This strategic move not only aligns with the global trend toward digital transformation but also promises numerous benefits, including streamlined workflows, faster processing times, and heightened data security.

Understanding the Need for Change

Before delving into the implementation process, it’s crucial to understand why a shift toward paperless accounts payable is necessary. Traditional accounts payable processes, reliant on paper invoices, manual data entry, and physical approvals, are prone to errors, delays, and increased operational costs.

Adopting a paperless approach not only addresses these challenges but also positions businesses to thrive in an increasingly digital landscape.

Assessing and Planning

The first step in transitioning to a paperless accounts payable process involves a comprehensive assessment of the current workflow.

Identify pain points, bottlenecks, and areas where automation can bring about substantial improvements. Set clear objectives, such as reducing processing time, minimizing errors, and optimizing resource utilization. Allocate a budget and gather the necessary resources for a smooth implementation.

Accounts Payable Automation

AP Automation Software streamlines the entire AP process – from invoice capture and coding to approvals and payments. Look for features like automated workflows, data extraction, and integrations with your existing accounting system.

Selecting the right accounts payable automation software is pivotal to the success of the paperless transition.

Look for features that align with your business needs, such as invoice scanning, Optical Character Recognition (OCR), workflow automation, and compatibility with your existing accounting system. Cloud-based solutions offer scalability, accessibility, and the advantage of easy integration.

Document Digitization

To pave the way for a paperless future, it’s essential to digitize existing paper documents. Utilize scanning technology to convert paper invoices and supporting documents into digital formats. Optical Character Recognition (OCR) technology can assist in extracting data from scanned documents accurately.

Establish a centralized digital repository or document management system to securely store and organize electronic documents.

Workflow Automation

Manual approval processes can be time-consuming and error-prone. Implement workflow automation to streamline the approval process.

Configure the system to automatically route invoices through the approval hierarchy, and set up notifications to ensure timely approvals. Replace manual routing of physical documents with electronic routing, significantly reducing processing times.

Automated Approvals & E-Invoicing

Encourage suppliers to submit electronic invoices to further eliminate paper from the accounts payable process. Work with suppliers to transition from traditional paper invoices to electronic formats.

Electronic Data Interchange (EDI) and e-invoicing platforms can facilitate seamless electronic invoicing, improving the overall efficiency of the accounts payable process.

Customize your AP automation software to automate repetitive tasks like data entry and routing for approvals.

Integration with Accounting Systems

Seamless integration between the accounts payable system and your Enterprise Resource Planning (ERP) or accounting software is crucial.

Real-time data synchronization reduces the risk of data entry errors and ensures that financial information is up-to-date. Verify that the selected software is compatible with your existing systems and can facilitate smooth integration.

Security & Fraud Measures

With the digitalization of financial processes comes the need for robust security measures. Implement data encryption protocols to safeguard sensitive financial information.

Define user roles and permissions to control access, ensuring that only authorized personnel can access critical data. Establish a comprehensive security framework to protect against potential cyber threats.

Using AI based automation allows detection of fraudulent supplier messages, the AI software can detect the anomalies in vendor accounts, locations etc. The intelligence can prevent organisations from making any unwanted or incorrect payments.

Implementation Considerations

Before a full-scale implementation, conduct thorough testing of the paperless system. Identify and rectify any issues that may arise during testing. Consider implementing the paperless accounts payable process on a smaller scale as a pilot phase to address unforeseen challenges before a complete rollout.

Transitioning to a paperless accounts payable process necessitates the proper training of employees. Develop comprehensive training programs to familiarize staff with the new system and its functionalities.

Address any concerns or resistance through effective change management strategies. Communicate the benefits of the paperless approach to create a positive attitude toward the transition.

Post-implementation, monitor the performance of the paperless accounts payable process regularly.

Gather feedback from users and stakeholders to identify areas for improvement. Utilize data analytics to gain insights into the efficiency of the process and continuously optimize workflows for enhanced performance.

Conclusion

Implementing a paperless accounts payable automation is a strategic move toward modernizing financial operations, reducing costs, and improving overall efficiency.

By following these comprehensive steps, businesses can navigate the transition successfully, unlocking the full potential of a digitalized accounts payable system.

Embracing the paperless future not only streamlines financial processes but also positions organizations to thrive in an increasingly digital and competitive business environment.

Kreyon Systems accounting solutions are employed by businesses with global operations. If you need any support for accounts payable automation or have queries, please get in touch with us.

The post How to implement Accounts Payable Automation appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

This article will guide you through the step-by-step process of setting up accounting software for your business, ensuring accurate record-keeping, improving compliance reporting and empowering you with the tools to make informed financial decisions.

1. Assess Your Business Needs

Before diving into the world of accounting software, take a moment to assess your business’s unique requirements.

Consider the size of your company, industry-specific needs or custom requirements, and the complexity of your financial transactions. This will help you choose the most suitable accounting software for your business.

2. Choose the Right Accounting Software

Research and select an accounting software solution that aligns with your business needs. Evaluate factors such as features, customisation, scalability, user-friendliness, compliance reporting, automation capabilities, compatibility, and cost.

Take advantage of free trials or demos to explore the software’s capabilities before making a final decision. Many organisations need customisations to accounting software for creating software tailored for their businesses. Discuss your needs upfront with the vendor and then choose the software that meets most of your needs.

3. Gather Financial & Company Information


To ensure a smooth setup process, gather all relevant financial information. This includes bank statements, invoices, receipts, expense records, and other relevant documents.

Organize this data systematically to facilitate the transition to the accounting software. You can opt for a software that can offer automation to input historical financial data for your organisation.

Enter your company’s information into the accounting software. This typically includes your company name, address, contact details, and tax-related information, such as tax identification numbers.

Double-check the accuracy of the entered information to ensure that your financial records & reporting are precisely meeting your organisational needs.

4. Customize the Chart of Accounts

Create a chart of accounts tailored to your business’s financial structure. This chart represents the specific accounts and categories relevant to your operations, such as assets, liabilities, income, expenses, and equity accounts. Customize the chart of accounts to match your industry and reporting needs.

You could opt for a software that offers easy migration of chart of accounts, set-up steps should be done with minimal manual involvement.

5. Integrate Bank Accounts

Link your business bank accounts to the accounting software. This integration allows for automated bank feeds, uploading banking statements and simplifying the reconciliation process. Regularly syncing your bank transactions with the software ensures accurate and up-to-date financial records.

Accounting softwares can offer features like automatic bank reconciliation with the help of AI algorithms to classify accounting transactions accurately. The accounting professional could later verify the transactions & prepare the financial reports needed for company’s regulatory needs with minimal efforts.

6. Set Up Customers and Vendors

Enter customer and vendor information into the accounting software. Include details such as contact information, payment terms, and any other relevant data. This information enables smooth invoicing, payment tracking, and reporting.

