May 2011 - Page 2 of 2 - Complicated To Simple

Accrual vs Cash…Continued

This article is a continuation of “Accrual to Cash…What’s the Difference?” If you want to read it first, click here.

Now that you know the difference between the accrual and cash methods, let’s talk about the reason for the use of each.

The cash method is certainly the most widely used in small business. If no IRS regulations or other rules require a different method, the cash method will almost always be used. This is because it allows the payment of taxes with cash on hand. As mentioned before, the accrual method can be pretty scary when large tax bills come up with no available cash.

The cash method also allows some control over when income and expenses are recognized, and therefore when taxes will be due. For example, if taxes look like they will be high; when bills are paid and income is received can be adjusted. By paying bills in the current year that might normally have been paid in the following year, expenses are moved into the current year. By billing customers in the following year for work that would normally have been billed in the current year, income is moved to the following year. Both these tactics reduce income in the current year and move it to the next year.

Be aware that income manipulation must be done correctly and legally. It is legal to bill late. It is not legal to record a payment later than it was received. Once the business controls a payment received, it must be included in income. The business cannot receive a payment on December 30^th and record it in the following year. This holds true regardless of when the payment is deposited.

Much of the time, the accrual method is used because it’s required by IRS regulations or other rules. Some businesses do choose to use it voluntarily though, because it reflects the true condition of the business. It shows exactly how much has been earned and spent, regardless of whether or not cash has changed hands yet. As mentioned in the last article, IRS regulations may force a switch to the accrual method at a later date. To avoid a forced and complicated switch, some businesses will just start with the accrual method in the first place.

Most regulatory changes are triggered because of increased income levels; generally around $5 million. In some cases this limit is higher. When the accrual method becomes required, the resulting income increase can be spread over four years. This benefit will be lost though if the required change is not made voluntarily. If the IRS forces the change, income recognition will be required all in one year. This can trigger much higher taxes as well as penalties and interest if the change was required in a previous year. Even if a previous year change was not made when required, it’s still best for the business to initiate the change. As long as the IRS didn’t have to force the change, the penalties and interest can be avoided.

With increasingly advanced technology and more pressure to collect taxes, it is becoming less likely the IRS will miss it when the requirements kick in. Therefore it is always best to make the switch when it’s required.

What has been presented here is a mere overview of a very complex issue. If you think this rule may be applying to your business, it would be best to contact your tax adviser and set up a comprehensive plan to deal with it. If you prefer to avoid that expense, please check back later as I plan to offer an eBook that will go into much more detail. It will cover the entire issue in simple and easy-to-follow steps that will save you hundreds or thousands of dollars in professional fees.

My purpose here is to make it possible for any taxpayer to avoid the expense of professional consultation for as long as possible. With my help and some effort on your part, you may be able to avoid the expense completely. If this is something you think you would be interested in, please leave a comment. Also, make sure you sign up for our mailing list in the box on the right. That way we can keep you up to date on this issue and let you know when this eBook and others like it become available. If there are other topics you would like discussed, please feel free to leave a comment about that too.

If this article was helpful to you, please click the "Like" button and also tweet it to your friends!

Thanks for visiting!

Accrual vs Cash…What’s the Difference?

The question of accrual vs. cash refers to the type of accounting method the business uses. It determines when income and expense are recognized (recorded) for tax or accounting purposes. There are other accounting methods, but these two are by far the most widely used. The cash method is the simplest. It gets its name from the fact that the only thing you have to do is follow the flow of cash. Income is only recognized when cash is actually received. Expenses are only recognized when cash is actually paid. For purposes of this discussion, cash can be any type of payment such as currency, checks, and debit or credit cards.The accrual method on the other hand, recognizes income and expenses only when they are incurred. Under this method, the timing of the cash receipts and payments are of no consequence. Income is recorded when it’s earned, rather than when received. Expense are recorded when incurred, rather than when actually paid. Now that you have the theory, let’s look at a simple example.

Little Susie, who has grown tired of her small allowance, decides to try her luck with a Kool-Aid stand. She has managed to save $10 from her allowances and purchases Kool-Aid, sugar, and paper cups from her local grocery store. Her table and other supplies she manages to find at home and sets up her business. Her table is set up on a busy corner in residential Seattle. It’s a hot day and soon she has collected $20 from Kool- Aid sales.

Now imagine that little Susie’s ship is about to come in. Suddenly, from around the corner, there appears a of couple dozen runners. They are followed by many, many more. Unknown to her, she had set up her stand in the path of the Seattle Marathon! It is an unseasonably hot day and the officials of the marathon neglected to buy enough Gatorade for the race. Soon her stand is surrounded by thirsty runners.

