Accounting & Taxation

Payment processing costs can be a significant drain on business profits. With increasing fees, banks and payment processors can take a significant chunk of each transaction before the merchant receives their funds. Reducing payment processing costs is one of the most important steps businesses can take to increase their bottom line and maximize profits. This article will explore strategies for reducing payment processing costs to save money and maximize profits.

Understand your Fees

The first step towards reducing payment processing costs is to understand your fees and where they’re coming from. Each credit card processor has different rates, so it pays to shop around and compare pricing structures when setting up your account. In addition, many merchants are unaware of the additional fees that can come with payment processing. These include things like chargeback fees, interchange fees, and other administrative costs. By understanding all of your fees, you can make more informed decisions about how to reduce them.

Furthermore, you should always question your fees and feel free to negotiate with your processor. Many processors will offer lower rates if they know you’re willing to switch to a different provider. Negotiating can also help you save money on other aspects of payment processing, such as interchange fees or chargebacks. Another way to save money is to look into alternative payment processors, such as those specializing in e-commerce transactions.

Using Technology to Reduce Costs

One of the most effective ways to reduce payment processing costs is to use today’s technological solutions. Several services offer businesses discounted rates on credit card transactions and other cost-saving options. In addition, many companies have developed software specifically designed to reduce payment processing costs. These programs allow merchants to track their expenses and avoid spending unnecessarily on payments they don’t need or won’t use.

Consider investing in a Point of Sale (POS) system to add more efficiency to your payment processing costs. POS systems streamline checkouts and improve accuracy by eliminating manual entry errors. These systems also can process multiple payment types at once, which can help reduce processing costs across various channels.

Optimizing Customer Experience

Another strategy for reducing payment processing costs is optimizing the customer experience. By providing a great customer experience, you can reduce the number of chargebacks and refunds due to dissatisfied customers. It’s also essential to ensure your checkout process is as straightforward and user-friendly as possible. This will help increase sales and reduce the time spent processing each transaction.

Ensuring your staff is adequately trained and knowledgeable about payment processing is also essential. Your employees should understand the importance of accurate data entry and any other steps to reduce errors. Additionally, they should be aware of all the fees associated with payment processing and the best strategies for reducing them. This will help you save time and money in the long run.

Aside from staff training, it would help if you also considered investing in a software solution that can help automate the payment processing process. Automated processes are often much faster and more accurate than manual entry, and they can help reduce costs significantly by eliminating human error.

Reducing payment processing costs is essential for looking to maximize profits. You can drastically reduce costs and increase profits by understanding your fees, taking advantage of technological solutions, optimizing the customer experience, and training staff on best practices.

Utility Payment Processing

Finally, businesses can significantly reduce payment processing costs using utility payment processing services. These services allow you to process payments from various sources, such as bank accounts and debit cards. This type of payment processing is typically cheaper than credit card transactions, resulting in lower fees for merchants. Additionally, it offers customers more choices when making payments, which can help increase satisfaction and loyalty.

These services are also beneficial in terms of data security. Businesses can use utility payment processing to ensure that customer information is securely stored and processed. This can help reduce the risk of fraud and other malicious activities associated with credit card payments. Another advantage of utility payment processing is the ability to track payments in real-time, which can help businesses catch any discrepancies quickly and accurately.

In the End

Reducing payment processing costs is a crucial part of running a successful business. Businesses can reduce costs and increase profits by understanding their fees, taking advantage of technological solutions, optimizing the customer experience, and training staff on best practices. Additionally, utilizing utility payment processing services can help save money while providing customers with more payment options. Utilizing these strategies can help businesses maximize their profits while ensuring the security of customer data.

By implementing these strategies, businesses can ensure they spend as little as possible on payment processing costs while maximizing their profits. Any business can reduce payment processing costs and grow its bottom line with the right strategies.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.

Electric cars have been gaining popularity in recent years, not only for personal use but also for business purposes. One of the main advantages of electric cars for businesses is the tax benefits they offer. In this article, we will explore the tax advantages of purchasing an electric car for business use.