Design and customize professional invoice & billing templates within the software. Incorporate your company logo, branding elements, and essential details such as payment terms, due dates, and invoice numbering. This helps maintain a consistent and professional image while interacting with clients & vendors.

7. Opening Balances Migration & Taxes Set-up

If you are transitioning from a manual accounting system or a previous software, enter the opening balances for your accounts. This includes bank balances, outstanding invoices, and outstanding bills. Accurate opening balances ensure that your financial records are precise from the start.

Set up the tax settings within the accounting software according to your country & state tax regulations. Define tax rates and ensure the software accurately calculates taxes on transactions. This feature simplifies tax reporting and ensures compliance.

8. Customize Financial Reports

Take advantage of the reporting capabilities of your accounting software. Customize financial reports such as profit and loss statements, balance sheets, cash flow statements, and aged receivables/payables reports as per your business needs.

Tailor these reports to track key performance indicators and gain valuable insights into your business’s financial health. Your accounting software should also be able to generate all the regulatory financial reports required for your company’s tax filing.

9. Leverage AI

Perform test transactions within the accounting software and reconcile them with real-world financial records. This step allows you to verify the accuracy of the software and address any discrepancies promptly.

The AI software will be able to correctly categorise expenses, income, fixed assets, inventory, liabilities etc. based on training data. Regularly reconcile bank accounts to ensure accurate financial reporting. The AI will be able to do the accounting from the bank statements and generate all compliance reports for your business.

10. FinanceGPT

Once your business accounts are up and running, you may use ChatGPT like interface to understand more about your business. For e.g. the interactive Chatbot can help you understand your business data more granularly.

You could ask it to provide you reports for finances, outstanding invoices, average time for payments, new revenue opportunities, financial performance of projects, profitability assessments by locations etc. In short, the financial chatbot could provide you all hidden patterns from your business data, industry and global events.

Conclusion:

Setting up accounting software for your business is a crucial step towards efficient financial management. By following these step-by-step guidelines, you can streamline your financial processes, ensure accuracy in record-keeping, and gain valuable insights to make informed business decisions.

Kreyon Systems develops accounting software for businesses & government organisations. We provide end to end solutions for Finance, Accounting, & Controller Services to companies as per their regulatory needs. If you need assistance, please get in touch with us

The post Streamline Your Finances: A Step-by-Step Guide to Setting Up Accounting Software for Your Business appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

The ability to record transactions automatically allows you to check your figures without manually going through every transaction each month. With bookkeeping automation, you can spend more time running your business and less time tracking your finances. Keep reading for 6 tips for using bookkeeping automation in your small business.

Set up automated accounting as soon as possible

If you’ve been keeping track of your finances manually, you’ve probably noticed how much time it takes. When you have to transcribe each entry into your accounting software, you lose time that you could use for running your business. The more time you lose, the less time you have for new initiatives. The sooner you can set up automated accounting, the more time you’ll have to invest in your business.

Automated accounting doesn’t mean moving all your books online, but it does mean recording certain information about your business. You can track inventory, payroll, and revenue, for example. In addition, you can set up recurring expenses, like utility bills and insurance premiums. When you set up automated accounting, you stop wasting time recording basic information. You can spend your time creating new marketing strategies and enhancing your product lines.

Track all your transactions online

One of the biggest advantages of using bookkeeping automation is that you can track your finances online. You can track your revenue and revenue revenue with ease using software. Alternatively, you can track expenses, inventory, and customer information. You can also track cash flow using software as well as determine your profitability.

If you keep track of your finances manually, you’ve probably forgotten details about your business. If you track your finances online, you can’t forget. You can also keep tabs on your employees, see how they’re performing, and monitor their salary increases. You can also set up online invoicing so that you never misplace an invoice. If you track your finances online, you can’t miss a thing.

Companies benefit immensely by having automated accounting wherein they can manage all their finances and tax compliances in an automated fashion. It saves countless hours, repetitive work and improves coordination with accounting teams.

Automate recurring accounting tasks

Automated accounting tasks don’t have to be financial in nature. You can set up software to track your inventory, find salespeople, and export data to sales, marketing, and customer CRM systems. You can set up software to send out sales invoices or track expenses. Similarly, you can set up a CRM to see how your salespeople are performing and identify sales opportunities.

If you use a CRM, you can also keep track of customer data like their contact information, product preferences, and more. Automated recurring accounting tasks save you time. You don’t have to spend time tracking these activities manually. Automated recurring accounting tasks don’t have to be financial in nature. You can set up software to track your inventory, find salespeople, and export data to sales, marketing, and customer CRM systems.

You can set up software to send out sales invoices or track expenses. Similarly, you can set up a CRM to see how your salespeople are performing and identify sales opportunities. If you use a CRM, you can also keep track of customer data like their contact information, product preferences, and more. Automated recurring accounting tasks save you time. You don’t have to spend time tracking these activities manually.

Don’t forget the basics of bookkeeping automation

When you’re starting to use bookkeeping automation in your small business, make sure you focus on the basics. For example, you need to keep accurate records of your financial transactions. That includes your expenses and revenue, as well as how much cash you have in the bank. If you don’t keep good records, you’re bound to make mistakes.

You need to keep track of where your money is going, as well as what you’ve spent it on. You need to keep accurate records to ensure that your taxes are paid on time, as well as to ensure your books are accurate. If you forget to keep track of these basic things, you’ll have a hard time maintaining complete automation in your bookkeeping. You need to keep track of your expenses and revenue, as well as the amount of cash you have on hand.

If you don’t keep good records, you’re bound to make mistakes. You need to keep track of where your money is going, as well as what you’ve spent it on. If you forget to do any of these things, you’ll have a hard time maintaining complete automation in your bookkeeping.

Estimate future transactions

If you’ve been manually tracking your finances, you’ve probably forgotten to add up your revenue and expenses. You need to keep track of these two items to estimate future transactions. If you forget to estimate future transactions, you won’t have accurate figures for your expenses.

In addition, you won’t have a precise figure for your revenue. If you forget to estimate future transactions, you won’t have accurate figures for your expenses. In addition, you won’t have a precise figure for your revenue. Estimating future transactions is a vital part of maintaining bookkeeping automation. If you forget to do this, you won’t have accurate figures for your expenses. In addition, you won’t have precise figures for your revenue.

Using automation helps your business to come up with fairly accurate projections for revenues. It helps to  stay on top of your tax liabilities and payables too.

Wrap up with a checkup

When you’re starting to use bookkeeping automation, it’s important that you don’t slack off. Make sure you don’t forget to keep track of your basics, like revenue and expenses. Make sure you don’t forget to estimate future transactions, and make sure you don’t forget to check up on your automation.

