Special thanks to Kent's CPA firm in south Orlando for sending in this tidbit about bank reconciliation.

Special thanks for one of the best CPAs in West St. Louis for clarifying the following. Most business transactions are carried out by cash, although businesses commonly maintain small petty cash funds for making small payments. Companies frequently have excess cash that they invest in short-term or marketable securities. A company's assets, including cash, are protected by internal controls.

Internal controls: Detailed procedures are adopted by an enterprise to ensure accurate accounting records, safeguard a company's assets, and promote operational efficiency. Internal control requires a separation of employee duties so that employee opportunities for committing fraud are minimized.

Cash: Cash is probably what you think it is. Postage stamps, IOUs and post-dated checks are not treated as cash, however. To protect cash, all businesses in west St. Louis set up a bank account.

Bank account: A major method for maintaining control over cash by a top CPA is the bank account. The documents used to control a bank account include the signature card, the deposit ticket, the check and the bank statement.

• To get the most from a bank account, whether in west St. Louis or across the US, all cash received must be deposited in the bank account and all payments must be made by checks drawn on the account.
• Keeping cash in a bank account is part of internal control because banks have established practices for safeguarding cash.
• Finally, a bank account permits a double record of cash, one maintained by the business and the other by the bank.

Today we interview a local CPA firm in North Indianapolis about a common accounting misconception - Prepaid Expenses:

The following explanation on a basic accounting concept comes to us courtesy of one of the best CPAs in North Fresno, California. According to the CPA firm we talked to in North Fresno, revenues must be assigned to the period in which they are earned and expenses must be assigned to the accounting period in which they were used to produce revenue under the matching principle.

In order to apply the matching rule, adjusting entries are required at the end of an accounting period. These entries are used to apportion income and expenses between two or more accounting periods and make life easier on CPAs in general. They are also used to record expenses incurred but not paid for the period, and to record revenues earned but not yet received.

After the accounts have been adjusted, closing entries transfer revenue, expense, and owners withdrawal balances from their respective accounts to the owner's capital account. 

We contacted one of the best CPA firms in south Denver for clarification:

Overview: All of a company's accounts are contained in a book called a general ledger, or simply a ledger.

The ledger is just a group of actual accounts.

• Balance sheet accounts are classified as assets, liabilities, and owners equity.
• Income statement accounts are classified as revenues or expenses.
• Each account is customarily listed on a separate page in the general ledger in the order in which they appear in the financial statements.
• A listing of all the accounts, with the respective account numbers, is called a chart of accounts. Each account has a separate page in the manual general ledger.

Special thanks to the Megger CPAs of South Denver for the answer.

Mike writes in with a question regarding his new business venture in the Houston area. He wants to know about the different types of accountants that can help with new business setup. The major branches of accounting are public, private and government accounting.

Public accounting: The public accounting profession has achieved the same stature as medicine and law. Public accounting refers to the work done by independent Certified Public Accounting (CPA) firms that audit the books of companies to insure that their financial statements and records are not materially misstated.

• In order to become a licensed certified public accountant, an individual must pass the Uniform CPA Exam.
• CPAs are called upon to perform numerous services, including auditing, tax prep, consulting and advisory services.

Private accounting refers primarily to the private sector of the economy and involves the analysis and recording of financial information by accountants who are employees of the business entity. 

• Private accountants work under the direct control of CAOs, or controllers.
• Private accountants, among their many duties, prepare budgets and departmental performance reports, which management uses to make managerial decisions.

Governmental accounting: This branch refers primarily to the accounting functions performed for federal, state and local government institutions. Governmental accounting also includes the financial reporting functions applicable to hospitals, charitable organizations, colleges and voluntary health and welfare organizations. 

Overview: Accounting information is most commonly used by individuals and groups who must make decisions concerning the operations of a business.

Management: In order to maintain a profitable enterprise, management must maintain sufficient funds to meet the entity's liabilities as they become due. Virtually all businesses publish financial statements, which show the financial condition of the company and also indicate whether or not the company is making a profit. 

• Investors use these statements to ascertain the strengths and weaknesses of the company
• Potential creditors study these statements to determine whether the company has sufficient liquid assets, such as cash, with which to repay loans and other types of liabilities. 

Society: Several groups in society, including the IRS, labor unions, and financial analysts, are the stock exchanges are interested in the profitability and operations of the entity. 

This statement of Financial Accounting Concepts is one of a series of publications in the Board's conceptual framework for financial accounting and reporting. Statements in the series are intended to set forth objectives and fundamentals that will be the basis for development of financial accounting and reporting standards. The objectives identify the goals and purposes of financial reporting. The fundamentals are the underlying concepts of financial accounting - concepts that guide the selection of transactions, events, and circumstances to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties. Concepts of that type are fundamental in the sense that other concepts flow from them and repeated reference to them will be necessary in establishing, interpreting, and applying accounting and reporting standards.

The conceptual framework is a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards and that prescribes the nature, function and limits of financial accounting and reporting. It is expected to serve the public interest by providing structure and direction to financial accounting and reporting to facilitate the provision of evenhanded financial and related information that helps promote the efficient allocation of scarce resources in the economy and society including assisting capital and other markets to function efficiently.

Establishment of objectives and identification of fundamental concepts will not directly solve financial accounting and reporting problems. Rather, objectives give direction and concepts are tools for solving problems. The Board itself is likely to be the most direct beneficiary of the guidance provided by the Statements in this series. They will guide the Board in developing accounting and reporting standards by providing the Board with a common foundation and basic reasoning on which to consider merits of alternatives. 

Since a statement of Financial Accounting Concepts does not establish generally accepted accounting principles or standards for the disclosure of financial information outside of financial statements in published financial reports, it is not intended to invoke application of Rule 203 or 204 of Rules of Conduct of the Code of Professional Ethics of the American Institute of Certified Public Accountants.

Our directory of CPAs is expanding to now handle CPA SEO and online marketing for certified public accounting firms across America. Click the link above to learn more. If you are in charge of marketing at a CPA firm and don't know where to begin - allow us to give you a free quote!

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Today we spotlight characteristics of equity of business enterprises but highlight new CPA listings across the US. In a business enterprise, the equity is the ownership interest. It stems from ownership rights and involves a relation between enterprise and its owners as owners rather that has employees, suppliers, customers, lenders, or in some other non-owner role. Since equity ranks after liabilities as a claim to do or interest in the assets of the enterprise, it is a residual interest. Equity is the same is met assets, and equity is enhanced or burdened by increases and decreases in that assets from non-owner sources as well as investments by owners and distributors to owners.

Equity sets limits, often legal limits, on distributions by an enterprise to its owners, whether in the form of cash dividends or other distributions of assets. Owners and others expectations about distributions to owners may affect the market prices of enterprises equities securities, thereby indirectly affecting owners compensation for providing equity or risk capital to the enterprise. Thus, the essential characteristics of equity center on the conditions for transferring enterprise assets to owners. Equity is a necessary but not sufficient condition: distributions to owners are at the discretion and volition of the owners for their representatives and CPAs after satisfying restrictions imposed by laws and regulations.

New CPA listings: El Paso | Amarillo | Oklahoma City | Abilene | Tulsa | Laredo | McAllen | Tucson | Tyler TX | Little Rock | Omaha | Reno |