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 Powers Bookkeeping Service

(916) 302-9153

info@powersbookkeepingservice.com

What are Taxes?

Simply put, taxes are the sum of money paid to the government to collectively fund spending towards public goods and services. Taxes are used to fund things like schools, roads, and various public programs, such as Social Security and Medicare. Citizens and corporate entities are all required to pay taxes, be it at the federal, state, or local level. We pay taxes to the government and entrust them to accomplish these positive impacts on society while using our tax dollars in an efficient manner.

Governments may levy various types of taxes, each serving a different purpose. There are also varying degrees to which the average person may be subject to them:

Income-based taxes: Taxes that are reported and paid on the annual income tax filings with the Internal Revenue Service:

✔️ Income tax: A tax levied on the wages, salaries, investment income such as interest and dividends, or other forms of income an individual or household earns and receives.

✔️ Capital gains tax: A tax levied on profit from the sale of property or an investment.

✔️ Corporate income tax: A tax levied on the business profits of corporate entities.

Payroll taxes: Taxes paid on the wages and salaries of employees to finance social insurance programs. These taxes are withheld directly from your paycheck if you are a W-2 employee and paid through the income tax return if self-employed. They are made up of two components:

✔️ Social Security tax: A 6.2% tax on earned wages with funds used for social security benefits paid to those eligible.

✔️ Medicare tax: A tax of 1.45% on earned wages with funds used to pay for Medicare, Part A benefits.

Property taxes: Taxes based on the value of a property, paid by the property owner:

✔️ Real estate taxes: A tax based on the value of your home.

✔️ Vehicle/personal property taxes: A tax based on the value of your car, truck, boat, etc.

✔️ Consumption taxes: Taxes levied on the purchase of goods or services and is paid by the consumer:

✔️ Sales tax: A tax applied to retail purchases, set at a percentage of the total cost that is determined at the state and local level.

✔️ Tariff: A tax imposed by one country on the goods and services imported from another country.

Death taxes: Taxes imposed on a deceased’s estate:

✔️ Estate tax: A tax levied on the transfer of the estate of a person who dies.  An estate tax applies when the value exceeds an exclusion limit set by law.

✔️ Inheritance tax: A state tax that you pay when you receive money or property from the estate of a deceased person.

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The Benefits of Accrual Accounting

While accrual accounting is the more complex of the two accounting methods, it is considered the standard accounting practice for most businesses, except small businesses operating on an all-cash basis, and provides some distinct advantages:

• By using accrual accounting, companies can look at both current and expected cash flows, providing a much more accurate picture of the organization’s financial health.
• Accrual accounting shows underlying business transactions, not just those involving cash. Many transactions may be relatively straightforward, with payment received or made at the time of the transaction. Other transactions, which may be more complex, involve buying and selling on credit. This requires the company to account for monies that will be paid or received in the future.
• Accrual-based accounting is likely to be more accurate regarding a company’s assets or liabilities. Adhering strictly to a cash-basis system, a company’s accounting may leave out crucial information regarding unpaid invoices or liabilities, which could cause the omission, however unintentionally, of certain assets.
• The timing of when revenues and expenses are recognized can have a major effect on a company’s perceived financial health. One example of this can be found in the construction business, where a company may take on a long-term project and not receive cash payments until the project is completed. 
• Using the accrual method, a company would benefit from something called the percentage of completion method, in which the construction company mentioned above, for example, would recognize a percentage of revenue and expenses proportionately as the project was completed. In this case, the accrual method would show the prospective lender a more complete picture of the company’s revenue channel. 

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What Is a Chart of Accounts?

A chart of accounts (COA) is an index of all of the financial accounts in a company's general ledger. In short, it is an organizational tool that lists by category and line item all of the financial transactions that a company conducted during a specific accounting period. Large and small companies use a COA to organize their finances and give interested parties, such as investors and shareholders, a clear view and understanding of their financial health. Separating expenditures, revenue, assets, and liabilities helps to achieve this and ensures that financial statements are in compliance with reporting standards.

Here is a way to think about a COA as it relates to your own finances. Say you have a checking account, a savings account, and a certificate of deposit (CD) at the same bank. When you log in to your account online, you’ll typically go to an overview page that shows the balance in each account. Similarly, if you use an online program that helps you manage all your accounts in one place, like Mint or Personal Capital, you’re looking at basically the same thing as a company’s COA. You can see all your assets and liabilities on one page. There is no single format for a chart of accounts. Typically, they all follow the essential structure described below. But the final structure and look will depend on the type of business and its size.