You need to keep track of these basic items if you want to maintain complete automation in your bookkeeping. If you slack off, you’ll lose the benefit of bookkeeping automation. You can’t lose time tracking your finances if you don’t break a sweat doing it. If you keep track of your finances manually, you’ll have to spend time transcribing your data. With bookkeeping automation, you can spend more time running your business and less time tracking your finances.

Kreyon Systems offers bookkeeping services & accounting automation for companies using SaaS. The solutions are aimed at improving reliability of accounting reports and regulatory compliance. If you need any assistance, please get in touch.

The post Bookkeeping Automation: 6 Tips for Keeping Track of Your Business with Bookkeeping Automation appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

The social and technological changes of recent years have ushered in a new era for businesses and their accounting processes. In the modern world, customers are now more connected than ever before, meaning that brands are under increased scrutiny like never before.

As a result, financial reporting has become an essential part of any organization’s operations – whether it’s an NGO, non-profit organization, government office or for-profit business. In this article we look at how your organization can improve its financial reporting processes to meet today’s challenges.

Establish a Single Financial Reporting Process

Accounting and financial reporting processes should always begin with a business case. Why does your organization need to report financial information? What is the purpose behind your reporting? These questions are essential to ask before starting any work on financial reporting.

Reporting processes should be tailored to your organization’s needs, and not the other way around. Key considerations when designing your financial reporting processes include: – What is the purpose of your financial reporting? – What are your goals and objectives for reporting? – What is the reporting landscape like in your organization’s sector? – What business processes are currently being used?

Make the Most of Digital Tools
If your organization is making the most of digital tools and technologies, there are many ways to improve your financial reporting processes. From automating manual tasks to integrating your data to streamline the process, there are many benefits of digital tools and technologies. Financial data, a connected enterprise and realtime availability of information are the lifeblood of a modern organization.

Whether it’s data from the sales team or data from procurement, how you manage and connect your data can have a huge impact on the way you report. With data now more accessible than ever, it is important to maintain a single source of truth.

A single source of truth ensures that all data is accurate and consistent, as well as enabling organizations to use data as a source of competitive advantage. – Automation: Data and process automation can help organizations to save time and money, while also improving accuracy and consistency.

When it comes to financial reporting, automation can be used in a wide range of processes – from data extraction to modelling and visualization.

Bring Accuracy and Timeliness to Reporting

In addition to accuracy and consistency, financial reporting should also be timely. As we’ve mentioned, customers are now more connected than ever before, and are expecting brands to respond in real-time. When it comes to financial reporting, this means making sure that your timeliness matches the needs of your customers.

How can you do this? Data preparation is key. Not only is this where you apply your business rules and logic, but it is also where you prepare the data for consumption. Ensuring that your data is prepared correctly and consistently is essential for financial reporting.

When preparing data for financial reporting, there are many key considerations that will impact timeliness. These include data governance, data quality, and the use of data accelerators (i.e. tools used for extracting and processing data).

Eliminate Time Wasters

What takes up maximum time for your business accounting? Are your client invoices, payables, receivables and cash payments reconciled on time?

Identify the elements that take up time and use technology to eliminate repetitive tasks for your team. Many times duplication of information, omission of information, missing records and improper documentation can lead to account qualification.

Here are a few examples that could be eliminated using technology:

Manual or excel based accounting processes
Duplication of information in various departments
Using multiple spreadsheets
Reconciliation of bank accounts, credit cards and transactions
Financial reports reflecting old data

Determine the steps that can be automated to reflect accurate financial data. It will eliminate the need for manual reconciliations and present up to date information that is audit ready.

Look for Automation Opportunities

As we’ve seen, there are many ways to improve your financial reporting processes. At the same time, organizations can also reduce costs by automating reporting tasks. Reporting is a very static process that requires human intervention to pull data from a variety of sources and then merge it back together.

This is an enormous amount of effort and presents an opportunity for automation. Organizations can reduce costs by automating financial reporting processes by eliminating time consuming tasks. This includes automating the gathering of data as well as the process to merge it together and deliver the report.

Bottom line

Accounting and financial reporting processes are essential for organizations of all types and sizes. By investing in your financial reporting processes, you will be able to help your organization to thrive in the modern digital world.

There are many ways to improve your financial reporting processes, from establishing a single process to making the most of digital tools. Additionally, you can also bring accuracy and timeliness to reporting, as well as look for automation opportunities. By improving your financial reporting processes, you will be able to thrive in the modern digital world.

Kreyon Systems is a leading software company with high end expertise in delivering financial and accounting software for businesses & government organisations. We provide end to end solutions for Finance, Accounts, HR, Payroll, & Controller Services to clients. If you need assistance or have queries, please get in touch with us

The post Financial Reporting: How to Improve Financial Reporting for Your Organization appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

Net cash flow represents the total cash received(cash inflow) by a company from sales, investing and other income minus the cash paid(cash outflow) by the company for expenses, interest, liabilities and investments. Cash flow is a measure of the company’s run way and longevity in business.

Net Cash Flow for Valuation

For evaluating a company, net cash flow is an important metric. There are many high growth companies that are unable to sustain for long without external capital & funding. These companies despite their fast paced growth leak money and end up with losses. However, companies with high net cash flow can survive longer and they are usually built on solid fundamentals.

Sometimes, the P/E ratio, which is Price to earnings ratio of a company, does not represent the true financial health. Take an e.g. of a company that has a P/E ratio of 20, but represents negative cash flow per share. It could be due to investments in fixed assets or other capital expenses. In this case, the P/E ratio doesn’t necessarily indicate the right picture.

Price to free cash flow per share along with the P/E ratio is a good measure of its business value. It shows the actual cash coming in and going out of business. There are many companies that need high levels of capital expenditures and investments for their operations. Even though they may be reporting high levels of net income or profits, but they would always need more capital for sustenance and growth. 

How to Calculate Net Cash flow 

Net cash flow is the difference between total cash inflow and the total cash outlflow in a given time period.

Net Cash flow = total cash received – total Cash spent

Further, total net cash is broken down as:

Net Cash flow = Net cash received from operations(sales) + Net cash from investing activities + Net cash flows from financial activities.

Net cash received from operations: Net cash from operations represents revenues generated by the company. The net income represents the difference between revenues and expenses for a given time period. The expenses could include interest payments, salaries, etc. 

Net cash received from investing activities: Net cash from investing activities represents the difference between sale of assets and investments made by the company. For e.g.  company could sell its property for given leading to cash inflows and it could buy assets like warehouses leading to cash outflows. 

Net cash received from financial activities: A business loan represents a financial activity, it will increase the cash flow for a company. Payment of business loans or its interest payments will reduce the cash flows for a business.

