It is only a matter of time before the accounting profession is completely converged into one set of high-quality international standards. Over a decade now, there has been advancements in converging the U.S. generally accepted accounting principles with the International Financial Reporting Standards. As the two accounting standards continue to converge into a single set of international standards, one will realize that there are many similarities and differences between the methods. Although the differences may provoke a need for compromise, the similarities reveal that the convergence is an attainable goal.
Generally accepted accounting principles, or GAAP, are the common set of accounting standards in the U.S. GAAP, issued by the American Institute of Certified Public Accountants (AICPA), has been an ongoing development for the past 60 years; it includes the following items: Financial Accounting Standards Board (FASB) Standards, Interpretations, and Staff Positions; Accounting Principles Board (APB) Opinions; and AICPA Research Bulletins. Today, the Securities and Exchange Commission (SEC) oversees all U.S. accounting practices, making sure the accounting practices adhere to GAAP standards. GAAP establishes standards to make financial records relevant and reliable for all interested investors, stockholders, or other financial readers. So what about international companies? How do these companies develop financial information? International companies cannot just prepare their financial information under GAAP standards; they have to take the International Financial Standards rules into consideration as well.
The International Accounting Standards Board (IASB) in London developed the International Financial Reporting Standards (IFRS or iGAAP). Today, the European Union requires all companies in Europe to follow accounting practices under the IFRS method. Over 100 countries currently use IFRS. When the U.S. completely adopts IFRS, it will be easier to compare U.S. companies to foreign companies, and would therefore allow U.S. companies to raise capital in foreign markets.
GAAP and IFRS are alike in many ways, thus making the convergence a realizable task. The conceptual frameworks of both methods are very similar in structure, referring to their accounting objectives, elements, and qualitative characteristics. A major similarity between GAAP and IFRS is that both standards use an income statement, a balance sheet, and a statement of cash flows. When dealing with cash and cash equivalents, both methods are essentially the same. Another major similarity is that both GAAP and IFRS prepare financial statements on an accrued basis; meaning revenue is recognized when it is realized or realizable. There are many other similarities between GAAP and IFRS, and will therefore help in a complete convergence in the near future, but before there is one international financial accounting set of standards, the differences between GAAP and IFRS have to be taken into consideration.
One major difference between accounting practices in GAAP and IFRS is that GAAP is rule-based while IFRS is principle-based. Principle-based accounting allows for different interpretation of the same transactions, where rule-based GAAP follows a set of rules in preparing financial statements - this means there is no room for error. In other words, GAAP standards are extremely strict in accounting practices and disclosure requirements, whereas IFRS practices are less restrictive; for example, the GAAP method is stricter when preparing income statements, where it requires use of a single-step or multiple step approach - IFRS does not mention either approach. In addition to the multiple-step income statement in GAAP, unusual and infrequent items must be included as extraordinary items - extraordinary items are prohibited in IFRS. There is also a major difference between the two methods in relation to the LIFO (last in first out) cost flow assumption. Only GAAP accepts the LIFO method for inventory valuation, whereas IFRS can only use average cost and FIFO (first in first out) for inventory valuation. The differences between the two methods need to be resolved to benefit economic globalization.
The different methods can be problematic to potential investors in international markets, because it will be difficult to interpret and understand financial information. It will be financially beneficial for the global economy when the accounting standards are merged into one set of rules. The FASB and IASB have issued a memorandum of understanding where they are to make the existing financial standards compatible, and once ensured, they intend on keeping compatibility. In efforts to converge, FASB has issued a rule that permits a fair value option for financial instruments. In 2009 the SEC allowed some U.S. companies to use IFRS, with plans on a full convergence by 2016.
One Size Does Not Fit All!
In the world of credit card processing and merchant services, rates are not a one size fits all. I know when dealing with merchants the first thing they want to know is "What is your rate?" I never answer that question without asking questions first, such as "Who and what type of customers do you have? Are they consumers or business to business? How do you process your credit cards? Do you have a credit card terminal or are you running them online? Do you swipe or key your transactions? All of these questions are factors on determining the right rates for your account.
