The Fundamental Concepts Of Accounting

The Federal Election was held in Australia on 21st of August 2010. During the rather boring election campaign there were questions raised by the major parties, and everyone else for that matter, on how the elected government would go about accounting for the very large amounts of money they receive and spend. These people talk in billions of dollars. It is rather mind-boggling but the accounting system they use can also be applied to small business and personal finances.

Most households require some form of accounting to deal with their personal financial matters. You are probably aware of the saying that the only thing that is certain in this life is death and taxes. I think that it is fair to say that accounting affects the lives of everyone in some way in a modern society.

I have always thought of an accountant as someone who processed the financial data I prepared for them and submitted my annual income tax return required by the Australian Taxation Office (ATO). Their value was measured by the amount of money they could magically retrieve from the ATO by minimizing the amount of tax I was required to pay. This view is shared by many who see accountants as nothing more than bookkeepers, ‘number crunchers’ or ‘bean counters’. Unfortunately accountants are not magicians and the reports they prepare must stand up to the scrutiny of the ATO. The accountant should therefore be perceived as a professional who is able to minimize income tax by applying his talent and know-how acquired through years of study and experience

The accountant must abide by the rules. There are no two ways about that. The terms of reference are set out in:
* Income Tax Assessment Act 1936 and 1997.
* Corporation Act 2001.

If the acco
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untant fails to follow the laws made by our society, he/she will be punished. Accounting is a discipline and is extremely important to any financially healthy entity. Inadequate records normally accompanies business failure and in some cases bankruptcy. Accountants provide information to the owners and managers of a business or company so that appropriate decisions can be made on purchases and investments. This is achieved by processing records, interpreting these records and reporting the findings from these records to these decision-makers in monetary terms.

The role of the accountant is always changing due to legislative changes and technological developments. Accountants are spoilt for choice when selecting an area in which to specialize. There are many opportunities in private business, government bodies or institutions. Some examples of the career paths an accountant may choose to pursue include:
* Taxation
* Auditing
* Budgeting
* Cost Accounting
* Management Advisory Services
* Financial Planning
* Forensic Accounting.

There are professional accounting associations available with entry qualifications and the aim of these associations is to keep its members up to date with new developments. In Australia the longest established associations are the:
* Institute of Chartered Accountants (ICA)
* CPA (formerly known as the Australian Society Of Accountants)
* The National Institute of Accountants (NIA) incorporating The Association Of Accounting Technicians (AAT).

These associations have had a significant effect on the development of accounting in Australia. Its members are expected to abide by the pronouncements made by these associations as good accounting practices. Members are also expected to undertake a certain amount of professional development each year as it is vital that accounting keeps pace with the needs of those it serves.

The increase in the size of organizations means that it is impossible for a manager to keep in touch with all that is going on. This is the reason for the development of the role of an accountant in a management team. The growth of collective ownership rather than individual ownership has meant that the function of the accountant has been extended to preparing financial reports for shareholders and people outside of the businesses they are involved in. Fortunately, computer technology has enabled the saving of a lot of time and energy and the production of more accurate and detailed information.

Accounting is continually affected by legislation, technology, economic conditions and professional associations. It is these changes that has molded this profession into the sometimes nerve racking but essentially rewarding profession it is today.

By: Stephen Reeves

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Stephen has been writing articles for nearly three years. You are welcome to visit his latest websites at Buildings For Sale, School Buildings For Sale and Steel Buildings For Sale.

Self-directed 401(k) Accounts –how Is This Different Than A Sd Ira And ??

Basically, the SD IRA and 401(k), in some minds, are very similar. They are both tax-free or tax-deferred “trust” accounts for the benefit of one’s retirement assets. Like any other employer-sponsored retirement plan (e.g., 401(k), 403(b), 457(b)), they are designed to provide, in a tax-friendly environment, the contribution towards and growth of such assets prior to an individual’s distribution of these funds.

So what is the basic difference?

If an individual or their spouse earn income through self-employment, as a sole proprietor, partnership, LLC, corporation or as an independent contractor without any employees, then the individual is eligible to this option. But, all things being considered, why would somebody want a SD 401(k)? I mean, don’t they follow the same rules as a SD IRA?

In short, no. There are two primary distinctions between the two:

1) For the 2008 tax year, IRA contributions are limited to $5,000 (under the age of 50/$6,000 over the age of 50) where in contrast to this 401(k) contributions have limits of $15,500/$20,500 respectively. What SOUNDS and IS better? Neither of these also takes into account what you can do if your spouse is an officer of your company or works with you and the respective contribution levels. For more information, contact PGI SelfDirected.

2) Loan Provisions — Contact PGI SelfDirected for more information related to what loan provisions individuals are eligible for through their SD 401(k). However, I took out a loan from my account. I am investing in myself…..is this good or bad?! I think it is good. You do need to follow IRS regulations on this topic, but you want to. The rules are there to protect you. These are YOUR
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retirement assets, not monopoly money.

But in my case, I took a loan out and set myself up with a 5 year ammortized loan at 7% interest. I make quarterly payments of principal and interest. Oh, I forgot to ask….who am I repaying with a fair amount of interest? Oh, you are right…it’s me. My payments go right back into my retirement account.

Now, remember, you have to meet the requirement of a true self-employed individual to create a SD 401(k) but, if you do, why wouldn’t you want this type of account. It doesn’t mean the SD IRA is bad, just different.

Plus, as nationally recognized tax expert Tim Berrysays, “If you conduct a prohibited transaction your IRA blows up.” In layman’s terms that means if you enter into a prohibited transaction, your IRA blows up But seriously, within an 401(k) if you enter into a prohibited transaction, you may be able to satisfactorily resolve the issue — however, within your IRA if you do that same transaction, the IRS (generally) will deem your plan to be fully distributed and subject to significant taxation and penalties. Review my next blog posting of identified prohibited transactions on Fulcrum investment Network ….remember, though, I am not your cpa or tax attorney.

So, remember, if you self-direct and utilize a plan facilitator, make sure that they can assist you with both self-directed status with either an IRA or a 401(k) option. And, as always, do your due diligence on everyone.

By: John Park

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John R. Park is President of PGI SelfDirected (www.pgiselfdirected.com) and co-founding Partner of Fulcrum Investment Network (www.fulcruminvestmentnetwork.com).