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Many people confuse the jobs of a bookkeeper and an accountant, especially since bookkeepers are sometimes referred to as accounting technicians or accounting clerks. While very similar, a bookkeeper focuses on maintaining timely and accurate records of financial data - ranging from income, payments, sales, and purchases. An accountant, on the other hand, takes the information recorded by the bookkeeper in order to create financial statements. Since the jobs are intertwined, some accountants actually start their careers as bookkeepers.

Bookkeepers often employ one of two methods for documenting financial data. The double entry method, while complex, helps ensure a set of books that are free of mistakes. It employs a balancing system of credits and debits separated by two distinct ledgers within the books. The single entry system is much less complicated and is often the method of choice for small businesses. Data is maintained in a revenue and expense journal and utilizes accounts solely of income and expense.

Several distinctive books are used to log the various financial transactions of a company. Depending on the company, either daybooks or journals are used to record the in-depth financial data created on a daily basis. Ledgers are used to record each section total, such as the ones logged for purchases, sales, cash, credit, etc.

All ledgers contain different areas so they can then be used to create the financial reports, including the balance sheet and the income statement. Ledgers can be used for recording any category. Businesses commonly have customer ledgers (or sales ledgers) where they track transactions with customers. They also have suppliers ledgers (or purchase ledgers) where they can track their transactions with their suppliers. The general ledger will include information on the company’s assets and liabilities, income and expenses.

A bookkeeper will periodically, usually once a week, make sure that the books are balancing properly. What they can do is either print out the database or go through the ledger line by line to make sure that everything is balancing properly. This includes creating a credit and debit column starting with a day of the week, usually corresponding with when your sales week starts and when it ends. This is a good way of making sure that there are not any mistakes in your bookkeeping that could possibly create a ton of problems down the road.

Bookkeeping is not a simple job and the task is not one that is done quickly. Most companies require at least one full-time bookkeeper and it is common for large companies to have several bookkeepers. However, smaller businesses may outsource the bookkeeping work by hiring a service to handle this job for them. When a bookkeeping service is used, a bookkeeper will spend a few hours a week at the company working on the records and being sure that the books stay in balance.

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Every business, whether brand-new or well-established, is required to keep a thorough record of all of the company’s financial undertakings. Many business owners find it a challenge to decide where to make best use of their money, time, and physical contributions. Add to those important decisions the fact that many business owners also have no experience with bookkeeping and you can see how this could make for a very stressful situation. One option for dealing with bookkeeping requirements is to simply outsource it to somebody experienced in the field. Letting someone else take care of the books leaves the business owner free to pursue other important focal points such as advertising, human resources, client contacts and so-on. Knowing that there is a professional and competent entity in constant and direct communication with the business owner is a source of great comfort and satisfaction.

Of course, it is also beneficial for a business owner to learn and carry out his or her own bookkeeping activities. Doing so will give the business owner a chance to expand their knowledge and awareness of their company from a financial standpoint. This is due to the hands-on and visual executions of all bookkeeping responsibilities, which ultimately helps the business owner make well-educated decisions regarding commerce. The best way to have a deep understanding of your company finances is to understand the bookkeeping process and how it relates to accounting yourself. Having a clear idea of where the numbers originate can be beneficial to your perspective of the business as a whole. There is also the fact that having accountants tell you about your finances will never compare to having a deeper understanding of them yourself, no matter how good they are.

The choice is ultimately yours, but it will depend on how much money you have to spend and your own limitations. The benefits to either method speak for themselves. Even if you do decide to take on your own bookkeeping you should seek professional help when you are initially learning the ropes. This will allow you to effectively learn how to take care of your financial reports and once you are competent enough you can do the bookkeeping with confidence. However even once you achieve this stage of competency you should hire professionals from time to time to keep you updated with any changes to the process, because financial regulations are liable to change over time, meaning you may be able to pay less in taxes or will be able to avoid penalties for doing something outside of the new guidelines.