I am going to break this down as basic as I can. First, understand that Visa, Mastercard and Discover have rate categories (aka Interchange) for every type of credit card. These rates are assessed to the merchant. There are approximately 600 interchange rates!
There are two ways to price merchants, Interchange (aka Passthru) and Tiered Pricing. Interchange is the actual costs from Visa, Mastercard and Discover. The other is Tiered Pricing.
Interchange plus basis points offers the merchant true costs from Visa, Mastercard and Discover. The basis points are the above costs that go back to the company you are doing business with. Basis points are set by the agent, which are typically between.15 to.20% (but can be lower or higher). No, this is not what your agent makes off of your account but that is a different article, just in case you were wondering.
To give you an example of Interchange, the cost of a Mastercard debit card (like your personal debit card from your bank) is 1.16%. So an agent using Interchange plus basis points would come back with something like this: 1.16% +.20% (20 basis points). So the total cost for this card, to the merchant, would be 1.36%.
Tiered Pricing is the most common and it can be very deceptive! How many of you have received a phone call stating a low 1.59% or something similar? Well I will be honest with you, there is a good possibility you will NEVER see that rate. Yes I said NEVER.
For Tiered Pricing it is a bit different. All of those interchange rates mentioned have to be distributed between three tiers:
The first tier is a Qualified rate. They are your basic credit cards that are swiped face to face. This is the rate that is typically disclosed. I have seen rates quoted from 1.49% (which is below cost) to 1.80%. For our examples we will use 1.70%.
The second tier is the Mid Qualified rate. A large portion of credit cards fall into this category if your customer is using rewards/sky mile cards (very popular) or if the sale is keyed rather than swiped. This tier is assessed a downgrade fee (aka surcharge). Agents don't typically disclose this rate. You need to ask for it. They will either tell you the full rate or they will only tell you the downgrade fee. If they tell you the downgrade fee is.50% you must add that rate to your Qualified rate (1.70% +.50 =2.20%). A Mid Qualified rate can be anywhere from 1.99% to 2.30%.
The third tier is the Non Qualified rate. Your cost of taking cards in this tier is from business cards, corporate cards, address or zip code provided doesn't match the card holder's on file, certain cards that are keyed into a terminal, international cards, etc. Again, this tier is assessed a downgrade fee that agents typically don't disclose. You will need to ask for it. If they tell you the downgrade fee is 1.50% you must add that to your Qualified rate (1.70 + 1.50 = 3.20%). A Non Qualified rate can be anywhere from 2.94% to over 4%.
This is where deceptive practices come into play. Every agent is willing to tell you that best rate. Notice I didn't say best Qualified rate! They don't disclose everything! Their best rate might be a rate you will never see? Are they telling you what the downgrade fees are? Technically they aren't lying; they just aren't DISCLOSING all the fees to you.
Interchange plus basis points vs. tiered pricing
Let's break down a few different types of credit cards. From the example above, for the Mastercard debit card, we know the cost plus basis points is 1.36%. That card would be considered a Qualified card on a Tiered plan. So if we use the example rate for the Qualified tier above it would be 1.70%.
I'll show you two more (even though there are almost 600!) This time I'll use a Visa Card Not Present (typical consumer bank credit card keyed in). The interchange cost is 1.89% +.20% (plus basis points) =2.09%
Using the Tiered pricing this credit card would be a mid-qualified card so the downgrade fee will apply. Using the example pricing for our qualified rate 1.70% and the example downgrade fee.50% the mid qualified rate would be (1.70%+.50%) =2.20%
Visa CPS/Retail Credit (typical consumer bank credit card, swiped face to face). The Interchange cost is 1.63% +.20% (plus basis points) =1.83%.
Using the Tiered pricing credit card would be a Qualified card so no downgrade fee will apply. Using the example pricing for our qualified rate the rate would be 1.70%. In this case, if you took these types of cards a tiered pricing plan might be better.
These are just three examples. You can see the rate differences between the two pricing plans. It's all how the agent prices your merchant account. These are just the basics that come into play. That is why rates are not "one size fits all".
If you are a hair dresser or coffee shop you might take more debit cards or retail cards. However, if you are keying all your transactions or taking business/corporate cards, because you are a business to business merchant, then your needs are completely different. That is why an agent asks for a statement. To see what kind of cards you're taking and fees you're paying to price you properly or in some cases to take advantage of you!
