Category: Accounting

In the world of accounting, the accounting estimate refers to a technique that the accountants would use to measure the items where the exact way of quantification is absent. Therefore, they will estimate the value of those items based on the knowledge and judgement that they have learned from their past experience.

Some people may think that accounting (Also see The Responsibilities of Accounting Department) estimates are not significant. However, it is something necessary for business owners to prove the values of their company to the investors. Thus, when the accountants are unable to quantify the amount, they have to gather more information. They need to use their experience, study the relevant historical data, collect data points, and they will value the items based on these as the actual amount for those items cannot be determined.

The process of making accounting (Also see What You Need to Know About Reserves in Accounting) estimates requires a certain level of expertise in accounting. Hence, it is more advisable for you to seek help from an accounting firm in Singapore. This is because compared to managing these estimates all on your own without know the exact way of doing it, seeking help and advice from the experts will help you to save time and energy, and you do not have to worry about the accuracy of your financial statements.

Depreciation would be one of the items that the accountants (Also see How Do the Accountants Close the Books?) will use accounting estimates. One would not be able to tell the amount of depreciation that the company should incur for a plant or machinery. Although he will be able to use the accounting (Also see Do You Know What Are Accounting Controls?) method, he would not be able to determine the amount that he should write down for that year based on accurate evidence or information. Hence, the accountants are responsible for finding out the percentage of depreciation that a company should incur. To do so, they will look at the useful life of that plant or machinery and its usefulness for the company.

Also, in terms of the useful life of a fixed asset, the accountant can hardly determine the number of years that the company will be able to use that asset. There is no quantifiable way that the accountants can use to identify how long the company will be using the asset after the purchase. Thus, they need to use the accounting estimates to determine the useful life of a certain fixed asset. The process includes studying historical data, looking at similar fixed assets that the companies of the same kind own, and using the expertise and knowledge they have to predict the useful life of a plant or machinery.

What should you do if you wish to stop running a partnership? If you have the intention of ending your partnership due to various factor, but you have no idea about the right way of dealing with the process, feel free to contact a corporate secretarial firm in Singapore. You need to comply with Partnership Act 1961 when ending your partnership, and you should ask help from the professionals.

The partners or owners can dissolve the partnership for a lot of reasons, and some of the reasons include expulsion, resignation, retirement, withdrawal or death of a partner. Besides, mental or physical disability of a partner can be one of the reasons for the partnership to come to an end. If the partners have agreed on the dissolution of the partnership, the business may be ended too.

The partnership may also dissolve when it has filed for bankruptcy or when the authorities found out that the partnership business (Also see Poor Accounting Practices That Business Owners Should Avoid) is illegal. The partners should terminate the business if the Court has issued an order which states that the partnership must be stopped. This may be because the partnership is not able to reach its economic objectives anymore.

Another reason for the dissolution of a partnership would be one, or some of the partners have caused extreme difficulties or made it impossible for the business to maintain its operation. If one of the partners have bought out all the other partners, then the business (Also see Accounting Principles: Business entity concept) will cease being a partnership, and it will continue to operate as a sole proprietorship.

Section 37 of the Partnership Act is the one that governs the dissolution of partnerships by the Court. If a partner applies for the dissolution, the Court may order the partnership to be ended in several situations. The first situation would be when a partner has gone insane or has shown to be having unsound mind permanently to the satisfaction of Court. In both the cases, the persons who can make the application on behalf of the individual are the committee, his next friend, or an individual who has the designation to intercede this matter just like other partners.

The second situation is when a partner lost the ability to perform his responsibilities as one of the partners in the partnership permanently. Besides, the Court may order the dissolution when a partner has committed an offence, and the Court thinks that this will have an impact on the carrying on of the partnership after considering the nature of the business. The dissolution of partnership can also happen when one of the partners contravene the partnership agreement continuously or intentionally. He might also involve himself in the events relevant to the business (Also see Ways to Increase Your Business Revenue) which has made it impractical for other partners to continue running the business (Also see Mistakes That You Should Avoid When You Start Running a Business).

It would be good practice for the partners to decide in advance on the actions they will take if the withdrawal or death of one more partner happens. To achieve this, they may include the terms into the agreements that are related to buyouts. Some partnerships may include it in the partnership agreement, but having another agreement about this issue would be fine too.

Accounting controls refer to the methods and procedures that a company or an accounting firm in Singapore would use to ensure the accuracy and validity of the financial statements. Business owners should apply these controls as protection for the company. These controls are not related to rules and regulations as well as the laws.

If a company has adopted the accounting controls, the controls should be able to increase the compliance and efficiency throughout the organisation. Also, it ensures the accuracy of the financial statements when the company presents them to bankers, auditors (Also see The Advantages and Limitations of Statutory Audit), investors, as well as its stakeholders. However, note that there are no control policies that are suitable for all the entities. The application of the accounting controls should suit the company’s needs, goals, types of business activities and other aspects.

There are three different types of accounting controls, which are preventive controls, detective controls and corrective controls.

Preventive controls are the controls (Also see An Overview of Internal Controls) that the company would apply daily to prevent errors mistakes or discrepancies from occurring. These controls are what the employees need to comply with when they are performing their tasks. As an instance, when a staff has issued an invoice, another person will review it and gives approval. Then, another team will make the payment. This is known as segregation of duties and such a system prevents a person from having the right to issue and pay the invoices at the same time.

Besides, companies may implement job rotation as one of the preventive controls. The company may transfer the staff from one department to another regularly. This will normally be practised by big firms and organisations. Job rotation helps to ensure that no one will be able to access any information for a long period. Thus, the staff will not be able to carry out illegal activities or thefts.

