Why do we need accounting?

by Tina on September 6, 2011

We need accounting because it is the backbone of business finances. It was created in response to the development of trade in medieval times.  The first recorded source of accounting entries was in Italy in 1494 by Luca Pacioli, a Franciscan monk.  Friar Luca is often called the “Father of Accounting” even though he did not invent the system but included writings on double-entry accounting in one of his mathematics books.  I find Friar Luca very interesting, not just because of my Italian ancestry, although I admit it makes it all the more fascinating, but he was also instrumental in Leonardo DaVinci’s  design of the Last Supper.

Friar Luca’s  system included most of the accounting cycle as we know it today. For example, he described the use of  journals and ledgers.  His ledger included assets (including receivables and inventories), liabilities, capital, income, and expense accounts. Friar Luca demonstrated year-end closing entries and proposed that a trial balance be used to prove a balanced ledger.

Yes, accounting has been around for a long time! It is simply not for providing information to tax authorities and government agencies but to identify and record all the activities that impact an organization in a financial manner.  Accounting makes it possible to record, analyze and retrieve important financial information.  Accounting provides the information used to determine a company’s financial status and provides us with the reports needed to make sound financial decisions.

Accounting is not just important to prepare tax returns.  Accounting helps with controlling assets, planning in respect to cash and in determining the results of  operations in a particular period. The process has changed in the past 500 years. It is still an organized method for record keeping but computers have expedited the process.  The end result still provides what is needed to make solid decisions and projections for the future.  In addition, accounting is the conscious of the business world.  When handled with care and with respect, it does what we expect.  When abuse occurs, and the system is circumvented due to dishonesty and greed, it doesn’t work correctly.  Accounting is  like all other systems in place, they are only as good as the people using them.

Yes, we certainly do need accounting and as an accountant, I am  indebted to Luca Pacioli for his monumental role in its development.

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Do you find merchant statements confusing?

by Tina on July 13, 2011

If you answer yes to this question, you are not alone.  When reviewing budgets with clients we always talk about merchant fees and how the client can get a better deal for accepting credit cards.  Lately, this discussion is happening more and more.

Businesses accepting credit and debit cards from their customers pay transaction fees.  Every month, small business owners receive invoices from third party processors detailing their companies’ credit and debit card transactions.  Most owners do not have the time or the tendency to make sense of these statements because sometimes they are pages and pages long of number columns in undersized print.  The problem is that the numbers are confusing and so higher fees and additional charges can escape the reader of the statement. Quite frankly, I have looked at my clients’  merchant statements and I find some of them confusing.  The merchant statements of each processor look different. The complexity of the statements makes it difficult  to understand and I am sure overcharges can get missed.  When questioned, I recommend to my clients to call the representative from their processor for explanations.

Recently, I learned of a company called Merchant Fee Savers, a company that helps small businesses understand the numbers on these statements. Merchant Fee Savers was founded by Phil Hinke.  The company web site is not yet active.  You can learn more about Mr. Hinke at http://www.practicalecommerce.com/member/14083-Phil-Hinke.  He has worked for some well know third party processors.

Please note that the financial companies (third party processors) say they are not to blame for statement perplexity and  that the confusion is in the eye of the beholder.  Also, business owners  can opt for processing contracts that are much simpler, with fewer tiers of charges, but what they gain in simplicity, they could lose in profits.

That’s why for some business owners, cash only may be the only way to go.

 

 

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