Almost anyone who earns money has to deal with accounts at some point or another. After all, anyone who earns money has to legally pay taxes and deal with their finances in various other ways! That is, unless you live in one the five countries that do not have income taxes. So, it’s extremely important that you are familiar of what’s expected of you depending on what state of employment you are in. If you’re unfamiliar with accounting, accountancy, and accounts, don’t worry. We’re here to help. Let’s take a moment to get to grips with some account basics!
What Is Accounting?
First things first, what actually is accounting? Well, put simply, accounting is a form of systematic and comprehensive record keeping. Records of your financial transactions can determine exactly how much tax you owe the state at the end of the fiscal year. These taxes can then go towards supporting the state you live in – covering emergency services, policing, public institutions, and maybe even healthcare. Carrying out accounting properly can also benefit you in other ways. It can give you an idea of your income, which can give you a good idea of how to organise your finances appropriately. It could let you know what you can spend and what counts as your disposable income. In professional terms, being more aware of what money you have coming in and out of your professional accounts can also make you more open to financial advice and good financial planning. You can figure out what areas of investment are bringing the most money in and which you might want to cut out.
When You Are Employed
Now, there are multiple benefits that come hand in hand with working as an employee. You have contracted hours and contracted pay, meaning that you know exactly how much money you are bringing in at any given time. If these hours change or your job role becomes redundant, you’ll be compensated or receive some sort of redundancy payout. Your employer has to offer sick pay, paid annual leave, and paid parental leave. You are entitled to a safe workplace. But one particular benefit of being employed is that your employer takes care of your taxes and accounting on your behalf. Your taxes are automatically deducted from your salary before your wages are paid into your bank account. You don’t have to think much more about them!
When You Are a Self-Employed Freelancer
Having to think about taxes and accounts tends to kick in when you work for yourself. So, let’s take a moment to look at self-employed individuals. If you are self-employed you commit to figuring out and paying your taxes yourself. You need to make sure that your dues are paid at the end of each fiscal year. There are a few things that you can do to make this easier!
Separating Your Finances
The first thing that you should do for the sake of accounting as a freelancer is to separate your finances. You should avoid using your personal accounts for any professional use. The easiest way to do this is to set up separate personal bank accounts and business accounts. Use your professional account for:
- Taking payments from clients
- Making purchases associated with your work
- Making investments associated with your work
- Paying professional bills and finance agreements
Use your personal account for:
- Depositing your pay to yourself
- Paying household bills
- Paying other personal financial agreements
- Making personal purchases
Operating in this way will provide you with two different sets of statements, allowing you to figure out your finances and pay the right amounts of tax and expense the right amount of allowable professional costs.
Keeping Track of Expenses
If you are unfamiliar with the concept of expenses, it’s important to be aware that some purchases or costs associated with being self-employed and operating on a self-employed basis are tax deductible. Essentially, you can note them down on your tax return on the end of the year and their cost will be deducted from your overall taxable income. So, keep copies of receipts for anything that you’ve purchased that is used purely for the sake of business. This could include uniforms, costumes, business trip expenses, certain membership fees, and other professional costs. Proof of purchase can prevent problems from arising if there are ever any enquiries into your return.
Hiring an Accountant
If you want to make life a little easier for yourself, you might want to outsource your accounting to a professional accountant from a top accounting firm. This individual’s primary role will be to prepare and examine your financial records. They will consider all of the information that you put forward to them by and ensure that you know exactly how much tax you have to pay and when you need to pay it. This can help you to avoid any fines or other penalties that tend to come hand in hand with late submission. They can also will give you more general advice, such as how to maintain comprehensive financial statements for your own sake and for their sake when sorting out future accounts on your behalf. They will also examine financial statements that you do provide, ensuring sure that everything is accurate and can comply with any updated laws and regulations put in place by the government that you might otherwise be unaware of. Put simply, they will provide you with pretty much all-round assistance when it comes to managing your professional finances. They will then complete the entire process by filing your tax return on your behalf. Then there’s the extra benefit of the accountant lifting a huge weight from your shoulders – you know that they’ve carried everything out correctly, and if not, they will be the person liable for miscalculations – not you.
When You Run a Small Business
If you run your own small business, you are going to be self-employed, much like the self-employed freelancers we have mentioned above. This means that you too are liable for dealing with your own accounts. While much of the above information will apply to you, you may also want to consider hiring an in-house accountant. Outsourcing accounts is great. But if your business is growing and expanding, bringing accountancy in-house will pair you up with a professional who will then be dedicated to your company and can really get to know the ins and outs of your professional finances. If you are unsure about where to start when it comes to finding an in-house account, you might be best off using a professional recruitment agency. They can take the whole process away from you and get back in touch once they’ve found a high-quality, competent candidate. If possible, make sure to hold a final interview with potential candidates yourself. This will give you a good opportunity to determine whether they will fit well into your company.
Becoming an Accountant
Maybe you don’t want to familiarise yourself with accountancy for the sake of filing your own taxes, but you’re actually interested in accountancy because you want to specialise in this field yourself. Let’s take a moment to run through key factors associated with accountancy as a career.
Accountancy can be an extremely lucrative role. After all, it is estimated that the average accountant brings home an impressive $68,150 on an annual basis. If you do really well, you might also want to bear in mind that the top ten percent of accountants’ salaries averaged $120,910 per year!
So, what are your chances of landing this job? Well, there’s bound to be competition out there. But it is estimated that 140,300 new jobs in accountancy will have established themselves by 2026. So, there’s never been a better time to get involved in the field – there are bound to be vacant places to be filled.
Accounting, unsurprisingly, is strictly monitored and you are going to have to gain qualifications in order to secure work and operate legally. These qualifications will also familiarise you with accountancy’s strict code of practice.
There’s almost always room for progression in accountancy. Whether you take on more clients, start working as a dedicated accountant to a given company, or even end up starting up your own firm, chances to expand are prolific. Most people start increasing their chances of progression by starting relatively low on the career ladder and slowly increasing their fees or increasing the number of clients they engage with. This helps to establish themselves as high-demand options to people who are recruiting in the field.
As you can see, there’s a whole lot to know about accountancy and plenty of different angles to view the subject from. But hopefully, the above information has managed to at least familiarise you with the basics on the topic. The important message to take away is to never underestimate the importance of accounts. Chances are that you’re going to have to engage with them at some point or another, or that you’re engaging with them currently!