Section 179 Deduction

The Section 179 deduction is a tax break for small businesses that allows them to deduct the cost of qualifying assets in the year they are purchased rather than depreciating them over several years. Electric cars qualify for this deduction, meaning businesses can deduct up to the entire purchase price of the electric car from their taxable income.

For example, if a business purchases an electric car for $50,000, they can deduct the full $50,000 from their taxable income for the year the car was purchased, as long as they meet the other requirements of the Section 179 deduction. This deduction can provide a significant tax break for businesses that purchase electric cars.

Federal Tax Credits

The federal government also offers tax credits for businesses that purchase electric cars. The tax credit amount depends on the battery size of the electric car and the total number of electric vehicles the business has purchased. For example, a business can receive up to $7,500 in tax credits for purchasing an electric car with a battery size of 16 kWh or larger.

Additionally, businesses can also receive tax credits for installing charging stations for electric vehicles. The tax credit covers up to 30% of the cost of the charging station, up to a maximum of $1,000 for residential installations and $30,000 for commercial installations.

State Tax Credits and Incentives

In addition to federal tax credits, many states offer their own tax credits and incentives for businesses that purchase electric cars. These incentives can include tax credits, rebates, and other financial incentives. For example, in California, businesses can receive a tax credit of up to $2,500 for purchasing an electric car, and up to $7,000 for purchasing a hydrogen fuel cell vehicle.

Some states also offer incentives for installing charging stations, such as tax credits or grants. These incentives can help offset the cost of purchasing and installing charging stations for businesses.

Lower Operating Costs

Electric cars are also more cost-effective to operate than gas-powered cars, which can provide additional tax benefits for businesses. Electric cars have lower fuel and maintenance costs than gas-powered cars, which can save businesses money in the long run. Additionally, businesses can benefit from lower electricity rates if they charge their electric cars during off-peak hours.

Lower Carbon Footprint

Finally, businesses that purchase electric cars can also benefit from a lower carbon footprint. Electric cars produce zero emissions, which can help businesses meet their sustainability goals and reduce their environmental impact. Additionally, some cities and states offer incentives for businesses that reduce their carbon footprint, such as tax credits or grants.

For business owners looking for a versatile SUV, the Honda HR-V is an excellent choice. In this Honda HR-V review, we’ll take a closer look at this hybrid SUV.

With a spacious interior and flexible cargo area, the HR-V can handle all of your business needs. Plus, it gets excellent gas mileage, making it a cost-effective choice for business owners.

The HR-V also comes with a variety of features to make your driving experience more enjoyable, including a touchscreen infotainment system, a rearview camera, and available all-wheel drive. And with Honda’s reputation for reliability and quality, you can trust that the HR-V will be a dependable vehicle for your business.

Car Leasing

For businesses that prefer not to purchase a vehicle outright, lease cars can also offer significant tax advantages. Lease payments can be deducted from taxable income, which can lower a business’s tax liability. Additionally, lease payments are often lower than loan payments, making it easier for businesses to afford an electric car.

Leasing also offers the advantage of being able to upgrade to a newer model of an electric car more frequently, which can provide access to the latest technology and safety features.

Conclusion

In conclusion, the tax advantages of purchasing an electric car for business use can provide significant savings for businesses in the long run. From the Section 179 deduction to federal and state tax credits, businesses can offset the cost of purchasing an electric car and potentially even make a profit from the tax benefits.

In addition to the tax benefits, electric cars also offer lower operating costs and a lower carbon footprint, which can further benefit businesses looking to reduce their expenses and meet their sustainability goals.

If you’re in the market for a new car for your business, consider purchasing an electric car like the Honda HR-V. With its versatile interior, cost-effective operation, and advanced features, the HR-V is an excellent choice for business owners who want a dependable and efficient SUV for their business needs.

Ifama

Hi! This is Ifama. I am a student and giving my services in SEO. I have a lot of experience in digital marketing. Travelling is my hobby and I love visiting different hilly areas and doing adventures.