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Every small business is required to keep bookkeeping records and to produce end of year financial statements that show income, expenses and profit. This is required for tax purposes. How this is done is up to the individual business, with there being three main options - doing it manually, using bookkeeping software or hiring an independent bookkeeper. If a small business owner chooses to do their bookkeeping themselves, either with a pen and paper or using a standard computer spreadsheet (such as Excel), then they must feel confident in their ability to deal with numbers and to understand and comply with the financial regulations in their country. The good news is that for very small businesses, doing this is not rocket science, and most businessmen capable of running and managing a business have the skills required to adequately produce the bookkeeping records. The major disadvantage of a small business keeping manually looking after their records that documents can get lost, mislaid or misinterpreted. If this happens, and they end up wrongly declaring their profits or tax liabilities, then they may well find themselves facing a fine or some kind of penalty. It should that businesses doing their own bookkeeping will not be fully aware of all of the ins and outs of taxation law, and will probably find that with good advice and regular reviews they could probably pay less tax.

The use of bookkeeping software can make life easier for a business owner, this software will guide you through the process and show you what information is required to go where. Once it has all been filled in the software will create all the finance reports you need to take care of your taxes, they will be in the appropriate format and everything will be exactly where it needs to be. However, bookkeeping software although designed to be as easy as possible can still be a complicated affair, particularly for somebody who has not used it before or is not well versed with computers. There is also the possibility you will make mistakes, although you are told what information needs to go where, the software is not able to determine if the information you have input is a mistake or not, which means you can suffer the same fines and penalties for mistakes as you would if you had done it manually and made mistakes. The final option you have is to hire a professional bookkeeper. The benefits to doing this will often outweigh the initial cost to hiring this bookkeeper. In fact, you will often make your money back in the future thanks to the bookkeeper knowing the ins and outs of the system and knowing how best to save money. As well as this the business owner will open up their own time to focus on other more important things.

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Outsourcing your bookkeeping has a number of advantages. The main advantage is simply the amount of money you will save. Although you will pay an outsourced bookkeeper three times the amount you would pay an in house bookkeeper for their time, you actually save money because you only hire them for a certain amount of time and you do not need to pay health insurance, vacation or other things a contract will usually involve. As well as these savings you will save money on training costs and the interviewing process. With outsource bookkeepers there is no contract to worry about and if you wish to terminate their employment you can do so easily, the process to replace them is also quick and cost effective. However this is not something you need worry about if you hire from a reputable company. The chances of the bookkeeper not completing their job adequately are very slim. Outsourced bookkeepers can literally be hired one day, be at work the next, then fired the day after. There is no lengthy recruitment process. Another bonus to hiring freelance bookkeepers is if you wish you can hire those with their own offices who will fulfill the job off site. This saves you money on office space and furnishings and you need not worry about their productivity away from the office because they will be paid for the fulfillment of the contract and not on an hourly basis. So, they get the same amount no matter how quickly they complete the job, although there will of course be a deadline. Another benefit to outsourcing is the control over how much you spend. If you only have limited work that needs to be completed you can pay the bookkeeper to complete it, rather than an in house bookkeeper who will be on the payroll all day, a freelance bookkeeper will be paid for as much or as little work as you require. You will be hard pressed to find an employee who will work on a contract for just 5 hours one week, then 30 the next, then back to 5 after that. Doesn’t it just make sense to hire an outside accounting expert to take care of your business books for you? Payroll, taxes and other pertinent forms will no longer be your concern as long as you give them the information they need to get the job done. Remember the old saying though - “If it sounds to good to be true, then it probably is”. Do not go with someone who says they know what they are doing but has no references to back them up. Ultimately, it is up to you to make sure that your business is successful, and a great outside accounting expert can help you get where you want to go.

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Do you find your business dedicating too many crucial resources to bookkeeping demands? If so, considering a mobile bookkeeping service could be the solution you need. It has become an increasingly popular option among growing businesses, as the freed up time and resources allows the business to focus on their core competencies and not on routine financial tasks. In addition, businesses have the reassurance of knowing that their bookkeeping needs are being well handled by professionals in the field. A mobile bookkeeper solves an array of problems for the typical business. Personally learning proper bookkeeping methods can be tedious. However, even if powered with all of the knowledge needed, most businesses are easily overwhelmed by the massive amount of information and data entry needed to comply with reporting requirements and tax laws. Businesses are then faced with hiring a full-time bookkeeper– which quickly eats into profit margins. The decision to retain a bookkeeper resides more in the type of accounting activity that a business regularly partakes in, not the amount of revenue generated. A five million dollar company can bypass a full-time bookkeeper, depending on the volume and type of payroll, invoicing, and bill paying involved.