Net Cash Flow Explained

Consider a company XYZ is assessing its net cash flow for a financial year:

Here are the statements representing the cashflows 

• Cash from operations: $600,000
• Cash flow from investing: ($125,000)
• Cash flow from financing: $100,000

Net cash flow = $600,000 -$125,000 +$100,000= $475,000

Price to Free Cash Flow

The price to free cash flow combined with earnings growth, P/E ratio and revenue growth represents a more accurate depiction of a business. When capex is high, it can lead to high net profits but poor free cash flow for a business.

Price to free cash flow can be low for companies with high depreciation and amortisation. In this case, even though the company may have less net income or profits, it will have a high price to free cash flow per share. It shows companies that have hidden value, even though they may not look profitable or valuable, yet they provide high value for every share.

Essentially, it makes more sense to evaluate P/E and P/FCF together for a business. One without the other could provide a misleading picture.

The free cash flow is crucial for analysing the financial health of a company. Consider the case when the net cash flow of a company can increase due to a loan. It doesn’t differentiate the revenue or loan. Hence, free cash flow can be used for distinguishing between operating cash flow from loans or debts etc.

Free cash flow= Operational cash flow(Sales/Revenues) – Capital Expenses – Dividends – Debts payments for period + Non cash expenses (Depreciation, amortisation etc)

• Cash from operations: $600,000
• Cash flow from investing: ($25,000)
• Debt payments: $24,000
• Depreciation for given period: $6,000

Free cash flow= $600,000 -$25000 -$24,000 + $6,000 = $557,000

The free cash flow per share represents the cash generated by the company for every share. Say, the earnings per share for XYZ company is $20 and free cash flow is $22, it indicates low capex. In general, the lower the free cash flow per share, the more valuable a company. However, negative free cash cash flow represents a company making losses.

Net Cash Flow & Investments

There are many companies that invest their capital for expansion, growth and future roadmap. These companies might not have high price to free cash flow ratios, but they could be investing their resources for long term opportunities.

A low net cash flow doesn’t always mean an unsustainable business, infact, companies like Amazon have routinely invested large amounts of capital in building valuable assets for their business.  For e.g. Amazon invested billions for developing the AWS platform, now it generates over $18 billion in revenues for Amazon.

So, net cash flow may be low for companies that are capitalising and building long term assets. Understanding the core business is fundamental to growth opportunities for a company. Many high growth companies have negative cash flows owing to their investments that may bring cash flows in the future.

A positive net cash flow is a good indicator for company performance, but there are cases when cash is invested for long term growth, thus leading to reduced net cash flow. Net cash flow generated from debts or leverage may also falsely represent the financial health of a company. In this case, free cash flow can be used to analyse the cash position of the company.

AI and automation for accounting can help SMBs monitor their company performance real time. The difference between net income and free cash flow is critical to the growth of a company. An online accounting software can help a company analyse its financial health and proactively suggest measures for operational improvements by analysing the data patterns.

Kreyon Systems provides business accounting software & allied bookkeeping automation for SMBs. Our accounting software is used to automate bookkeeping , accounting, compliance management & financial reporting. If you have any queries or need assistance, please get in touch with us.

The post What is Net Cash flow for SMB Accounting? appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

Tax mistakes have a far bigger impact on the sustainability & growth of an SMB than most entrepreneurs realise. Tax structuring, due diligence and best practices can keep an organisation financially fit. But trivial mistakes can cost companies in penalties, overpayment of taxes and countless hours with auditors. 

While learning taxes is getting harder due to ever changing rules, it is easier to know what not to do. Here’s a look at the most common tax mistakes and how you can avoid them: 

1. Missing Deadlines

As dull as it sounds, this is the one that matters the most. Yes, you cannot afford to miss deadlines for taxes. What makes it difficult is the huge number of forms and schedules needed for your business.

Companies and individuals for that matter need to know the dates for their annual federal income tax returns. If the IRS extends or changes the dates, you can register here to get reminders for important filing dates. By registering and staying up to date with the online tax calendar, your company can prepare and finalise accounts ahead of time.

Missing deadlines can incur huge amounts of penalties and lost waivers. So, companies have to religiously stick to the schedules and do the filing for all applicable forms and schedules. A tax compliance software can help companies to prepare and file their taxes conveniently.

2. Not Understanding the Impact of Penalties 

The impact of penalties can be tough. Many new companies and even experienced ones are not aware of the penalties involved when returns are filed after due dates. Without a genuine and reasonable cause for filing late, 5% of the unpaid taxes for each month or part  of a month that a tax return is late is incurred on penalty.

There are several other penalties incurred on non filing and have significant charges for a business. As rules and compliances become harder to manage, it is best to utilise automation and expert guidance for staying abreast with the regulatory needs of your business.

Sometimes, business priorities may render certain filing obligations impossible. In that case, you should be able to compute the penalties and fees due for payment to authorities. This will save you unexpected surprises and your fortune.

3. Hiring Wrong CPA and Financial Assistants

There are over 130,00 vacancies for auditors and accountants in the US every year. There is a shortage of tax professionals, the existing ones are overloaded and hard pressed for time, especially when deadlines are looming.

Choosing the right CPAs, financial assistants and automation is the key to sound financial reporting. It matters a lot if you have intelligent financial automation and accounting to track your business. The business accounting can be automated to prepare just in time reports. These reports can be vetted and submitted to authorities for compliance purpose.

Accounting software and use of technology reduces dependency on CPAs and financial assistants. For e.g. when all reports are prepared using software, your accountant or auditor will need to spend fewer hours to file your returns. It will save your business time, costs and valuable mind space too. 

4. Missing Leverage

The federal and the state authorities provide SMBs and businesses with many relief measures. There are several schemes, subsidies and benefits for building a business that generates employment. There are tax breaks and allowances for R&D expenses. Governments also provides incentives for child tax credit etc.

As a company, your tax consultants and financial advisors should help you to identify critical levers for your business. It can help you structure your business in the most optimised way for long term growth and scalability. Many businesses miss out on availing the right benefits and credits from the IRS.

Companies can also use carryovers, tax credits, unabsorbed depreciation, losses in business etc. for subsequent years. These credits can be utilised by reducing the income taxes.

5. Filing Incorrect Forms

Businesses need to ensure that employees and contractors are separated. The independent contractors are not your employees. There are separate forms to be filled for employees and part time workers. So, the payroll tax penalties can create audit issues for companies when workers are classified wrongly. 

The IRS tax rules make it clear on how workers need to be classified, the details can be found on the IRS portal here. All companies need to make a clear distinction on type of employees and file forms accordingly. Some of the forms related to employees and contractors are as follows

Forms 1097, 1098 and 1099
Forms 3921 and 3922
Forms W-2 and W-2G
Forms 1099 

6. Wrong Filing Status 

Is your company structured right for the type of business in which you operate? The IRS provides many exemptions to new organisations, for e.g. you can register as a tax exempt organisation under IRS. If your business is in the experimentation phase and doesnt make big profits, you can register it as a hobby business as per IRS guidelines.