COA Structure

The COA is typically set up to display information in the order that it appears in financial statements. That means that balance sheet accounts are listed first and are followed by accounts in the income statement.

These primary accounts of assets, liabilities, shareholders' equity, revenue, and expenses can then be broken down into sub-accounts such as operating revenues, operating expenses, non-operating revenues, and non-operating losses. In addition, the operating revenues and operating expenses accounts might be further organized by business function and/or by company divisions.

As an example, a small company COA might include these sub-accounts under the primary assets, primary liabilities, and primary shareholders' equity accounts:

Assets

• Cash
• Savings account
• Petty cash balance
• Accounts receivable
• Undeposited funds
• Inventory assets
• Prepaid insurance
• Vehicles
• Buildings

Liabilities

• Company credit card
• Accrued liabilities
• Accounts payable
• Payroll liabilities
• Notes payable

Shareholders' equity

• Common stock
• Preferred stock
• Retained earnings

Why Is a Chart of Accounts Important?

It is a very important financial tool that organizes a lot of financial transactions in a way that is easy to access. Because transactions are displayed as line items, they can quickly be found and assessed. This is crucial for providing investors and other stakeholders a bird's-eye view of a company's financial data.

Is There a Single COA Format?

Not precisely. A company can use, create, or modify any format that it wishes. But experience has shown that the most common format organizes information by individual account and assigns each account a code and description. What's important is to use the same format over time for the consistency of period-to-period and year-to-year comparisons.

Is a Chart of Accounts Required?

No, but it's considered necessary by all kinds of companies seeking to categorize all of their transactions so that they can be referenced quickly and easily. Source

PCI Compliance

Understanding PCI Compliance: Why It Matters for Your Business

If your business accepts, processes, or stores credit card payments, PCI compliance is essential. PCI DSS (Payment Card Industry Data Security Standard) is a set of security standards designed to protect sensitive cardholder data and prevent fraud.

Compliance involves a range of security measures, including:

• Encrypting cardholder data
• Maintaining secure networks and systems
• Regularly monitoring and testing for vulnerabilities
• Implementing strong access controls and authentication

Failing to comply with PCI standards can result in hefty fines, legal issues, and damage to your reputation if a data breach occurs. For businesses of all sizes, staying PCI compliant helps build trust with customers and ensures secure transactions.

By working with reputable payment processors and keeping your security practices up to date, you can protect both your business and your customers from cyber threats—making PCI compliance a critical part of your overall risk management strategy.

Powers Bookkeeping Service, Inc | 916-302-9153

Why Understanding Your Financials Matters

Knowing your financials is crucial for making informed decisions and driving business success. Clear financial insight helps you:

• Make Smarter Decisions: Understand revenue, expenses, and profit to guide your business choices.
• Manage Cash Flow: Track money in and out to avoid surprises and ensure smooth operations.
• Measure Performance: Use financial reports to monitor progress and identify areas for improvement.
• Plan Strategically: Create accurate forecasts and set realistic goals for growth.
• Build Trust: Accurate financials demonstrate transparency to investors and stakeholders.

We would love to help! Contact us today with any questions regarding finances, let us ease your mind! 

Powers Bookkeeping Service, Inc | 916-302-9153

Mobile Notary Service

At Powers Bookkeeping we have a Notary Service. We are mobile and serve the greater Sacramento Area. 

Powers Bookkeeping, your trusted mobile notary service. We provide professional, convenient, and reliable notary services at your location, whether it’s your home, office, hospital, or any other setting.

Our certified notaries come to you, making notarization easy and hassle-free. We specialize in a wide range of documents, including real estate closings, legal forms, affidavits, power of attorney, and more.

With flexible hours and prompt service, we’re here to accommodate your busy schedule and ensure your documents are handled with care and precision.

Cities Served:

• Lincoln
• Wheatland
• Rocklin
• Roseville
• Granite Bay
• Citrus Heights
• Auburn
• Fair Oaks
• Carmichael
• Antelope
• Sacramento
• Folsom

Contact us:  916-302-9153