Paying someone all year round for irregular work is not exactly economical, especially for a small or even a decently sized business. Hiring an independent bookkeeper service is often the way to go. They do work as needed and are paid only for that work. Most independent bookkeepers will either come to your business and do your books there, or will pick them up and return them at a later time. You can either allow a mobile bookkeeper full access to your finances and thus let them take care of every aspect of your bookkeeping or, if you wish, you can always keep certain aspects in house and have mobile bookkeepers take care of certain parts. Perhaps areas you wish to keep within your businesses can be kept to yourself and areas that you are simply unable to handle yourself due to time constraints or a lack of understanding can be outsourced. Mobile bookkeeping services also offer you freedom. You will not have to hire or train an employee to be a full-time bookkeeper that will often be unproductive at certain times during the year. This saves you not only money but time and resources. Hiring an independent bookkeeper also reduces mistakes that would other be made in house, and saves you from unexpected tax bills or other costs.

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In a recent email news item I made the distinction that the Haiti disaster is now a qualified disaster according to the IRS (http://www.irs.gov/newsroom/article/0,,id=218615,00.html).

And I mentioned in that email, there are rumors that said people would be able to take a deduction for donations to Haiti on the current year’s (2009) tax return - instead of having to wait until you do your 2010 tax return. Obviously this could be a huge incentive for people who desired to give a part of their wealth to the victims of disaster in Haiti to assist them in getting back on their feet! Are you feeling the pressure of today’s taxes? Right now you can get $100 off your tax return for Cary NC Tax Preparation needs!

As it turns out, the rumors I was hearing and that you possibly have heard are TRUE! On January 22nd, the IRS created a special tax relief policy that allows contributions for the Haiti disaster made after January 11, 2010 and before March 1, 2010, will be taken from your 2009 tax return. Or, you can choose to put the deduction to your 2010 tax return instead, on the chance that in case you did not desire to take advantage of the great incentive to assist those in need.

The people of Haiti are hurting quite a bit. These kinds of disasters are totally unavoidable, and are well, devastating. Earthquakes and other types of natural disaster create huge levels of carnage and widespread loss of homes. Entire families are without food or clean water. In most cases these families do not even have any sort of stable living environment without the help of relief organizations (funded by donators like you!). Do your part right now and donate whatever you can to help the people of Haiti. I would certainly appreciate the extended donations, and I’m positive all of the struggling people in Haiti would appreciate it to!

Stay tuned for more articles and information regarding tax season, taxes, and Haiti!

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W. Marc Gilfillan, CPA, NC, individual and business CPA and Tax expert, shares about the history of taxes…

So the question remains, what went wrong with taxes in the US?

US tax makers have been reaping what they have sown for quite a while. Our honor system has been trumped by a monster in which all taxpayers are under watch because of the heavy inclination of evasion. Basically, consent has been replaced with compulsion. Honor has been replaced with spying on citizens. If you are feeling the pressure with today’s taxes, call a Cary NC CPA for all your tax-related needs!

In the 1950s, no bank told the IRS about customer affairs, interest rates went unreported, withdrawals of money were not reported, and not a thing that went through any account was photographed. Also, real estate transactions weren’t reported, stock transactions were not reported, dividends were not reported, income from other sources (Form 1099) was not reported, and US Customs didn’t require a declaration of the amount of money carried. Go here if you want help from a modern-day Tax Preparation in Cary, NC.

It was an honor system, and it worked. The deterioration that happened over the last fifty years to the present is that everything of any fiscal significance is now reported.

Adam Smith said that people will evade taxes and tax laws shown little respect when there is a general suspicion of much meaningless expense and great misspending of tax revenue. For example, $500 toliet seats, huge grants to study the sex lives of ants, etc.

