At 5:09 a.m. on October 9, 2009, the White House staff received an email message from the White House Situation Room, which monitors worldwide events around the clock. The subject line of the message read “item of interest.”

Soon after, the White House was abuzz with excitement. President Barack Obama was awakened immediately by a telephone call from Robert Gibbs, the White House press secretary, and was said to have been “very surprised” on hearing that he has been declared the winner of the Nobel Peace Prize for 2009.

This decision to confer the peace prize was taken much earlier, somewhere during the middle of the night, but the Nobel committee did not tell the President before the announcement, and the chairman said, “Waking up a president in the middle of the night, this isn’t really something you do.”

Amidst cries of it happening too soon, the President agreed to accept the Nobel Peace Prize that the Norwegian Nobel Committee decided to confer on him.  He said that he was “surprised and deeply humbled” by this decision to award him the peace prize. According to the committee, it honored Obama for his “extraordinary efforts to strengthen international diplomacy and cooperation between people,” but the President said that he views it more as a “call to action” rather than recognition of his accomplishments.

This decision took everyone by surprise, including the reporters who gasped when this was announced by the chairman of the Nobel committee, and in his words, “Only very rarely has a person to the same extent as Obama captured the world’s attention and given its people hope for a better future.”

Is this happening too soon and does he deserve it? Is it more of a burden for the President than glory? These are the questions being raised from all quarters.

Obama is the fourth US president to win this prestigious prize and the third president in sitting to do so.  The other sitting American presidents were Theodore Roosevelt in 1906, Woodrow Wilson in 1919 and Jimmy Carter in 2002.

Republicans feel he won this more for his oratorical skills and star power than for any achievements. Chairman of the Republican National Committed said, “The real question Americans are asking is, ‘What has President Obama actually accomplished?’”  The Democrats also privately wonder if he deserved it.

While most world leaders expressed surprise, former Nobel peace laureates were more tolerant and viewed it as an encouragement for President Obama to handle all the issues he has been discussing on world stage. They feel this will work as a reminder and prod Obama along when he hits any hurdles on his path towards peace.

The Nobel committee in Norway reiterated that its decision was solely based on Obama’s efforts toward nuclear disarmament as well as American engagement with the world relying more on dialogue and diplomacy. According to the chairman, “The question we have to ask is who has done the most in the previous year to enhance peace in the world.  And who has done more than Barack Obama?”

The President will travel to Oslo to accept the award on Dec 10 and will donate the $1.4 million prize money to charity.  There have been people who thought that respect for the President would have increased by leaps and bounds if he did not accept this prize.

The President himself was not convinced and said, “To be honest, I do not feel that I deserve to be in the company of so many of the transformative figures who have been honored by this prize, men and women who’ve inspired me and inspired the entire world through their courageous pursuit of peace.”

Observers note that Obama did generate a lot of goodwill overseas, and became hugely popular.  He has vowed to pursue a world with no nuclear weapons; reached out to the Muslims; sought to restart peace talks between Israel and the Palestinians.  But all this is just in the beginning stages, as he had to concentrate on the economic crisis and other domestic problems first.

Obama’s supporters hope that the prestige of being a Nobel peace laureate strengthens the president’s hand in the health care reform debate. They are of the opinion that in a world where people were pushed around by the Bush administration, this peace prize seems to be wrapped in gratitude for his willingness to listen and negotiate, as well as taking a stand on nuclear disarmament and climate change.

The term “white collar crime,” is not just some crime conducted by people in white-collar jobs; it is a crime of artful lying. White collar criminals use persuasion and deceit to achieve their end.  Not all crime is illegal, a person can be deceitful and unethical while not committing any illegal acts, according to law.

Spinning is the favorite tool of these criminals. Since humans live on hope, they are sold hopes and dreams through lies. It is a common thing for accountants of companies to employ several tricks to dupe auditors, but one trick that was much talked about involves using women.

Sam Antar

As a former CPA and former Chief Financial Officer for Crazy Eddie, Inc.; Sam Antar had become (in)famous in the 1980s for masterminding one of the largest securities frauds of its time, which shaved investors off by hundreds of millions of dollars.  Many lost their life savings, some lost their careers, cost creditors lost hundreds of millions of dollars and overall was responsible for immeasurable suffering of thousands of people, including shareholders, creditors, financial analysts, employees, public accounting firms, Wall Street firms etc.  The fraud hit so many people that Antar was called, “the Darth Vader of Capitalism,” by US Attorney Michael Chertoff.

Compared to today’s frauds which go into billions of dollars, the fraud at Crazy Eddie may seem small; however, it was much more outrageous than most frauds committed during those years because it went on for 18 long years (1969-1987), and it used multiple methods.