So how do you know if you're saving money? If you're an Interchange merchant than you can see the difference in the basis points; you know what's lower than what you currently have. If you are on tiered plan make the agent disclose all three tiered rates (don't forget you might have to do the downgrade math). You can tell what rates are lower when you have everything disclosed.
There are other costs involved such as transaction fees, monthly fees, batching fees, annual fees, and other assorted fees that can have an impact on the costs. But if you don't have the right information or understand the basics between Interchange and Tiered pricing then you never stood a chance in the first place to make the right decision!
I am going to break this down as basic as I can. First, understand that Visa, Mastercard and Discover have rate categories (aka Interchange) for every type of credit card. These rates are assessed to the merchant. There are approximately 600 interchange rates!
There are two ways to price merchants, Interchange (aka Passthru) and Tiered Pricing. Interchange is the actual costs from Visa, Mastercard and Discover. The other is Tiered Pricing.
Interchange plus basis points offers the merchant true costs from Visa, Mastercard and Discover. The basis points are the above costs that go back to the company you are doing business with. Basis points are set by the agent, which are typically between.15 to.20% (but can be lower or higher). No, this is not what your agent makes off of your account but that is a different article, just in case you were wondering.
To give you an example of Interchange, the cost of a Mastercard debit card (like your personal debit card from your bank) is 1.16%. So an agent using Interchange plus basis points would come back with something like this: 1.16% +.20% (20 basis points). So the total cost for this card, to the merchant, would be 1.36%.
Tiered Pricing is the most common and it can be very deceptive! How many of you have received a phone call stating a low 1.59% or something similar? Well I will be honest with you, there is a good possibility you will NEVER see that rate. Yes I said NEVER.
For Tiered Pricing it is a bit different. All of those interchange rates mentioned have to be distributed between three tiers:
The first tier is a Qualified rate. They are your basic credit cards that are swiped face to face. This is the rate that is typically disclosed. I have seen rates quoted from 1.49% (which is below cost) to 1.80%. For our examples we will use 1.70%.
The second tier is the Mid Qualified rate. A large portion of credit cards fall into this category if your customer is using rewards/sky mile cards (very popular) or if the sale is keyed rather than swiped. This tier is assessed a downgrade fee (aka surcharge). Agents don't typically disclose this rate. You need to ask for it. They will either tell you the full rate or they will only tell you the downgrade fee. If they tell you the downgrade fee is.50% you must add that rate to your Qualified rate (1.70% +.50 =2.20%). A Mid Qualified rate can be anywhere from 1.99% to 2.30%.
The third tier is the Non Qualified rate. Your cost of taking cards in this tier is from business cards, corporate cards, address or zip code provided doesn't match the card holder's on file, certain cards that are keyed into a terminal, international cards, etc. Again, this tier is assessed a downgrade fee that agents typically don't disclose. You will need to ask for it. If they tell you the downgrade fee is 1.50% you must add that to your Qualified rate (1.70 + 1.50 = 3.20%). A Non Qualified rate can be anywhere from 2.94% to over 4%.
This is where deceptive practices come into play. Every agent is willing to tell you that best rate. Notice I didn't say best Qualified rate! They don't disclose everything! Their best rate might be a rate you will never see? Are they telling you what the downgrade fees are? Technically they aren't lying; they just aren't DISCLOSING all the fees to you.
Interchange plus basis points vs. tiered pricing
Let's break down a few different types of credit cards. From the example above, for the Mastercard debit card, we know the cost plus basis points is 1.36%. That card would be considered a Qualified card on a Tiered plan. So if we use the example rate for the Qualified tier above it would be 1.70%.
I'll show you two more (even though there are almost 600!) This time I'll use a Visa Card Not Present (typical consumer bank credit card keyed in). The interchange cost is 1.89% +.20% (plus basis points) =2.09%
Using the Tiered pricing this credit card would be a mid-qualified card so the downgrade fee will apply. Using the example pricing for our qualified rate 1.70% and the example downgrade fee.50% the mid qualified rate would be (1.70%+.50%) =2.20%
Visa CPS/Retail Credit (typical consumer bank credit card, swiped face to face). The Interchange cost is 1.63% +.20% (plus basis points) =1.83%.