Because the government wanted to catch a handful of tax resisters and evaders in the 1950s Congress made a tax monster of the US tax system that more and more taxpayers try to evade. As a general rule, mass tax evasion is a clear signal that a government’s tax system is bad. Citizens will pay taxes, even income taxes, if the rates are acceptable.

Thanks for reading! Stay tuned for more updates!

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W. Marc Gilfillan, CPA, NC, individual and business CPA and Tax expert, shares about the history of taxes…

1861 - After Lincoln’s election, the South walks out of Congress and form the Confederacy with a rewritten constitution to keep the newly formed government right to tax in check.

1862 - The beginning of US income taxes is created to help finance the sudden and massive costs of the Civil War. If you’re feeling the pressure with today’s taxes, call a CPA for Tax Preparation in Raleigh, NC for all your tax-related needs!

1872 - The income tax gets struck down.

1894 - Congress creates an income tax as a result of southerners complaining that excessive reliance on tariffs pushes up the costs of imports for farmers and consumers. Go here if you want help from a modern-day CPA firm in Raleigh, NC.

1895 - The US Supreme Court holds that the 1894 income tax law is in direct conflict with the US Constitution’s bars on insituting direct taxes.

1913 - Ratification of the 16th Amendment removes that bar and Congress establishes an income tax system.

1917 - World War I revenue requirements bump up tax rates, with the largest rate reaching 77% in 1918.

1924 - Publication of the names of taxpayers and the amount of taxes they owe fails to achieve the goal of forcing payments and the practice is given up.

1942 - Prior to World War II, the lowest income level for paying income tax excluded most wage earners. However, the cost of the war bumped the threshold down the income ladder and put the top rate to ninety-four percent before the war was over.

1943 - To force compliance from the sharply increased number of taxpayers, Congress institutes tax withholding from wages, effectively turning employers into tax collectors.

In the 1940s Justice Jackson of the Supreme Court, former chief counsel of IRS, gloated about how honest Americans were in turning in their income taxes. It was an honor system - there were very few informational returns. Tax resisters were few and the underground economy was of little significance.

1962 - IRS Commissioner Caplin stated “no other nation in the world has ever equaled this record of voluntary compliance. It is a tribute to our people, their tradition of honesty, and their high sense of responsibility in supporting our government.”

1982 - Chief Justice Neely said - “cheating on federal and state income tax is all pervasive in all classes of society; except among the compulsively honest, cheating usually occurs in direct proportion to opportunity.”

Stay tuned for Part 3 of the Timeline of US Tax Policy!

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W. Marc Gilfillan, CPA, NC, individual and business CPA and Tax expert, shares about the history of taxes…

From 1868 until 1913, about 90% of the federal government’s revenue was gotten from tax on whiskey and tobacco. During the Civil War the government instituted a short income tax, but it was not until 1913 when the sixteenth Amendment permitted Congress to tax incomes “from whatever sources attained.” The first 1040’s were due on March 1, 1914. There was not any money withheld from paychecks and no money was sent in with the return. Every taxpayer’s computations were calculated by IRS field agents and a bill sent to the taxpayer on the first of June.

1766 - Leaders of the colonies got together to protest British taxes in place by the Stamp Act. The Stamp Act Congress, as it was called, marked the start of the American independence movement and the beginning of the United States.

1782 - The first Congress under the Articles of Confederation met. This Congress didn’t have any ability to tax the people.

1789 - America gave a new Congress taxing powers. Without taxing powers, the first Congress of the U.S. scantly lasted 7 years prior to being dubbed a failure; the second Congress, granted taxation powers, is still functioning after almost 300 years. If you’re feeling the pressure with today’s taxes, call a CPA for Tax Preparation in Raleigh, NC for all your tax-related needs!

1792 - Alexander Hamilton persuades Congress to pass an excise tax on whiskey to increase earned income for the government and steady the increase in alcohol consumption. In the western frontier whiskey was the traditional medium of exchange, and the twenty-five percent tax was harsh. By 1794 the area was openly in rebellion. The father of the IRS was spawned to enforce the tax. Go here if you want help from a modern-day CPA firm in Raleigh, NC.