Antar used several complicated accounting tricks, but one of the simple methods used by him was to pair hot female employees with young male auditors who were in their 20s. He later said, “These auditors from the Big Four accounting firms are usually single kids just a few years out of school. What do kids in their 20s think about all the time? Sex. In effect, I was a fraudster, matchmaker and pimp.”

In Sam Antar’s words, “We committed crime simply because we could. Criminologists like to analyze white collar crime in terms of the ‘fraud triangle’ — incentive, opportunity, and rationalization. We had no rationalization. Simply put the incentive and opportunity was there, but the morality and excuses were lacking. We never had one conversation about morality during the 18 years that the fraud was going on.”

Eventually Antar took full responsibility for his actions and to avoid jail time, worked with the U.S. government, and now has taken up a position as advisor to the government agencies and other businesses on avoiding accounting fraud.

Accounting Scams of Today

The current financial crisis has seen several such accounting scams, including the Bernard Madoff scheme, which is a multi-billion dollar fraud.  But Bernie Madoff may just be the tip of the iceberg with the unraveling of several such frauds.

Accounting firm, KPMG, another of the Big Four accounting firms (with Ernst, PricewaterhouseCoopers and Deloitte Touche Tohmatsu being the other three), had its Executive siphon as much as $900,000 of the company funds for personal use.  Ernst & Young had one of its Hong Kong executives detained by police because of evidence of false audit documents came to fore in a court case.

According to a former FBI accounting fraud investigator, “There’s always an uptick in fraud activity when the economy goes down.  It’s like the ocean going out and you can see everything that was hidden under water.”

The Need for Accounting Education

Antar feels that reform has to start with accounting education. He says, “The kids who are out on the front lines of auditing, they know nothing about people like me.  It is easy to fool them.” He wrote in one of his posts, “Accounting students must take separate in-depth courses in criminology, securities laws, internal controls, insurance/risk management, and other ‘real experience’ areas they require for the fieldwork they will encounter on audits.”

Key Elements In Fraud Cases

In spite of there being millions of ways to commit fraud, the key elements in most employee fraud cases are found to be incentive, opportunity and rationalization.

Incentive – A deeper look into the whole thing reveals that while greed is the main incentive, there are other strong incentives, such as gambling debts, drug usage, infidelity or just ego. There have been cases where fraud was conducted just to satisfy the psyche, and not for monetary reasons.

Opportunity – This is when an employee feels that there is a lesser chance of being caught and this happens in private companies where there are less internal checks and controls rather than in public limited companies.

Rationalization – The white-collar criminal consoles their conscience and rationalizes his or her behavior, usually when there exist internal problems such as downsizing or overworking.

Antar says accounting fraud is all about “distraction,” like diverting the auditors’ attention with attractive young females.  He says, “It’s like David Copperfield, it’s an illusion … I want you to look over here so you don’t see what I’m doing over there.”

Another tactic is “delay.” If the auditors have five weeks to do the audit, the fraudster’s goal would be to leave 80% of the work till the last minute, so that the auditors feel rushed.

According to another white-collar fraudster, accounting fraud means understanding the difference between truth and accuracy.  He said that every financial statement he has ever created was completely accurate – but not truthful.

One of the best ways of detecting fraud is said to be by asking questions and if someone gets offended in the process when asked a question about verification, then something is wrong there. Honest people do not get offended when asked to verify something official.The one good thing that came out of the financial crisis was that several people were being trained to detect this fraud. Association of Certified Fraud Examiners, a US based company, trains accountants in fraud investigation, and 10,000 of its 47.000 members joined last year alone. Could this be the beginning to the end of white-collar fraud?

There are two types of accounting systems or methods available to business owners: cash accounting and accrual accounting. These two accounting methods are important to understand, because a business is required to use one or the other consistently in recordkeeping for tax purposes. Here’s a definition of each:

Cash Accounting

In the cash accounting method, debits and credits are recorded to accounts only when money actually changes hands. For example, if a business sells a product today for $100, but the customer doesn’t have to pay for it for 30 days, the business wouldn’t alter their cash account records until the money is actually received.

Benefits of Cash Accounting

1. Working under a cash accounting model can be easier for small business owners in the sense of time spent.

2. It’s easier to determine actual cash on hand, instead of just money owed to the business.

3. It’s often also easier for small business owners to understand basic cash flow, as opposed to asset and liability accounts.

Accrual Accounting

In the accrual accounting method, debits and credits are recorded to accounts when the transaction itself takes place, regardless of when cash actually exchanges hands (with “cash” meaning any kind of payment for goods or services rendered). Using the same example as above, the business would alter their accounts to reflect payment once the product is sold, rather than waiting until the cash is actually received. It would be done in multiple parts however. The transaction would first be accounted for in a receivables account (money owed to the company, and an asset), and the receivables account would be decreased when the cash account was increased after the payment was actually made.