Some have money but most do not. The runners are quickly getting dehydrated and the officials must act fast. They ask little Susie if she will provide the runners with the Kool- Aid. They agree to pay her later for every cup that is consumed.

Little Susie agrees, but finds she has little cash for the large amount of supplies that are required. She asks a local grocer if he will loan her $5,000 worth of Kool- Aid supplies. The grocer agrees and by the end of the day Susie has another $30,000 of sales. She also has a bit of an accounting problem on her hands.

Because of Susie’s income she is now required to file a tax return. She will have to decide on that initial return which method of accounting to use. Under the cash method, even though she has made a total of $30,020 of income and has $5,010 of related expense, her taxable income is only $10. This is because she only actually received $20 in cash and paid $10 in cash. The remainder of the income and expense will not be recognized until she receives payment and pays for her supplies.

Under the accrual method of accounting the story is very different. Even though she has not paid the grocer for the Kool- Aid, she still incurred the expense. And even though she has not been paid for her sales, she still earned the income. So under this method, all the income and expenses would be recognized for a net income of $25,010. The scary part is that she will actually owe tax on this amount even though she had not received most of it.

Now you may be asking why anyone in their right mind would decide to use the accrual method. That’s a very good question! The answer to that will be discussed in my next article entitled "Accrual vs Cash…Continued" which can be found here.

If you have suggestions for other articles, or would like a non-geek explanation of something else, leave a comment and I’ll do my best to make your question the subject of future post.

If this article was useful to you, be sure and click the “like” button, tweet it to your friends, and enter your name and email in the box on the right. You will entitle you to receive our newsletter, updates, and other little goodies that may not be offered on the website.

Thanks for visiting!

Kindle vs Nook – Do All Books Cost $9.99?

Is there a difference in the cost of books between Kindle and Nook? Do all books cost around $9.99? In my search for the perfect e-reader, I decided to answer this question once and for all. I started by checking a bunch of identical titles on Barnes & Noble.com, Amazon.com, and Apple.com. I then verified my findings with owners of the various products and some sales people. What I found was surprising.

First of all, I found that most sales people had no idea what the answer to this question was. Almost all of them thought there was no difference in price. What got me thinking about this was a comment that a passing customer made to me in Best Buy while I was doing research for the review. While looking over e-readers she said that I should buy the Kindle because the Nook book prices were higher. I really found the comment puzzling because I had thought everybody's prices would be the same. Especially since no price advantages are ever mentioned in any advertising. I would think if one was lower than the others this would be mentioned as a selling point.

What I found is there can be big price differences between the three services. The greatest differences seemed to be with specialty items like technical books. For example, the most significant price difference I found was on a book called "Professional WordPress – Design and Development." It was nearly $9.00 more on Barnes & Noble than on Amazon. It was not available in the Apple Store. Most books varied by a dollar or two with Amazon being almost always the lowest. For main stream books like popular novels and New York Times Best Sellers, Amazon's price was generally around a dollar less than the other two services.

I was unable to find an instance when Amazon was more than the other two. However, it would be nearly impossible for one person to check out all the offerings available on all the services. I did however manage to find a couple of sales people that were aware of pricing differences. They said that it depends on the type of the book in question. Each service seems to specialize in certain types of books. I was told for example, that Amazon would generally have lower prices on technical books. Another very important consideration in my opinion is that all books are not available on all services. I found some books on Barnes & Noble that served a specialty programming niche but were not available on the other services. So tying yourself to one service could cause you to miss out on some good offerings.

The moral of the story is to check for yourself. If you haven't purchased an e-reader yet and your library focuses on a certain type of book, you might want to see who's got the best prices. If your library is more varied (like mine) you might want an e-reader that is not tied to just one service. I tested all the leading e-readers and settled on the iPad for just that reason; it can download books from all the services. This allows me to find the best price regardless of where it's from and have every possible title available.

In summary, all books do not cost $9.99. The prices vary all over the place, just like in the bookstore. Also, just like in bookstores, the prices can be very different between competing services.

If you enjoyed this post, please leave a comment and consider joining our mailing list by entering your name and email in the box at the right.

Thanks for visiting!

How to go Paperless on a Budget

This is another one of those questions I get asked about a lot. It’s usually not a direct question though. It usually comes up when I mention to one of my clients that I need to scan this or that document to my server. I also tell them that I prefer email to faxes because emails can be directly stored on the server without being scanned. I then get a sort of puzzled look, like they would like to ask a question but they’re not quite sure what to say.