Using the Tiered pricing credit card would be a Qualified card so no downgrade fee will apply. Using the example pricing for our qualified rate the rate would be 1.70%. In this case, if you took these types of cards a tiered pricing plan might be better.
These are just three examples. You can see the rate differences between the two pricing plans. It's all how the agent prices your merchant account. These are just the basics that come into play. That is why rates are not "one size fits all".
If you are a hair dresser or coffee shop you might take more debit cards or retail cards. However, if you are keying all your transactions or taking business/corporate cards, because you are a business to business merchant, then your needs are completely different. That is why an agent asks for a statement. To see what kind of cards you're taking and fees you're paying to price you properly or in some cases to take advantage of you!
So how do you know if you're saving money? If you're an Interchange merchant than you can see the difference in the basis points; you know what's lower than what you currently have. If you are on tiered plan make the agent disclose all three tiered rates (don't forget you might have to do the downgrade math). You can tell what rates are lower when you have everything disclosed.
There are other costs involved such as transaction fees, monthly fees, batching fees, annual fees, and other assorted fees that can have an impact on the costs. But if you don't have the right information or understand the basics between Interchange and Tiered pricing then you never stood a chance in the first place to make the right decision!
Microsoft Dynamics GP
Run your business the way you want to with a business management solution that allows you to use familiar, powerful software to operate and grow your business. With two editions of pre-selected software functionality to choose from, you can add the components you need for your business solutions.
Business Intelligence
Transform data into actionable insight with enhanced business intelligence (BI). Keep people at all levels in your company privy to the details of your business by offering the reporting and analysis tools they need to effectively monitor, analyze, and plan. With business intelligence, you can maximize your resources to make more informed decisions.
Business Productivity
Take your company productivity to new heights by integrating Microsoft GP's enhanced functionality tools. Enable your people to take on the most complex business challenges by equipping them with the right resources. With increased business management functionality and advanced collaborative capabilities, you can empower your people with familiar solutions, resulting in greater productivity.
Compliance
Leverage compliance from a hassle to a business advantage with expedited regulatory compliance. Microsoft Dynamics GP provides cost effective solutions to implement and monitor corporate compliance all the while lessening any associated challenges. Complying with regulations, industry standards, and corporate quality initiatives does not have to be complex and costly but instead a way to stay ahead in your industry.
Financial Management
Take control of your financial management my reducing valuable time spent on routine tasks. With tight integration between modules in Microsoft Dynamics GP, you can enter data one time and provide real-time information throughout your financial solution without sacrificing accuracy.
Human Resources Management in Microsoft Dynamics GP
Track every aspect of human resources including your personnel-related processes, benefit programs, manage payroll, offer employee self-service capabilities, and deliver the information your managers and executives need. With Microsoft GP, integration with leading payroll service providers, such as ADP, makes it easy to share data and simply the payroll process.
IT Management
With Microsoft Dynamics GP, you don't just receive business powerful analysis tools, you are also giving your IT team the flexible and familiar platform it needs to take charge of its budget and build your business value at lower costs.
Supply Chain Management
Manage the entire supply process and help keep goods flowing, communicate partners, and gain loyal customers by using integrated systems that link functions across your organization. Reduce time-to-market and improve your control over your entire supply chain.
Business Intelligence
Transform data into actionable insight with enhanced business intelligence (BI). Keep people at all levels in your company privy to the details of your business by offering the reporting and analysis tools they need to effectively monitor, analyze, and plan. With business intelligence, you can maximize your resources to make more informed decisions.
Business Productivity
Take your company productivity to new heights by integrating Microsoft GP's enhanced functionality tools. Enable your people to take on the most complex business challenges by equipping them with the right resources. With increased business management functionality and advanced collaborative capabilities, you can empower your people with familiar solutions, resulting in greater productivity.
Compliance
Leverage compliance from a hassle to a business advantage with expedited regulatory compliance. Microsoft Dynamics GP provides cost effective solutions to implement and monitor corporate compliance all the while lessening any associated challenges. Complying with regulations, industry standards, and corporate quality initiatives does not have to be complex and costly but instead a way to stay ahead in your industry.