Technology-based solutions are changing the business sector quickly. However, CPA firms are experiencing the most significant changes as the current accounting environment evolves rapidly; whether it is technology-based, competition, cost-effective services, skilled professionals, changing laws, cyber security, or data privacy related changes.

Accounting firms must thoroughly prepare their clients’ tax returns while adhering to all applicable local laws and guidelines. Unfortunately, complying with tax laws and regulations is constantly changing, and finding qualified candidates becomes increasingly difficult for accounting professionals to stay on top as the best accounting service provider. Look at some of the current challenges accounting professionals face today.

10 Challenges CPAs and Accounting Firms Face during the Tax Season

Constantly Changing Tax Laws

The ever-changing tax regulations and compliance requirements provide the greatest difficulty for accounting businesses. Every year, tax and accounting rules become increasingly convoluted, making it harder for businesses to complete their work on time and accurately. If your company doesn’t follow the rules for reporting and compliance, it could face fines, penalties, and even more damage to its reputation.

Businesses can ensure they follow the ever-changing rules by using an automated tax processing and reporting solution. In addition, keep up-to-date on new tax laws and developments by reading industry publications, taking Continuing Professional Education (CPE) courses, and attending conferences and webinars.

Client Acquisition and Retention

For CPA firms in 2023, the most serious difficulties will be attracting and retaining clients for tax preparation services. As a result of the pandemic, several businesses were forced to lay off employees, reduce their operations, or go bankrupt. Now that company is growing again, it can be difficult to attract new customers while still satisfying existing ones.

New businesses only increase the level of competition already present. Accounting businesses can improve customer acquisition and retention with strategic advertising and website enhancement. They can also hold seminars offering advice on tax preparation and shift the focus of their content in that direction. Having cutting-edge equipment available is also helpful.

Cybersecurity and Data Management

In 2023, protecting the privacy of their client’s financial information will be the most pressing issue for CPA firms offering tax preparation services. All accounting services and client data are now digital and housed in the cloud, but accounting firms have maintained their work-from-home policy. As more and more people submit their tax returns, credit card information, and social security numbers online, CPAs have become a prime target for fraudsters.

Protect your clients by following industry standards. For example, if you want to ensure your business complies with privacy laws and that your software is secure, you should always use the most recent version.

Keeping up with Tax Policies

As the government improves tax regulations for the good of the people and tax preparation ratios continue to fluctuate, this is a reasonably frequent difficulty that CPA businesses must confront. To provide their customers with accurate tax returns, accountants must closely monitor the evolution of taxation rules. Accordingly, CPA firms should stay current on the latest changes in tax law, invest in software and resources to help with tax preparation and have a plan for dealing with audits.

However, it is difficult for accounting companies to keep up with the current tax developments and their other responsibilities. So again, outsourcing taxation services will be a perfect option for CPA firms since they have a staff of accountants that constantly watch the changing national and worldwide tax rules.

The Lack of Accounting Skills

Since there are more people who need good accountants than there are good accountants, there is a skills gap in the accounting field. This is especially valid in specialized areas like tax and auditing. In fact, 82.4% of hiring managers say it takes more work to find qualified accountants and financial workers. As the accounting industry grows, there needs to be more accountants who have the proper training. A skills shortage makes it hard for businesses of all sizes to find qualified people to fill open positions.

The issue’s primary causes are twofold. First off, the complexity of accounting and financial reporting obligations has dramatically increased in recent years. Because of this, performing the work has become more challenging for those who still need to gain a formal background in accounting. Second, there aren’t enough applicants with the required qualifications and expertise to fill the current demand.

Coping with Technology Efforts

Two-thirds of CPA tax preparation services are negatively affected by technological obstacles. It is highly challenging for CPAs to strike a balance between evolving technology and customer demands. Furthermore, technology is always becoming obsolete, making it extremely difficult for CPAs to find a solution to this issue. CPA businesses must keep up with evolving tax preparation technologies and teach their employees how to utilize the new tools.