1832 - The national debt remaining from the Revolutionary War and the War of 1812 is paid off. The South sees no reason to continue high import taxes that increase prices for Southern consumers and promote industrial monopolies in the North.

1850 - John C. Calhoun of South Carolina warns Congress that the South might leave the Union due to the fact that the overly oppressive taxing of the South raised funds that were spent in the North, causing a great change in money from the South to the North.

Stay tuned for Parts 2 and 3 of the Timeline of US Tax Policy!

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W. Marc Gilfillan, CPA, NC, individual and business CPA and Tax expert, shares about the history of taxes…

“Slavery - the one cause of the Civil War.” - John Stuart Mill, 1862

Can there be a doubtful thoughts about this topic? Certainly the American Civil War was about the slavery issue… was it not? Well actually, one of the most popular myths in our history is that the Civil War began over the slavery issue and that Lincoln, the Great Emancipator, used a terrible war to break the chains of bonding that shackled over three million black Americans. Right before the war, the South had everything its way.

In 1860, the South held the Supreme Court and Lincoln and Congress were approving a constitutional amendment to keep slavery for all time! What happened?

We should rewind the clock back to the year 1832. By that year the national debt from the War of 1812 had been paid and the South saw no need to keep up the high import taxes which appeared to only raise price tags for Southern consumers. Either the South paid high import taxes on imported goods or it purchased Northern manufactured goods at excessive prices. In either case, Southern money ended up in the North. To say the South wasn’t happy with this arrangement would be an understatement. If you’re feeling the pressure with today’s taxes, call a CPA for Tax Preparation in Raleigh, NC for all your tax-related needs!

So, in 1832 a convention was hosted in South Carolina to get rid of these federal import taxes. The convention decided the tax was unconstitutional and authorized the governor to defy the enforcing of the import taxes instituted by the national government. It seemed like a civil war was in the works. Cool heads won over, however, and the Great Compromise of 1833 lowered import taxes over the next several years to levels the South would tolerate. Go here if you want help with a modern-day Tax Return in Raleigh, NC.

Over the ensuing years, however, Northern corporate and manufacturer companies forced into Congress more taxes that once again stressed Southern planters and made Northern manufacturers become rich. In 1850, John C. Calhoun, the South’s most outstanding spokesperson, gave a speech to Congress. His speech spoke of three wrongs done to the South that could cause secession from the Union and war. The first two had to do with fears concerning the erosion of power of the South in general and the states as well.

The third, and really the only solid grievance, was about taxation. In Calhoun’s view, national import taxes was a targeted legislation against the South. Heavy taxes on the South raised money that was used in the North. The center of economic strength in the country was shifting heavily to the North. Calhoun threatened secession if the taxes weren’t lowered. But what about the slaves? Well, during his campaign for the presidency in 1860, Lincoln repeatedly said he wouldn’t interfere with slavery in the South. Actually, most Northerners didn’t care much about enslaved blacks, just as little as how much they worried about the Indian in the West or impoverished illiterate workers in factories. The majority of black slaves received better treatment and better compassion than their working-class counterparts in the North. Lincoln, actually, assured Southern plantation-owners that run-away slaves would be caught. The Congress and subsequently the Supreme Court (Dred Scott decision) further affirmed that slavery was here to stay.

But, as soon as Lincoln was elected and Congress came together in 1861, they created new high import tariffs. Slavery was not an issue - higher import taxes were. In his inaugural address Lincoln said he would go get the customs in the South even if there was a secession!

Fort Sumter, at the entrance of the Charleston Harbor, began filling with federal troops to enforce the collection of the new taxes. The Civil War started in 1861 when South Carolinians fired on the federal garrison at Fort Sumter. The conflict had been brewing for decades - but it was not about the slaves. It was over taxes.

Two years after that, Lincoln issued the Emancipation Proclamation, and then only after repeated military defeats, as a last resort to rally the North to a noble cause. With respect to the slave issue - most Northerners cared little about black people in bondage, any more than they thought about Indians in the west and the poor illiterate peasants in the factories. By and large, most black slaves got better treatment and greater compassion than their impoverished counterparts in the North.

That’s it for the History of Taxes Series!

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