughout the Gloucester County area. You can schedule a consultation by calling 1-856-228-2205.

24 Dec

Restaurant Bookkeeping 101: A Guide to Accounting Basics