The forms for filing annual taxes depend on the status and structure of your business. For e.g.
For small businesses i.e. a Single Member LLC (meaning it’s just you), you may file business taxes on your personal Form 1040 using a Schedule C.
If your SMB is structured as an LLC, & you have a business partner, you will need to file Form 1065 for a partnership return.
If your SMB is an LLC treated as an S-Corp for tax purposes, you will file Form 1120-S.

The right status and structure of your business has to be considered before filing the annual forms. Your company can benefit and avoid paying additional taxes with the right company structure.

7. Overreporting or Underreporting Income

A lot of SMBs tend to either underreport or overreport their business income due to lack of accounting knowledge. For e.g. when a client is invoiced with sales tax, the income does not include the tax part. The taxes are reported under different headers on the balance sheet and are not part of the income. In this case, overreporting income will lead to higher income taxes for the organisation.

The companies also need to report all income for the financial year according to the IRS norms. For e.g. there could be invoices raised to the clients, which have not been paid. But if you’re using accrual method of accounting, then it is treated as income. You’re also liable to pay taxes on it. So, underreporting or overreporting income can lead to tax implications that SMBs should be extremely careful about.

8. No or Incorrect Refund Information

The IRS reports that a vast number of taxpayers and companies don’t provide correct refund information. There are trivial mistakes in filing information that leads to no refunds for taxpayers.

SMBs can ensure that all information is correct and get the refunds after filing their returns using online softwares. The software automation enables organisations to double check any missing links. It is also advised that companies file their taxes in advance to avoid the last minute filing glitches due to overloading and poor response from tax portals.

The IRS mentioned that many refunds are not processed since the forms were not signed. SMBs can ensure that all the directors or partners sign the documents or opt for digital signatures to verify their returns.

9. Missing Documentation

Good documentation, bills, invoices and record keeping is crucial for tax and audit purposes. Many organisations fail to nail the documentation part. They’re left in a lurch when the IRS comes calling. For every purchase, there has to be a requisite bill and document to support your tax claims.

SMBs that do not have good accounting expertise often lack proper documentation. Take for e.g. meals at a restaurant can be expensed at 50% of their value. If your business claims 100% then it could create issues. When you have clear documents outlining all your expenses and claims made, things are more transparent. It can help you claim tax refunds with more confidence. 

10. Not Using Automation

SMBs cannot afford to focus too much of their time in compliance and regulatory affairs, due to a globally competitive landscape. Use of automation and online accounting is the best panacea in dealing with financial reporting compliances. Tax reporting, structuring and bookkeeping can be automated to manage returns electronically.

The use of automation also organises the data and records for the organisation. The accounting softwares are also updated with the latest changes in the IRS, state and city wise tax authorities too. Entrepreneurs need not spend time like accounting clerks and use their time to build better businesses using accounting automation.

The post The Most Common Tax Mistakes Made by SMBs appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

However, tax preparation software can help businesses to get the taxes and compliances right.

Here’s a list of crucial steps to ensure that your tax preparation software provides relevant tax services for your business. 

Startup Tax Service 

Tax services need preparation of accurate income statements for sales in the financial year. The incomes from all sources are recorded along with VAT and other applicable taxes. 

The invoicing system and income statements can be set-up in consultation with tax experts. The tax preparation software helps a business to automate the income reporting.

Automation Services

Your tax preparation software is often equipped with companies that are similar to yours in location, size, funding, type of business entity, subsidies, grants and new business models.

As per the registration of your business, the tax liability is calculated by the tax preparation software. Depending on whether your busines is a sole proprietorship, LLC, C corp, or S corp, the taxes are calculated accordingly. 

A good tax preparation software provides inputs and intelligence to structure corporate and employee taxes for staying compliant as well as meeting its capital needs.  The tax preparation software creates an end to end workflow for reporting of finances and streamlines accounting.

The tax filing varies according to the business entity, state and location of the company. The tax preparation software creates accounting reports and the tax filing reports as needed by states & federal authorities. For e.g. Delaware’s annual report will be different compared to Texas. A good tax preparation will be able to create reports for all state, federal and city level filings needed for the business. The businesses can file these tax reports and maintain compliance. The compliance reports can be prepared with automation for multiple states, federal and city authorities.

Tax preparation software automates compliance activities saving time, efforts and penalties. It creates standard processes for companies to avoid any stumbling blocks.

Industry Expertise

A good tax preparation software is developed to create standardised reports for your industry. For e.g. companies with a large number of inventory items and warehouses need reports in a specific format. The tax software should be able to be adapted to the needs of your industry. 

The company structure, location, industry practises impact your tax return and reporting. The industry reports and details may vary according to the IRS regulations. 

Industry expertise and specialisation can help with the automation of your bookkeeping, accounting and compliance reporting. The nuanced reporting and finer aspects of accounting are automated by a good accounting software. In essence, the software tools assist in running your business with ease and confidence.

Tax Credits & Subsidies

The IRS provides tax credits and subsidies that can provide your business useful capital. The tax preparation software can be set-up the R&D tax credit upto $250,000 in tax savings annually.

The tax preparation software helps companies categorize expenses and subsidies as per their industry for obtaining credits. The tax credits from previous years are reconciled against outgoing taxes for the current financial year. 

Startups save a lot of time on researching and applying for tax credits with automation. All R&D expenses, business losses and other credits can be accounted for with accuracy using an accounting software. 

At the time of tax filing, the appropriate credits can create tax refunds or provide credits to businesses. These tax credits go a long way in overall profitability and growth of a business.

A good financial structure and sound fundamentals have a big impact on the long term viability of a company. 

A tax preparation software makes claiming the tax credits easier. They simplify the return process and make it seamless for businesses to claim their refunds or credits. You also dont need special tax consultant services, but can use automation to receive your due credits.

Forms and Tax Filing

Tax preparation software helps with preparation of profit & loss reports, balance sheets, cashflow statements, trial balance and audit reports etc. Once the accounting is done, the tax returns can be filed in required formats. For e.g. an S corporation needs to fill out 1120 form, it can get the prepopulated data for this form. The return can then be submitted to the IRS portal and refund/tax processes accordingly. 

The tax preparation software facilitates filling up all the data in the reports that need to be submitted to the Federal government in required formats. A free file program can then be used to complete this process. 

Tax softwares can save your business accounting fees by automating most of the steps for filing returns. It can also save you hours of efforts on reconciling books, tallying accounts and providing countless documents to your accountants. 

Financial Data 

Every accountant & tax preparer will need your financial statements to accurately prepare and file your business tax returns. 

The financial data set-up is done using an accounting or tax preparation software. You can get all the consolidated information you need on your software automatically by linking banking accounts. Once this information is processed, your financial reports will be set-up and they can be downloaded or emailed to you. You could use the services of a registered Tax Preparer to submit the information to the IRS or do it yourself.