Challenge of Different State Tax Rulers

Another challenge facing CPA firms is the increasing complexity of taxes. With 52 states, the USA is a fairly big country with various income and sales & use tax laws. Additionally, because the majority of businesses today engage in transactions involving multiple states, it is the obligation of accounting companies to adhere to local regulations before generating tax reports, which can be a challenging task.

Accounting firms find it extremely difficult to conduct tax preparation services when the client and the provider are from separate jurisdictions. With more people working from home and businesses operating online, the tax code has become more complicated. As a result, CPA firms will need to invest in software and resources to help them prepare taxes accurately and efficiently.

Pressure to Remain Cost-effective

Price reduction is one of the main issues CPA businesses encounter. It can be expensive to stay current with technology and challenging to maintain cost effectiveness while implementing new hardware and software. Offshore accounting services are the best solution for CPA firms to remain cost-effective.

Maintaining Accuracy and Quality

CPAs can maintain accuracy and quality by double-checking work, communicating with clients to ensure information is accurate, and being proactive about addressing any discovered errors. In addition, stay organized and efficient by investing in quality tax preparation software and utilizing project management tools to keep track of deadlines and client communications.

Protecting Client Data 

Protect client data by investing in quality security measures, encrypting sensitive data, and establishing procedures for handling data breaches if they occur. Stay current with technology by investing in quality tax preparation software, automating tasks where possible, and utilizing online communication tools to stay in touch with clients.

Conclusion

Above listed issues faced by accounting firms can be resolved by outsourcing accounting services. Yes, CPA firms can minimize their staff’s workload or shortage during tax season, leverage the latest technology, and, most crucially, lower their overall business operational costs by outsourcing services. A single best solution that applies to all issues accounting professionals currently face.

Stacey Howard

Stacey Howard is a passionate blogger having 6 years of experience in accounting & bookkeeping. She has been working as an accountant in Cogneesol. Due to her passion, she has contributed significantly through her write-ups by sharing an informative article about multiple accounting industries.

As a startup, there are many things to think about when it comes to finances, but perhaps none is more important than accounting and tax considerations. Failing to get these rights can lead to severe consequences for your business, including penalties, legal action, and even bankruptcy. In this article, we’ll explore some key accounting and tax considerations for startups, and offer practical advice on how to stay on top of them.

Get your Books in Order

The first step to ensuring proper accounting and tax compliance is to keep accurate records of all financial transactions. This means recording all income and expenses, tracking inventory, and reconciling bank accounts regularly. While you can do this manually using a spreadsheet, it’s much easier and more efficient to use accounting software like QuickBooks or Xero.

These tools allow you to automate many accounting tasks, such as generating invoices, processing payments, and producing financial statements. They also provide real-time visibility into your financial position, which can help you make informed decisions about your business.

Choose the Right Accounting Method

When it comes to accounting, there are two main methods: cash basis and accrual basis. Cash basis accounting records income and expenses when cash is received or paid out, while accrual basis accounting records income and expenses when they are earned or incurred, regardless of when the cash is received or paid.

For startups, accrual basis accounting is usually the better option, as it provides a more accurate picture of your business’s financial health. It also allows you to track your accounts receivable and accounts payable, which can help you manage your cash flow more effectively.

Understand your Tax Obligations

As a startup, you will have several tax obligations, including income tax, sales tax, and payroll tax. It’s essential to understand what taxes you need to pay and when they are due to avoid penalties and interest charges.

For example, if you have employees, you’ll need to withhold and pay payroll taxes on their behalf. You’ll also need to file quarterly payroll tax returns and an annual Form W-2 for each employee. If you sell products or services, you may be required to collect and remit sales tax to the state or local government.

Consider Outsourcing your Accounting and Tax Functions

While it’s essential to keep on top of your accounting and tax obligations, it can be challenging to do so while also running your business. That’s why many startups choose to outsource their accounting and tax functions to a third-party provider.