I proceed to explain that a few years ago I went almost completely paperless in my office. I say almost because I have not yet scanned all the old stuff in my filing cabinets. However, since going paperless, there have been virtually no documents added to my files. Everything gets scanned and returned to the client. Emails get stored directly, and faxes get scanned and shredded.

After explaining this I usually get a look of awe and wonder followed by a comment that goes something like, “isn’t that really hard to do?” Or, “I thought about doing that but had no idea how.” The other day I got another one of these reactions and it got me thinking. Based on the number of these reactions, there must be a lot of people out there that would like to paperless but don’t know how.

I’ve been a CPA in my own practice for about 25 years. I’m always on the lookout for new technology that will improve efficiency. Quite a few years ago I started working on the idea of a paperless office. This was long before it was in vogue to be green and there was very little information available about it. The first technology to appear was aimed at professionals. It was quite expensive and very proprietary. It was common to pay over $10,000 for a scanner and proprietary software. This also tended to lock you into a specific vendor. You were at their mercy for upgrade charges and you prayed they would not go out of business.

Fortunately those days are over! Now it’s very simple to set up your own paperless system. It’s feasible and affordable for both businesses and individuals. There are still lots of companies out there that would like you to believe it’s expensive and impossible to set up yourself. They offer expensive document-management packages that automate the whole task. Some of these products do have their place. Some are for specialized industries or large user groups that have unique security or other needs. For those types of users, the do-it-yourself system may not be appropriate. For the rest of us though, there are some simple and inexpensive tools out there that will have you paperless in no time.

The first thing you will need is a scanner. This is especially true if you will be archiving all your existing documents. Even if you’re not archiving though, it’s still pretty difficult to get everything in electronic format in the first place. There will always be that odd scrap of paper that you don’t want to physically keep track of. What kind of scanner to get is a big question but I think I can narrow down the essentials quickly. Your will need either a flatbed or sheet-feed scanner, or one that does both. Sheet-feed will only do sheets of paper that are large enough to be fed through it. Small receipts and other miscellaneous will require a flatbed. Also make sure you match your expected usage with the duty cycle (scans per month rating) of the machine. If you have mountains of paperwork, you will need an industrial strength scanner to match. Most other features that you can choose from-and there are many-are more a matter of preference.

The only other thing you need is software. I use Adobe Acrobat Professional but there are various others available. Whatever you decide to use, make sure it saves your documents in the Adobe PDF format. Pretty much the entire world uses this format so you will always be able to share documents and you’ll never be stuck with something your computer can’t read.

Lastly, make sure your software and hardware will talk to each other. This is not as big an issue with scanners connected directly to a computer. However, if you want the scanner available to network users, you’ll need to do your homework to make sure everything will work together.

Whether you’re working on a PC or Mac, you already have a document-management system. It’s your operating system which would be Windows or Mac OS. You simply create a folder on your computer and scan your documents directly to it. You can also scan to your desktop and then save to your desired location. The beauty of this system is that it’s completely customizable and free.

In my office I have a folder on my server called “Archived Client Files.” Each client has their own subfolder and some subfolders have subfolders of their own if the client has many different document types. For example I might have folders for payroll tax reports, personal and business tax returns, electronic filing confirmations, and anything else that might need a folder. I also have folders for Firm documents like licenses and paid bills, and directories for various personal categories. This is just one of many ways it could be done. You are only limited by your imagination! So your paperless document system is simply made up of folders and subfolders somewhere on your computer or on an external storage device.

One other tip I would like to mention. If you have the space for your old paper files and you don’t have a deadline for archiving, you can choose the lazy way of going paperless. Start doing everything paperless now so no new papers gets added to your files. After you have retained each file you already have for the required period of time, just shred it. This is the method I’m using for some of my old files. I go through my files once a year and shred anything I no longer need to keep. Some files are permanent so I will end up archiving those. Another nice thing about electronic archiving is that you can keep more things that you might have otherwise tossed out because of limited physical space.

I realize this has been a basic overview of this subject and there are lots more things that could be said on this subject. If you want to know more, or have suggestions for additional post, sign up in the box on the right and leave a comment. Depending on how many requests I have, there’s a very good chance I will write a completely customized post directed at just your question.

Thanks for visiting!

Kindle vs. Nook

This Kindle vs. Nook comparison boils down to five main questions that you need to ask yourself before making a purchase.