Financial Management
Take control of your financial management my reducing valuable time spent on routine tasks. With tight integration between modules in Microsoft Dynamics GP, you can enter data one time and provide real-time information throughout your financial solution without sacrificing accuracy.
Human Resources Management in Microsoft Dynamics GP
Track every aspect of human resources including your personnel-related processes, benefit programs, manage payroll, offer employee self-service capabilities, and deliver the information your managers and executives need. With Microsoft GP, integration with leading payroll service providers, such as ADP, makes it easy to share data and simply the payroll process.
IT Management
With Microsoft Dynamics GP, you don't just receive business powerful analysis tools, you are also giving your IT team the flexible and familiar platform it needs to take charge of its budget and build your business value at lower costs.
Supply Chain Management
Manage the entire supply process and help keep goods flowing, communicate partners, and gain loyal customers by using integrated systems that link functions across your organization. Reduce time-to-market and improve your control over your entire supply chain.
Inventory Types and Cost
Exploring accounting bookkeeping topics, one of the essentials is to learn inventory accounting, since this is one of the most important assets business owns and uses in its activities on a daily basis. This article will explore the main inventory types and present basic concept of inventory value to be accounted for when acquired.
Concept and Types
Inventory is attributed to current asset category since it is being used in the activities of the business within the period shorter than one year. For manufacturing or trading company this is one of the most important assets since it usually generates sales revenue for the business when being sold, i.e. significantly contributed to the profit earning activities.
Following the matching principle of accounting expenses are recognized and included into the Income Statement only when they were incurred to earn revenue. Therefore when inventory is acquired or manufactured it is included into current asset category on the Balance Sheet and is kept there until is being sold or consumed in other way to earn revenue.
When inventory is sold, only cost of sold items is included into the Income Statement - Cost of Goods Sold caption. Inventory remaining on hand is still reflected on the Balance Sheet.
Depending on the type of business activities there might be different categories of inventory, i.e.:
Cost of Inventory Acquired
Concept and Types
Inventory is attributed to current asset category since it is being used in the activities of the business within the period shorter than one year. For manufacturing or trading company this is one of the most important assets since it usually generates sales revenue for the business when being sold, i.e. significantly contributed to the profit earning activities.
Following the matching principle of accounting expenses are recognized and included into the Income Statement only when they were incurred to earn revenue. Therefore when inventory is acquired or manufactured it is included into current asset category on the Balance Sheet and is kept there until is being sold or consumed in other way to earn revenue.
When inventory is sold, only cost of sold items is included into the Income Statement - Cost of Goods Sold caption. Inventory remaining on hand is still reflected on the Balance Sheet.
Depending on the type of business activities there might be different categories of inventory, i.e.:
- finished goods for sale (manufacturing company) or goods for resale (trading company)
- work in progress (manufacturing company)
- raw materials (manufacturing company)
- consumables (low value items and miscellaneous items to be used in daily business activities)
Cost of Inventory Acquired
- There are certain expenses which to be included into the acquisition cost of inventory and accounted for in the Balance Sheet, i.e.:
- import duties
- transportation costs (carriage in) - expenses incurred by the buyer to transport inventory to the storage place
- other costs directly attributable to the acquired inventory (for example assembly, packaging, etc.)
Cost of the raw materials to be included into expenses only when it will be used in manufacturing process and finished goods will be sold, i.e. sales revenue will be earned.
D Inventory (raw materials - current assets category) $5,510C Cash (Accounts Payable - if inventory was acquired on credit) $5,510
Compliance Testing and Training
In the wake of our nation's most troubling economic recession since the Great Depression, regulatory committees, corporations, and small businesses alike have begun waves of compliance testing meant to provide financial oversight and some measure of protection against liability for their transactions. Of particular interest are the new measures taken by the IRS and the large corporate banks who deal in providing income tax refunds and their related services.
Knowing the potential for financial instability inherent in any series of large-scale transactions, in particular the now almost-extinct Refund Anticipation Loan market, financial regulators seek to curtail the effects of this latest challenge to our country's financial woes by introducing sweepings reforms to the practices of income tax preparers. In prior years, the vast majority of income tax preparers were held to no professional standards, nor were they required to hold any level of documented competency in income tax preparation.
