Learning the Language of Accounting

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Have you ever noticed that there seems to be a secret language when it comes to accounting and taxes? Debits. Credits. Double Entry. Recapture. Suspended. Passive. Active. Material.

All of these words mean something to a CPA, but might not mean much to you. So how do you learn how to talk to your accountant?

I get that question a lot. The answer of course, is ‘it depends.’ Here are six areas of things you need to know (in my opinion) and two things you don’t need to know:

  1. Know the Story. Know how to read the story of your financial statement. What does it tell you about what is working and what isn’t working? What can you do more of to get better results and less of to improve performance?
  2. Understand Financial Differences. Understand the types of income you need to increase, the difference between assets and liabilities, what’s deductible and what’s not and the difference between income and cash.
  3. Use All Three Financial Statements. Know the difference between each financial statement and what you use when.
  4. Standardize Results. Use all of your financial data to create a one page ‘dash board’ of results so you can tell at a glance what’s going on. As you dial in average costs and results to expect, you can tell at a glance when things are going wrong. This goes a long way to pointing an embezzler early too.
  5. Know Business Structures. We spend a lot of time talking about the ins and outs of business structures. Your Tax Strategist will tell you when you need to use a specific type of structure. Your job is to know the difference.
  6. Practice Good Record-Keeping Habits. We can only do so much with the information we’re given. If you are audited, it’ll be up to you to provide the back-up that the IRS requests.

What You Don’t Need to Know:

  1. You don’t need to become a bookkeeper. In fact, that’s probably a monumental waste of your time, unless bookkeeping is your highest and best use. If you have any other kind of business, spend your time focusing on that and leave the accounting to an expert.
  2. You don’t need to be a tax preparer. We want our clients to ask questions about the tax compliance process. They need to feel comfortable with the numbers. But we won’t educate you on how to prepare your own return or on which form to use and what it means. Again, it’s a waste of your time. Focus on what you do best to get the best results!

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