Outsourcing your accounting and tax functions can save you time and money, as you won’t need to hire a full-time accountant or tax professional. It can also ensure that your financial records are accurate and up-to-date, which can help you make better business decisions.

Take Advantage of Tax Incentives

As a startup, you may be eligible for tax incentives that can help you reduce your tax burden and free up cash flow. For example, you may be able to take advantage of the Research and Development (R&D) Tax Credit, which provides a tax credit for eligible expenses related to developing new products or processes.

You may also be able to take advantage of tax deductions for startup costs, such as legal and accounting fees, marketing expenses, and rent. It’s essential to work with a tax professional who can help you identify and take advantage of these incentives. In addition, consider working with a business that handles back office operations, such as Levy which offers comprehensive accounting and tax services for startups.

Separate Business and Personal Expenses

It’s crucial to keep your business and personal expenses separate to avoid confusion and potential legal issues. This means having separate bank accounts, credit cards, and accounting records for your business and personal finances.

Not only will this make it easier to track your business expenses and calculate your tax obligations, but it will also help you avoid piercing the corporate veil. Piercing the corporate veil is a legal term used when the courts disregard the separation between the business and personal assets of the owner, which can expose the owner’s personal assets to business liabilities.

Plan for Taxes in Advance

It’s essential to plan for taxes in advance, especially if you’re operating in a high-tax state or jurisdiction. This means setting aside money throughout the year to pay your estimated taxes, rather than waiting until the end of the year to pay them all at once.

By planning for taxes in advance, you can avoid cash flow issues and penalties for underpayment of taxes. You can also work with a tax professional who can help you identify deductions and credits that can reduce your tax liability.

Stay Up-to-Date with Regulatory Changes

Tax laws and regulations are constantly changing, which can make it challenging for startups to stay compliant. It’s essential to stay up-to-date with regulatory changes that may impact your business, such as changes to tax rates, deductions, and credits.

Working with a tax professional can help you stay informed about regulatory changes and ensure that you remain compliant with all applicable laws and regulations.

Conclusion

In conclusion, accounting and tax considerations are crucial for startups to ensure they stay compliant with regulations and maximize their financial position. By keeping accurate records, choosing the right accounting method, understanding your tax obligations, outsourcing your accounting and tax functions, and taking advantage of tax incentives, you can set your startup up for success.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.

As a small business owner in Canada, it’s important to understand the various tax deductions that are available to you. These deductions can help reduce your taxable income and ultimately lower your tax bill. However, with so many different deductions available, it can be difficult to know where to start. In this article, we’ll take a closer look at the top Canadian tax deductions for small business owners.

Home Office Expenses

If you operate your business out of your home, you may be able to claim a portion of your home expenses as a tax deduction. This includes things like rent, mortgage interest, property taxes, and utilities. To be eligible for this deduction, you must have a dedicated space in your home that is used exclusively for business purposes. The amount you can deduct will depend on the size of your home office and the percentage of your home that is used for business purposes. If you are not sure what is deductible or how to much to deduct, consult a tax accountant otherwise the CRA may not be happy with your choices.

Vehicle Expenses

If you use a vehicle for business purposes, you may be able to deduct certain expenses related to the vehicle. This includes things like gas, maintenance, insurance, and lease payments. To be eligible for this deduction, you must keep detailed records of your business mileage and the expenses associated with the vehicle. You can then deduct a portion of these expenses based on the percentage of your total mileage that was driven for business purposes.

Business Meals and Entertainment

If you entertain clients or customers as part of your business activities, you may be able to deduct a portion of the associated expenses. This includes things like meals, drinks, and event tickets. However, it’s important to note that only 50% of these expenses are deductible.

Professional Fees

If you use the services of a lawyer, accountant, or other professional as part of your business activities, you may be able to deduct the associated fees. This includes things like legal and accounting fees, as well as fees for consulting services. However, it’s important to keep in mind that the fees must be directly related to your business activities in order to be deductible.