Those days are now long gone. While a preparer can choose to run a tax business without following the standards set by the IRS and the banking institutions, doing so is a disservice to your clients and the integrity of the industry as a whole, while putting the office at risk for legal action and unnecessary liability.
Compliance training and testing - while daunting or even intrusive to some - is a 'necessary evil' for working in today's tax preparation industry. Not only is its intention to safeguard against the depredations of those taxpayers intent on fraudulently manipulating the system, it also adds an air of legitimacy to your business by allowing you to conform to the highest professional standards available.
Compliance training and testing serves two main purposes. The first and most important is reducing your liability for the information provided by your clients.
Imagine, if you will, an audited taxpayer claiming that you placed fraudulent information on their tax return, or that you never had permission to file their return in the first place. Such a scenario is preventable simply by following the compliance guidelines provided by the IRS. At the very least, complying with the guidelines allows you separation from the information and contents of the returns you prepare. You are, after all, paid to put in the information that your clients specify.
Secondly, compliance training and testing provides knowledge about an institution's procedures and the steps they take in their financial process, along with an explanation or grasp of why. For instance, most banking compliance testing involves a highly interactive learning and testing process that gives the preparer a bevy of information on exactly how the bank conducts its business to provide taxpayers with their money. This is useful in the sense that you can be prepared to knowledgeably answer your clients' questions, as well as understanding what to expect in the case a problem arises.
In essence, following compliance guidelines not only confers professional responsibility and legitimacy to your business, it also protects you from many scenarios where you actually risk losing your ability to provide specific banking services, or even be barred permanently from income tax preparation services entirely. The IRS and banks are very serious about their newest series of mandates on tax preparation and bank product services, and just by following compliance guidelines - often as simple as maintaining copies of certain documents, signature pages, and identification - you can prevent yourself and your tax practice from a world of trouble.
Knowing the potential for financial instability inherent in any series of large-scale transactions, in particular the now almost-extinct Refund Anticipation Loan market, financial regulators seek to curtail the effects of this latest challenge to our country's financial woes by introducing sweepings reforms to the practices of income tax preparers. In prior years, the vast majority of income tax preparers were held to no professional standards, nor were they required to hold any level of documented competency in income tax preparation.
Those days are now long gone. While a preparer can choose to run a tax business without following the standards set by the IRS and the banking institutions, doing so is a disservice to your clients and the integrity of the industry as a whole, while putting the office at risk for legal action and unnecessary liability.
Compliance training and testing - while daunting or even intrusive to some - is a 'necessary evil' for working in today's tax preparation industry. Not only is its intention to safeguard against the depredations of those taxpayers intent on fraudulently manipulating the system, it also adds an air of legitimacy to your business by allowing you to conform to the highest professional standards available.
Compliance training and testing serves two main purposes. The first and most important is reducing your liability for the information provided by your clients.
Imagine, if you will, an audited taxpayer claiming that you placed fraudulent information on their tax return, or that you never had permission to file their return in the first place. Such a scenario is preventable simply by following the compliance guidelines provided by the IRS. At the very least, complying with the guidelines allows you separation from the information and contents of the returns you prepare. You are, after all, paid to put in the information that your clients specify.
Secondly, compliance training and testing provides knowledge about an institution's procedures and the steps they take in their financial process, along with an explanation or grasp of why. For instance, most banking compliance testing involves a highly interactive learning and testing process that gives the preparer a bevy of information on exactly how the bank conducts its business to provide taxpayers with their money. This is useful in the sense that you can be prepared to knowledgeably answer your clients' questions, as well as understanding what to expect in the case a problem arises.
In essence, following compliance guidelines not only confers professional responsibility and legitimacy to your business, it also protects you from many scenarios where you actually risk losing your ability to provide specific banking services, or even be barred permanently from income tax preparation services entirely. The IRS and banks are very serious about their newest series of mandates on tax preparation and bank product services, and just by following compliance guidelines - often as simple as maintaining copies of certain documents, signature pages, and identification - you can prevent yourself and your tax practice from a world of trouble.
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