Audited-Reviewed-Compilation – What’s the Difference?

When CPA firms contract with a client to produce their financial statements, the agreement with the client will include the nature of the reporting level, or assurance level, that the CPA is to provide with those financial statements.

There are three different reporting levels that are generally offered by a CPA firm: Compilation, reviewed and audited. The type of reporting level desired is determined by the client, though publicly held companies are required by regulation to provide audited financial statements to their holders.
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Cash Basis Accounting: The Missing Numbers

Cash basis accounting is used by a large percentage of small businesses. It is used because it is simple to understand and requires very basic record keeping skills to maintain. It also allows a company to pay taxes based only on revenues collected rather than on the full amount of revenues billed.

In cash basis accounting, deposits from sales or services are recorded as revenue. Checks and other forms of outgoing cash are recorded either as cost of goods sold or operating overhead expense. The net results determines the company’s profit or loss. A very simple system, as stated above.

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Why hire a bookkeeper? Quickbooks is easy to use, right?

Yes, Quickbooks is meant to simplify accounting functions to enable anyone to use it. However it is amazing just how big of a mess you can end up with if you don’t understand basic accounting principals.

This is a true account and not a hypothetical situation of what can happen when your day to day transactions are not recorded correctly.

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How Raising Capital Impacts Your Financial Statements

Businesses need money to operate and unless your business has retained some earnings to draw from, you might need to go out and raise capital. Although there are complexities that blur the lines, you can broadly think of all capital as falling into two categories:

• Loan-based funding
• Ownership-based funding

Loan-based funding includes borrowing money from the bank or offering a bond or promissory note to private lenders. Ownership-based funding is essentially where you sell a piece of the ownership in the company as a share or stock. You’re probably already familiar with these concepts. But what I want to talk about in this blog post is how each type of funding impacts your financial statements. Knowing this will help inform you about the best choice for your situation when it comes time to raise some capital.

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Inflation: Your Silent Enemy

Inflation is the rising price of goods. I call it “your silent enemy” because it is not easy to keep track of in your business and it’s not easy to reflect in your financial statements but it’s a reality you face every day when you buy goods and services to run your business.

Simply put, things cost more today than they did yesterday and they cost more yesterday than they did the day before.  That’s inflation. If you don’t occasionally consider the impact of inflation on your business, you’ll watch your profitability erode without even realizing it.

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