Office Supplies and Equipment

If you purchase office supplies or equipment for your business, you may be able to deduct the associated expenses. This includes things like computers, printers, office furniture, and other business equipment. To be eligible for this deduction, the equipment must be used exclusively for business purposes.

Advertising and Promotion

If you spend money on advertising and promotion for your business, you may be able to deduct the associated expenses. This includes things like website development, print ads, and social media marketing. However, it’s important to keep in mind that only expenses that are directly related to promoting your business are deductible.

Travel Expenses

If you travel for business purposes, you may be able to deduct certain expenses related to the trip. This includes things like airfare, lodging, meals, and transportation. To be eligible for this deduction, the trip must be primarily for business purposes.

Bad Debts

If you have outstanding accounts receivable that you are unable to collect, you may be able to deduct these bad debts as a business expense. However, you must be able to demonstrate that you made a reasonable effort to collect the debt before it was deemed uncollectible.

In conclusion, as a small business owner in Canada, there are many tax deductions available to you that can help lower your tax bill. These deductions include home office expenses, vehicle expenses, business meals and entertainment, professional fees, office supplies and equipment, advertising and promotion, travel expenses, and bad debts. However, it’s important to keep detailed records and ensure that you are only deducting expenses that are directly related to your business activities. By taking advantage of these deductions, you can reduce your taxable

Ifama

Hi! This is Ifama. I am a student and giving my services in SEO. I have a lot of experience in digital marketing. Travelling is my hobby and I love visiting different hilly areas and doing adventures.

All businesses, whether small-scale or large-scale, require efficient finance management. This is only possible with proper bookkeeping and accounting. Manual inputs and finance handling are quite taxing and time-consuming, which is why online services, software, and outsourcing are quickly gaining popularity. You can even find accounting packages for small businesses that cater to your needs. The real question is whether or not bookkeeping and accounting are beneficial for your business. If you are looking for answers, keep reading to learn more.

What are Bookkeeping and Accounting?

Before we get to how bookkeeping and accounting are necessary, you should have a good idea of what it is. Bookkeeping and accounting are used to simply track finances, such as:

• Cash flow
• Taxes
• Expenses
• Income
• Transactions
• Invoices

Reports, data collection, bank management, and handling any incoming or outgoing transactions are also part of an accountant’s job.

5 Advantages of Bookkeeping and Accounting

Let’s examine the major benefits bookkeeping, and accounting can bring to a business:

Accurate Budget and Expense Management

A sound grasp of budgeting can make or break a business. Accounting and bookkeeping use financial literacy to keep a record of all company transactions, making it easy to find data relevant to expenditure. Better expense management helps businesses divide resources uniformly and make crucial decisions better. Having graphical, numerical, or visual representation further aids this process. A company will know exactly what they are investing in and what they are making out of it.

• Easy to deduce what products or services are bearing more profits
• Expense shifting and cutting down on additional costs increase business sustainability

Ensures Transaction Accuracy

Accounting and bookkeeping ensure the information or data you collect is accurate. Automation and use of software track all financial records and ensure they are accurate to the dot. Accuracy makes it easy to see the amount spent and profits gained clearly. Any discrepancies between business owners and employees are also eradicated. Ledgers keep things streamlined, obvious, and intact.

Aids Analysis, Planning, and Reporting

Accountancy solutions help the owners view a company’s progress and make it obvious where adjustments need to be made. Clear and precise analytics aid decision-making and allow investors to see your company’s current situation and progress. If they see you are on the right track, they are more likely to stick by and make further investments.

New solutions and ideas based on generated reports sound more credible and will be easier to adapt. This gears a company towards added success. Not only do accounting and bookkeeping aid planning, but they also allow a company to compare its success with a competitor’s to come up with better plans and strategies. Any damages, risks, and hurdles can also be easily avoided if they make a loss of profit obvious.

• Allows adjustable data entry preparation
• Aids income tax handling
• Allows owners to assess the financial standing of their company
• Operation costs are analyzed better
• Financial statement handling becomes easier

Allows Peace of Mind

The worry and stress associated with financial success can take a huge toll on the company. Organized books and ledgers with precise detail of financial/transactions prevent a company from facing any penalties during audits.