Many modern tax preparation services like e file can link your financial data and information. Your tax returns and forms can be submitted with up to date information.

Audit

An IRS audit can be cumbersome and difficult for an SMB. Companies are required to maintain proper documentation, records and information related to their tax returns. The company should be ready to provide explanations to the IRS queries with proper data & clarifications. Tax preparation software provides companies peace of mind with all the data for them.

The expertise from various companies on the tax preparation software ensures a consistent framework that can help businesses answer queries with clarity. The FAQs, tax consultants and use of tax software can help businesses with audits from the IRS.

The post How Tax Preparation Software Can Help File Your Tax Returns appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

A report from Clutch shows that 45% of SMBs do not have an accountant or bookkeeper on their payroll. Most businesses rely on their accounting software and outsourced bookkeeping to keep track of their financial reporting. The choice of the SMB accounting software can lead to improved business outcomes, here’s how: 

1. Manage Cashflow

A good accounting software can help you stay on top of your cashflow. The complete lifecycle of money management can be automated with online accounting. It can help you automate invoicing, payment reminders, and provision for accepting online payments. This also makes life easier for clients, all they need to do is click on the payments button to transfer money.

You can also link bills, vendor payments and merchant accounts to make payments. In essence all outgoing and incoming payments are linked to the system. The reminders act as nudges and help clients with easy action steps to improve revenue collection. The accounting software helps you track and control expenses too with control centers. Your business can define the limits on bills and purchases in a given time period, impose checks & balances.

2. Client Management

As more organisations use automation and software for driving business, reducing friction is the key to growth. SMB accounting software is a tool that makes your business stand out. Clients can do business with you with complete peace of mind, they get your invoices with clarity and up to date records. They only need to click on the Pay Now button and all accounting records get reconciled.

Clients can receive weekly or monthly statements of accounts, balances etc. They also have integrated invoices and documents at their disposal. Many subscription based businesses can provide options for recurring payments. The client’s credit or debit card information is used for recurring payments after their authorisation. 

The use of SMB accounting software makes your organisation appear professional, makes it easier to receive client payments and establishes trust with clients. All revenue is recognised at the right time, which leads to accurate tax calculations as well. 

3. Use of Technology for Compliance

The amount of paperwork required for managing a business is fairly complex. Even if you have a dedicated team for handling the finances, it can still be overwhelming. There are looming deadlines, federal and state reports that need to be taken care of.

SMB software should help you not only automate, categorise and prepare financial reports, but also with tax filing. SMB softwares that handles end to end compliance management for companies can save a lot of trouble for them. 

Accounting software can be used for managing employee payrolls or link to third party softwares like Gusto. They also need to provide capabilities to collect data and prepare all the financial reports that need to be submitted to the IRS. The use of technology for tax preparation, filing returns and organising your finances will have a positive impact on your business performance. 

4. Dynamic Reporting 

A good SMB software helps you set-up dynamic reporting for your business. You can receive tailored reports for all your revenues, expenses, assets, inventory, accounts payables, & receivables etc.

You can create a customized workflow to set-up reminders for following up with all accounts whose due is greater than say $70,000. You can track all outstanding receivables with contact details for follow ups etc.

You can also receive reminders for important events like tax returns etc. The reports can be configured as per your needs. The details and information fields can be set-up for driving your performance goals.  

Companies can receive their monthly, weekly or quarterly reports as per their set-up. You can also add custom reports with interactive and live data in the format of your choice to be received on specific emails.

5. Global Transactions

A good accounting system provides options for reconciling banking data seamlessly. It is a must have feature to make accounting easier for clients. The smart reconciliation system that categorises accounting transactions automates bookkeeping. The ability to match, categorise and reconcile bank statements saves hours of manual labour. Once the bookkeeping data is reconciled upto date, the software can generate all the required financial reports. 

SMB accounting software needs to link with third party payments gateways for receiving and making payments from the system. A flexible system offers choices to its clients for using different third party gateways as per their choice. 

A business that accepts payments from clients overseas can make and receive payments across the globe with payment gateways. Accounting softwares can help businesses with easy set-up that can help them transact internationally and reconcile the ledger automatically.

6. Business Outcomes 

The SMB accounting software is most useful for driving key outcomes that add great value for the organisation. Financial automation is not only desirable, but paramount to the success of a business today. 

The key business outcomes for every business can be defined as:

Reducing the time for reconciliation and preparing ledger by 80%
Increasing payments collection by 50% with the use of automated reminders and automated payments.
Set-up recurring payments for increasing revenue by 30%
Reduce management time for accounting, bookkeeping and tax returns by 90%
Reduce costs for compliance reporting and accounting by 70%
Achieve financial goals of the company by the end of the year 

SMB accounting software is a valuable asset for organisations today. It resuscitates the organisation & helps them achieve their key business outcomes by defining measurable financial metrics for them.

Kreyon Systems offers end-to-end SaaS accounting solutions. The solutions are geared for bookkeeping automation, compliance & financial reporting. If you need any assistance, please get in touch.

The post How SMB Accounting Software Can Improve Business Outcomes  appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

A business tax return is mandated by the IRS for income tax returns. Companies can report income and expenditure of the business for the financial year to avoid penalties and scrutinies for a business. Business tax filing is part of compliance and fiduciary responsibilities of a company. It can have a significant repercussion on the governance and operations of a company.

Record Keeping

Before you file taxes, you need to organise the records for all business transactions in the financial year. You need to organise information according to your business registration. You will need a Tax Identification Number (TIN) and financial statements for filing taxes.

The financial reports and transactions can be prepared by bookkeeping software. It needs to categorize all business transactions and prepare the required reports for business tax filing. You will need organised records for all business transactions, should it be needed for audit purposes. The following information is needed for preparing the financial reports:

i) Income & Expenses

The income statement outlines all gross receipts from the sales of products and services for a financial year. All incomes from investments and other sources must be recorded for preparing the Profit & Loss Statement for the financial year.

The income for the financial years also includes the accounts receivables for a business, unless cash based accounting is chosen. The rental incomes, refunds, interest income etc. also need to be added to the income for the covering period.

The expenses include all the spending involved in running your business. These include the payroll expenses, cost of goods sold, interest paid, employee benefits, operations, administrative expenses, marketing, supplies, travel etc.

You need to have a record of all your business transactions for audit purposes to back your claims.

ii) Assets & Liabilities

The assets and liabilities are crucial for financial reporting and calculation of the taxes. A business needs to prepare a comprehensive tally of all its fixed assets like land and buildings, furniture & fittings, computer equipment, ACs, motor vehicles, and other fixed assets.

The right depreciation type is chosen to calculate the fair value of the fixed assets. This is one of the pivotal aspects as it affects the income tax for a business. The depreciation of fixed assets reduces the income tax needed to be paid by the business. The inventories, short-term investments and all work in progress are reported as short-term assets for the business.