Another accounting control that business owner should adopt in their business is the detective control. These controls play a role in detecting any frauds, deviation and discrepancy from the policies that the company has applied. The company may also perform it as a measure of conducting integrity check. For example, the company may conduct a surprise check on the cash balance (Also see The Income Statement and the Balance Sheet) that the cashier has in hand and the cash balance recorded in the accounts. This is to check whether the cashier has performed his job properly, and this may also help in detecting if there are any accounting errors.

If both the preventive control and detective control have failed to prevent errors from happening, the corrective controls would be those that will come to rescue. When the accountants are doing the accounting tasks, they may post an adjusting entry to rectify any mistake, and this is an example of the corrective controls. Another example would be the auditors have found an error in the account (Also see An Overview of Suspense Account) books that should be corrected after a financial year, where the company has closed its books. In this case, the company may perform the corrective control by reopening the books and making the adjustments according to the requirement of the auditors.

Most business owners may not pay much attention to their accounting-related tasks when they first started running a business. This causes them to have some bad habits on accounting (Also see The Responsibilities of Accounting Department) without them knowing. Poor accounting practices can bring a huge blow to a rapid-growing company as business owners can hardly forecast the potential financial issues that will probably arise in the future and make necessary corrections to avoid them. This way, it is almost impossible for the company to reach its goals and achieve long-term success.

To avoid poor accounting practices from bringing fatal consequences to the company, business owners should consider hiring an accounting firm in Singapore. If you are one of them who prefers doing the accounting tasks on your own rather than handing them over to external accounting firms, here are some poor accounting practices you need to avoid.

To the untrained eye, cash flow and profit bring the same meaning. Thus, some business owners tend to record every deal as the profit earned as soon as it takes place before they complete their work. As time passes, this can bring serious impacts to the business if it needs longer time to complete the project or if the customers pay the company late. As business owners have recorded the profits, they may think that is the amount of cash they have in hand and can be used freely. Also, recording income (Also see How to Differentiate Revenue and Income?) right away can cause the financial condition of the business to be healthier than the real situation.

Mixing up personal and business finances is another common mistake that most business owners would commit, especially those who have just started running a new business. Some would think that there is no need to separate them as the money is flowing to the same place in the end. However, this makes expense tracking more difficult, and business owners may get audited by the authorities too. Hence, the correct way of handling finances is to have separate personal and business bank accounts.

Besides, some business owners do not have the habit of keeping the receipts. Although some of them use debit or credit cards for business expenses, the statement will not be able to provide sufficient data about the transaction. Instead of stuffing the receipts to nowhere, business owners should keep them neatly. Then, they should record how they use the items for the business and what benefit the company has obtained from those items. This will be very helpful when they forget what the transactions are all about.

Another mistake that business owners should never make is not to carry out bank reconciliation. They should make reconciliation one of their top priority as this makes sure that their books of accounts are always in sync. This helps in presenting the real financial situation of the company to the business owners too. If they carry out the bank reconciliation seriously, they will be able to know the amount of money they actually have in their accounts so that they can plan for their expenses.

The examples above are some of the bad practices that all business owners should never implement when they are dealing with their accounting (Also see What are Provision and Accrual in Accounting?) tasks. Good accounting practices should be systematic and consistent. This is to avoid confusion and mitigate the risks of committing mistakes. Also, this helps business owners in the process of generating financial statements (Also see What is a Financial Statement Review? ) so that they are well-informed of the performance of their business.

Most people think that both “revenue” and “income” mean the same, that is, a company has earned money. Some of the business owners may face the same problem, too; that is, they could not really tell the differences between them. However, these two terms are completely different in terms of concepts.

Revenue refers to the sum of money the company has generated by selling its products and services to the customers. Income, on the other hand, is the sum of money remaining after one has deducted all expenses a company has incurred from the sum of revenue generated. Both revenue and income are useful when you want to determine the financial position of your business.

If you want to calculate the sum of revenue your company has generated, you should multiply the prices of goods or services that you have sold with the number of units sold. This is the gross sales that your company has made. To calculate income, you need to subtract the sum of all expenses that the business has incurred in a given accounting (Also see Things You Should Know About Accounting Estimates) period from the total revenue it earned in that period. This is the total earnings of your company in that period.

For example, XYZ Corporation has sold 5,000 chairs in a year. The chairs cost RM80 each. Thus, we know that the sum of revenue it has generated is RM400,000. Then, in that accounting (Also see The Responsibilities of Accounting Department) period, XYZ Corporation has spent RM 300,000 on acquiring raw materials, maintenance of machines, paying employee salaries and so on. So, let us take RM300,000 as the total expenses incurred. To calculate the income that XYZ Corporation has earned, we need to subtract the total expenses from its sum of revenue. Thus, we get to know that its total income is RM100,000.

Both revenue and income (Also see What Can You Find in an Income Statement?) will appear in the profit and loss statement of your business. However, they will appear in different places, where revenue will appear on the top, and income will show up at the bottom of the statement. Hence, revenue is also called the “top line”, and the term “bottom line” refers to the company’s income. The amount of income that a company has earned is a subset of revenue. This means that income is included in the revenue of a company.

In short, revenue is the sum of money a business has earned from its sales. On the other hand, income is the total profit of that company. If you still find it challenging to differentiate revenue and expenses, please do not hesitate to hire an accounting firm in Singapore. The professionals will be able to help you with the accounting (Also see The Importance of Cost Accounting) tasks, and you do not have to worry about the mistakes that you may commit when you are recording the transactions on your own.