You are allowed peace of mind and a better hold over your financial situation with data on expenses, profit, income, and opportunities. Even handling taxes becomes easier and allows business owners to make sound decisions.

Accounting and bookkeeping also provide a learning curve that a company conquers while performing it. This way, you are knowledgeable and fully aware of financial processes and techniques as time goes on. You also become less likely to be scammed.

Easier Tax Management

Handling taxes confuses even the most knowledgeable people. Making mistakes can lead to a lot of trouble. Therefore, having sound knowledge of bookkeeping and accounting or using outsourcing services is your best option. Accounting solutions ensure that taxes are well-sorted and organized. Invoice generation used to file taxes also becomes a whole lot simpler.

Proper tax filing prevents ruining compliance rules and requirements. You will be more likely to pass during company audits and less likely to face penalties. You also do not need to worry about breaking IRS rules and risk damaging your company’s reputation.

Endnote

Bookkeeping and accounting are super crucial for any business. Without them, business owners have no sound knowledge or control over a company’s finances. Decision-making becomes impossible, and penalties or losses can cause a company to go bankrupt. Opting out of accounting and bookkeeping is not a beneficial idea.

Ifama

Hi! This is Ifama. I am a student and giving my services in SEO. I have a lot of experience in digital marketing. Travelling is my hobby and I love visiting different hilly areas and doing adventures.

If your business uses a lot of leases, whether leasing to other businesses or individuals or leasing items for yourself, the new ASC 842 update will change the way you account for them. Some businesses only use leases to a lesser extent as either a lessor or a lessee but others have built their entire business on the back of them. Equipment leasing and finance estimate that approximately 79% of USA businesses use some form of lease arrangement. In short, it’s entirely likely that ASC 842 will directly impact your business accounting.

ASC 842: What is the New Lease Accounting Guideline?

ASC 842 is a new accounting standard/guideline issued by the FASB (financial accounting standards board) and it, in essence, governs how companies (entities) record the financial impact of all of their lease agreements. There are a few changes to lease accounting treatment with this guideline. The main change that most businesses will notice is that if you report under US GAAP (so all USA based businesses), then ASC 842 requires you to record pretty much all of the leases to the balance sheet. Before, there were more allowable off balance sheet transactions. Of course, with leases on your balance sheet, your business will be far more transparent to those wanting to look through your accounts.

Why has ASC 842 been Rolled Out?

Accounting standard ASC 842 has been rolled out to ensure a better level of transparency for businesses in the USA. Now that the majority of leases are recorded on the balance sheet, auditors and those interested can easily and immediately get a good view of where the business is at and what kind of agreements it has in place. Some businesses might not like this, but remember, they’re all in the same boat. If you’re not too happy about your business being more transparent, the same will happen to your competitors too.

How can you and your Business Stay Compliant

To stay compliant with ASC 842 you simply have to use those guidelines when accounting for your lease arrangements. There is lease accounting software out there that can help you in your pursuit of better financial health. You can also hire an accountant who is well versed in lease accounting arrangements. It’s important to keep up to date with these accounting changes so that you and your business can pivot and adapt to the newest guidelines as quickly as possible. Usually, accounting bodies often give more than enough time to make sure you can move from one method of treatment to another.

How can you be sure to Stay Up to Date with Further Lease Accounting Changes?

Business owners are often quite busy and unable to spend too much time focusing on accounting updates. Here are some quick tips to stay in the know:

• Follow an accounting or finance website that is reputable and often posts updates.

• Speak to your accountant often and check up on whether or not things are going well.

• Keep an eye on industry body websites like FASB

• Follow accounting journals and keep an eye on the headline changes

How much you keep up to date entirely depends on the time available. Again, you usually get a good run time before the changes kick in but it’s always worth checking every now and then just to make sure you’ve got the treatment right.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.