The fixed assets are indicators of the net worth of a business. The liabilities include the loans taken, pending payments to vendors or employees, or any other debts, bonds issued by the business. The networth of a business is calculated as the difference between its assets and liabilities.

The financial reports must be backed with records of purchases, payments made and documents to authorise the transactions for tax purpose. Accounting software organizes records for business transactions and maintains a trail of documents as per the IRS needs.

Estimate Taxes 

Business taxes need to be assessed accurately for good cash flow and governance. Companies need to accurately determine taxes for income, employees, part-time workers, supplies, services, property tax,  etc.

The income taxes can be paid as you receive income during the year. The employee taxes are also withheld and deposited with the authorities. Paying estimated taxes helps companies plan their taxes better, it saves penalties and reduces cash flow burden at the last moment.

The online accounting software can be used to prepare taxes and file them as per the latest IRS calendar. If you are not required to make any tax payments, you can get refunds for the prepaid taxes from the IRS, when you submit the tax returns on time. 

Business Structure

The type of your business structure determines its tax outgo. For e.g. businesses need to file different types of tax forms and reports as per the registration of their business. The following is an outline of the structure and its reporting requirements: 

i) Sole Proprietorships

The sole proprietor business needs to file Schedule C for tax return, Profit or Loss From Business. For a sole proprietor, individuals can attach Schedule C for their personal income tax return.

ii) Partnerships

For a partnership firm, businesses need to file Form 1065. IRS Form 1065 is an information return. It is required to be filed by business & all members of the partnership alongside 1040 Form.

The business partnership also requires Schedule K-1. It fills out information for Partner’s Share of Income, credits, deductions, etc., for all partners. Partners can use the Schedule K-1 and fill out information in their individual tax returns.

iii) Corporations

Companies can be registered as C or S corporations. Depending on the type of their incorporation, they can file returns using different forms. For e.g., C Corp tax use Form 1120, to file their company tax returns. The S Corp tax return uses Form 1120-S for filing tax returns.

iv) Limited liability companies

When incorporating an LLC, owners can choose if they want the LLC to be taxed as a sole proprietor, a partnership or a corporation. If LLC is taxed as a corporation, it must use Form 1120 for business returns. Otherwise, single-member LLCs file Schedule C, and multi-member LLCs file Form 1065.

Filing Methods

Once the information for the business tax returns is completed, it needs to be submitted to the IRS. The filing completes the tax returns for the business. You can file the return for your business using hard copies using mail or the IRS e-File system. Businesses can also make tax payments using the IRS payment system. 

Your accounting software can help your business with all the required information for filing taxes. Tax consultants and CPAs can be consulted for typical returns and hand holding support. Businesses that are well managed stick to the deadlines and file on time avoiding last day rush and penalties. Online accounting software can help companies prepare tax records and e-file taxes for business returns. On time business tax return helps companies stay compliant, proactive and organise financial records.

Kreyon Systems offers end-to-end accounting software solutions. The solutions are geared for bookkeeping automation, regulatory compliance & financial reporting. If you need any assistance, please get in touch.

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A chart of accounts provides the basic representation of an organisation’s accounts for recording transactions. A dynamic chart of accounts creates accounting headers based on a company’s needs. The five types of accounts used in accounting are:

The chart of accounts provides a break up of accounting transactions in these category of accounts. There are sub categories of different account headers for business reporting and tax purposes. Here’s a classification of each of these chart of accounts.

Asset Accounts

The assets are the things that add value to your business. For e.g. a business could own properties, lands, vehicles and cash. All these are categorised as assets. The assets are further divided in different categories like:

a) Current Assets: The current assets are short term investments, inventory and cash for a business. The current assets are typically cash equivalents and can be converted to cash within a year. Accounts receivables & inventory are also termed as current assets.

b) Fixed Assets: The long term assets or the fixed assets have a life cycle of more than 1 year. These assets could be tangible or intangible. The assets add to the net worth of a business.

There could be further subcategories of Current assets like Cash, Inventory, Petty Cash etc. As per the organisational needs, the dynamic subcategories can be added with their account codes to represent the accounting transactions. Fixed assets can be further divided into categories like land & building, Furniture & fittings, Computer Equipment, Intangible assets etc.

Liability

Liability accounts reflect the debt for a business. It represents the payables and the loans taken by the organisation. The liabilities are classified as:

a) Short Term Liabilities: These are typically expected to be paid within a year. For e.g. salary payables, vendor payables or short term loans. 

b) Long term Liabilities: The long term liabilities of a business represent debts or loans for more than one year. These are the non current liabilities. For e.g. A bank loan with a term of 5 years gets listed here.

The liabilities typically reduce the networth of a business. Any organisation that has more liabilities than assets typically has a negative net worth. This creates potential solvency issues. It may be noted that companies that are rapidly expanding also have high liabilities to assets ratio.

Equity

The equity of a business is a measure of its net worth. By taking the difference of assets and liabilities, the networth of a business is calculated.

Equity = Assets – Liabilities 

The equity can have sub accounts like:
a) Authorised Share Capital: This is the maximum value of capital that the company can raise by allotting its shares.

b) Common Stock: This is the value of the common stock allotted by the company. For e.g. if the company issued 20,000 shares at 100$ per share, the common stock would be $2,000,000. 

c) Retained Earnings: The retained earnings is the net income for a business after paying out dividends to its shareholders. Retained earnings can also be reinvested into the business without paying the dividends. 

The Equity of a business is a good measure of the company’s net worth and financial position. The Equity is the value that would be returned to a company’s shareholders if all of the assets were liquidated and debts paid off.

The liability to equity ratio indicates lower risk for a business. A higher liability to equity ratio indicates that debt holders have more claim on assets of a company than its equity holders. For e.g. a ratio of 4 indicates that lenders will have 4 times more claim on assets than its equity holders. High debt/liability to equity ratio also indicates the company has used its debt for financing its growth.

Income

The income accounts represent the revenue earned by the company. This could be further classified according to the company’s products or services. The sum total of all revenues is treated as the income for the year.

The income accounts can be further classified into sub categories like:
a) Income from Products/Services
b) Income from Investments
c) Income from discontinued operations etc.

The income header is the basis on which the profit and loss report is computed for an organisation. All revenue reported for a financial year is represented here. All revenue arising from the company’s continued and discontinued operations are recorded here. The sub categories and classifications provide a detailed break-up of company’s revenue and its analysis.

Expenses 

The expenses accounts are used for recording all the operational and non operational expenses from the business. The expenses accounts can be used to add subcategories like:

a) Employee Benefits: This expense subcategory is used for capturing the employee payroll and benefits expenses incurred for the current financial year.

b) Operational Expenses: This is used for categorising operational expenses like office maintenance, lease, electricity, water etc.

c) Advertising: This category is used for advertising and marketing expenses. All the expenses incurred on marketing and promotion of products/services for a business can be recorded here.