1. How much money do you want to spend?

The Amazon Kindle 3G costs – $139.00 – $379.00

The Barnes & Noble Nook Costs – $149.00 – $199.00

2. How large do you want your screen to be?

Kinde has a few options for you to choose from:
6 Inches (Price – $139.00)
6 (3G model) comes with free 3G + WiFi (Price – $189.00)
9.7 inches (DX Model) comes with free 3G and works globally (Price – $379.00)

Nook
Both versions of the Barnes & Noble Nook have a 6′ diagonal display screen size

3. What’s your screen preference? Backlit or e-ink?

Kindle
With the Kindle you can read anywhere including outside in full sunlight because it has a high contrast e-ink screen which is awesome.

Nook
The Nook also has an e-ink screen.

4. Do you want to have access to 3G wireless networks when using your e-reader?

Kindle
With the $139.00 model you can download Kindle books in seconds and also browse the web wherever you can get a WiFi signal using the Kindle browser.

The Kindle 3G model offers free 3G + WiFi and the Kindle Dx also offers free 3G plus it works globally.

Nook
The $149.99 model doesn’t offer 3G Wireless but it does give you the ability to access WiFi at any AT&T hotspot plus you can also access WiFi for free at any Barnes & Noble location.

The $199.00 model does offer 3G Wireless through AT&T and you can also access WiFi everywhere else including AT&T hotspots plus Barnes and Noble locations.

5. Do you want to be able to access your books or data on other wireless devices.

Kindle
With the Kindle you can read your books anywhere and even access them on other devices like iphone, ipad, mac, pc, android phone or blackberry. It also has whispersync technology that syncs your place across devices so you never forget where you left off. Your books are also backed up online with your Kindle account so you never have to worry about loosing your data.

Nook
The Nook offers the same functionality and lets you share your books on other devices like the ipad, iphone, mac, pc and android phone. At this time the Nook doesn’t offer any synchronized last page read technology like Kindle but on the Nook website it says ‘coming soon’ so that could change any day…

Cool features comparison:

Text To Speech Reader
Kindle – Yes
Nook – No

Twitter & Facebook Integration (enables you to quickly share passages with friends online)
Kindle – Yes
Nook – No

Storage Capacity
Kindle – Holds up to 3,500 books
Nook – Holds up to 1,500 books

Battery Life
Kindle – Lasts up to one month with wireless turned off
Nook – Lasts up to 10 days with wireless turned off

Free books
Kindle offers over 1.8 million out of copyright pre 1923 books for you to download so if you’re in the mood for reading a classic book during your day at the beach this is cool

Nook offers more than 500,000 free ebooks.

Low book prices
Kindle – Many books start at $9.99 or less including best sellers
Nook – Same.

Article Source: http://EzineArticles.com/?expert=Jeremy_Raglin

Commentary:
Earlier this year I was thinking about getting one of these and came across this concise and well-written article from EzineArticles.com. In my travels during the 2010 Holiday season between Portland, Los Angeles, and San Francisco, I had an opportunity to chat with an Amazon Kindle user who absolutely loved it. She especially enjoyed being able to subscribe to various newspapers at such a low cost. I was very impressed how even the photos came across beautifully on her e-reader. I think either the Amazon Kindle or the Barnes & Noble Nook would make a great technology gift.

Robert Seth

Welcome – Complicated to Simple

Hello everyone and welcome to Complicated to Simple. If you're here and were expecting to find Robert Seth, CPA or The Eclectic Advisor, be assured that you are in the right place. In an effort to serve you better, I have consolidated the information from those two sites into this one. Not only is it more difficult and time consuming to maintain two sites, it makes it more difficult for you to know which site your desired information will be on.

In Addition, I also came to the conclusion that much of the expertise I would like to share with you does not fall into either of those categories. So after some brainstorming it became apparent that the theme of what I want to do for you is much broader. Instead of being only about technology or accounting and tax, it's more about helping you simplify anything in your life that is complicated.

My vision for this site is to be a one-stop place to help you do all kinds of things that you normally might not have done yourself. To help you save money by either becoming more self sufficient, or knowing how something works so you're well informed when you have someone else do it for you. I want to help you be empowered and more in control of the complicated things in your life instead of them having control over you.

With that vision in mind, come join me on this journey. In the coming days I will be adding the articles that were on the other two sites to this one. I will also be adding lots of new ones and other content as well. Please pardon the confusion while I make this transition. I promise you will not be disappointed!

In the meantime, be sure to sign up in the box to the right so I can keep you updated about new content, specials, and new features of the site.

Thanks for visiting and I look forward to serving you!