The chart of accounts can be used for adding more expenses under this header. The expenses of a company are represented in the profit and loss report for the financial year in which they’re reported. A company’s profitability is determined by its ability to generate consistent revenue which is greater than its expenses. 

Setting up Chart of Accounts

With the basic categories of accounts, an organisation can set-up its chart of accounts. The subcategories can be added under the 5 main headers. Organisations also assign codes to the chart of accounts as a good accounting practice for easy classification of accounts.

A simple 3 or 4 digit code can be assigned to each account type. A dynamic representation of the chart of accounts is as follows:

Assets: A400 to A499
Cash: A405
Inventory: A408
Furniture & Fittings: A420

Liabilities: L500 to L599
Accounts Payable: L505
GST Tax Collected: L509
VAT Collected: L514

Equity: E600 to E699
Director’s Equity: E615
Shareholder’s Equity: E617

Income: I700 to 799
Income from Interest: I720
Product A/C Sales: I740
Maintenance Revenue: I750

Expenses: X800 to X899
Advertising: X840
Labour: X850
Insurance: X870

The accounting software makes chart of accounts dynamic and easy to set-up. With a one time set-up, the organisations can use their accounting software to operate and record accounting transactions smoothly.

The post What is a Chart of Accounts? appeared first on Kreyon Systems | Blog | Software Company | Software Development | Software Design.

Management accounting techniques help a business understand its patterns like no other tool. The deep analysis of numbers for activities, revenue generated, cost of goods sold and other operational aspects is often an eye opener for management. The increasing use of machine learning and AI for management accounting is helping businesses turn a new leaf in their business.

1. Activity Based Costing

The ABC costing model is an accounting method that assigns costs to activities based on the resources used. The direct and indirect costs are calculated based on activities. The activity costs are analysed for various projects, products and services to understand their profitability etc. 

For product development, the ABC model would work in the following manner:
i) Identify all activities related for the product.

ii) Create various activities for the product costs. For  e.g. Development, Testing, Design, Marketing, Sales, Advertisements, Promotion, Support & Infrastructure, Customer Helpdesk etc.

iii) The overall costs above are divided by the resources spent. For e.g. total development costs $250,000. The total number of hours spent for development are 1250, then the development cost would be $20 per hour. Now, if a project requires 500 development hours, then the cost for the project would be $20*500=$10,000

iv) For any product or service, the overall costing can be arrived at and the total revenue can then be used for estimating the profitability.

2. Time Value of Money

The time value of money can be utilised for improving its cashflows. When you send an invoice to a customer, businesses can offer discounts for making yearly payments. The time value of money received in the present is worth more than the same amount received in the future.

The time value of money is also known as the net present value of money. Companies that understand the impact of time value can use it for launching discounts, yearly payment offerings, and prepayment offers to their customers. The invoicing system, vendor contracts and other suppliers etc. can be offered incentives which help the company maximise its current cashflow.

The software algorithms can offer insights to management based on the payments owed and due for its business. The optimum discount rates can be provided after drilling into the numbers.

It turns out that $1,000 now or $1,100 after one year have the same value at 10% interest rate compounded annually. So, a business can offer discounts of upto $100, when it is able to earn more than 10% interest.

FV = future value of money
PV = present value of money
i = interest rate or return rate earned on money
t = number of years to get the return
n = number of compounding periods of interest per year

FV = $1,000 x (1 + (10% / 1) ^ (1 x 1) = $1,100

3. Rate of Return

The rate of return is an effective tool for spending resources of an organisation with efficiency. It evaluates the return of a business from its investments for a period of time. The net gain or loss is expressed as a percentage of the initial cost of investment. The percent change from beginning if the investment to the current time is noted for calculating the rate of return.

The rate of return can be analysed for various projects, asset investments and products/services in a business. All activities can be ranked according to the ROR. For e.g. consider a business spends $100,000 for a buying an asset. If the value of the asset after 3 years turns out to be $150,000 then the rate of return will be 50% in 3 years. Organisations can rank various activities and track their rate of returns with respect to their business.

Some projects, assets investments and other developments may lose money for a business. In that case, the rate of return will be negative for them. With automation, companies can get detailed forecasting on the expected returns from various activities for their business. 

4. Theory of Constraints

Theory of constraints is a management accounting technique that examines the constraints that hold an organisation back. It helps a company understand the constraints that hold an organisation from reaching its goal. The constraint is the limiting factors that is also referred to as a bottleneck.

The five steps involved in TOC are as follows:

i) Identify: Identify the most important constraint that limits the goal.

ii) Exploit: Make quick improvements and changes to overcome the constraint for reaching your goal.

iii) Subordinate: Review the activities and processes to ensure they are aligned with & support the constraint.

iv) Elevate: If the constraint still persists or has not moved, consider what needs to be changed. What should it be changed to and what actions will cause the change. In some cases, it could involve additional capital/resources.

v) Repeat: Implementation of TOC is an ongoing and continuous improvement cycle. When one constraint is eliminated, the next one should be addressed. Organisations that value continual improvement can adopt this system to successfully keep reinventing themselves.

When it comes to accounting goals, whether it is related to revenue, expenses, profitability, sales, payables, receivables etc. TOC can be used for identifying constraints. It can provide systematic evaluation of the most prominent constraints that prevent the organisation from reaching its goals. It could also look at the processes, identify the bottlenecks and work to mitigate them continuously.

5. Throughput Accounting 

Throughput accounting is used by organisations to eliminate the traditional accounting hurdles for reaching long-term profitability. For e.g. in traditional accounting inventory is an asset. It could be converted to cash equivalent, however reality may be different. The inventory value may have declined overtime & it may not be converted easily to cash when the organisation needs it.

Also, consider the fact that expenses are needed for long term income and profitability. These expenses could be related to employees, assets or office. In the traditional sense, expense is considered as a constraint and should be reduced as much as possible. But practically, it should be used for increasing the revenue & profitability. In other words, the throughput accounting measures things based on the output also known as the throughput. It takes the following into consideration:

Throughput : The rate at which sales are generated after deducting the variable costs(raw materials, commissions, freight etc.)  

Investment: Money that is spent on things like physical things like inventory, machinery and equipment, fixed assets, etc. 

Expenses: Money spent to generate the throughput. This doesn’t include the variable costs. It includes payroll, employee expenses, utilities, taxes etc. 

Net Profit = Throughput − Operating Expenses

Return on Investment = Net Profit / Investment

Productivity = Throughput / Operating Expenses

Investment Turns = Throughput / Investment

The throughput accounting method focuses more on generating higher throughput than cutting expenses. It relies more on building sales and throughput for an organisation.

These management accounting techniques can help companies to analyse their data & get insights to improve their operations.

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