Benefits of Accrual Accounting

1. Expenses can be counted towards tax deductions even if the purchase isn’t technically paid for until the following year, as long as the transaction occurred in the tax year in question.

2. Leads to more comprehensive recordkeeping and account evaluation when looking at a company’s current financial situation (cash on hand, liabilities owed to others, cash owed to the business, etc.), which can help in determining typical collection times to make them more efficient.

Look into both the cash and accrual methods of accounting thoroughly before deciding on a model for a new business, because trying to change accounting methods down the line can prove extremely difficult.

Recordkeeping is vital for all businesses, especially when it comes to financial records. Good financial business records are needed for a variety of reasons, including taxes, getting financing, and evaluating the company’s financial position when updating the business plan to move forward.

Important Financial Records for Accounting

There are a few common types of financial records that business owners will need for accounting purposes, most notably for taxes. These are often called “source documents,” and include:

1. Receipts for purchases.
2. Invoices and purchase orders.
3. Employee time sheets and payroll information.
4. Contracts.
5. Any other record that could back up the claim of a business expense if audited.

How Long To Keep Financial Records

Financial records should be kept stored and safe for a long enough period of time that any chance of audit passes. While with the IRS, that’s typically three years, they retain the right to audit for up to six years if they suspect major under-reporting of income. Because of this, many accountants suggest keeping financial records for up to ten years. After that point, many financial records can be disposed of, but a business owner may want to hold onto minimal records that demonstrate business trends for future evaluation.

Financial Recordkeeping and Privacy Issues

While financial recordkeeping is vital for any business for tax and accounting purposes, those financial records and source documents often contain private financial information such as account numbers or even personal information in cases of freelancers and sole proprietors. In order to protect not only the financial records, but also the privacy of the business owner(s), try to store records in a safe environment away from prying eyes when possible. A fire-safe safe would be a good option for small amounts of records (to protect the documents physically as well), or a locked room or closet can suffice for larger quantities of records, where access can be limited.

Most areas of business accounting would be difficult to understand without first grasping the concepts of assets and liabilities. Essentially, all money going in and out of a business will fall into different “accounts.” Those accounts are classified as asset accounts, liability accounts, or equity accounts (such as owner’s equity or shareholder equity, basically meaning what’s invested into a business). Assets and liabilities are the most common classifications between accounts.

What are Assets?

An asset is anything a person or company actually owns that has some kind of future value. Something fluid like cash is an asset for a business, as are property, equipment, accounts receivable (money owed to the company), investments, and even intellectual property rights such as copyrights, trademarks, and patents.

Here’s an example when thinking of a wholesaler: Some of their assets would include their products, any money owed to them by retailers ordering in bulk but paying later, and their vehicles for transporting goods to buyers, assuming they do that independently.

What are Liabilities?

On the other side of the spectrum, a company has liabilities, or things owed. Some examples of common liabilities include accounts payable (essentially cash owed from purchases made on credit or payment terms), or yearly payroll and building lease costs.

Using the same example of a wholesaler, the company’s liabilities would include things such as their yearly lease total for warehouse space and the yearly salaries of their employees and contractors.

How Assets and Liabilities are Related

Assets and liabilities are two sides of the financial spectrum for a business, and are vital in being able to balance a company’s financial records (in addition to owner’s equity). Understanding assets and liabilities can help a business owner to better gauge the financial health of their company, similar to the way an individual’s financial situation is determined by comparing what they have of value personally as opposed to what they owe to others.

Balance sheets are one of the most basic business accounting tools, and understanding balance sheets is a good thing for any small or online business owner to grasp before diving into the financials of running a business.

What is a Balance Sheet?

Balance sheets are generally brief financial statements that give a general overview of the financial state of a business, including factoring in assets, liabilities, and equity. Balance sheets cover very specific periods of time, such as a company’s fiscal year.

Assets = Liabilities + Owner’s Equity

The “balance” part of the term balance sheet comes from the fact that a business owner’s assets should equal their liabilities plus owner’s equity, thus creating a balance in the company’s financial records.

Assets

Assets are things of value owned by the company (bank accounts, vehicles, equipment, etc.).

Liabilities

Liabilities are things that the business owes, such as rent costs for a leased location.

Owner’s Equity

Owner’s equity is essentially what the owner of a business has invested into it (such as infusing the company bank account with funds from a personal account).

The Balance Sheet Layout

Balance sheets are broken into two columns. Much like the equation given above, the asset accounts are listed on the left and the liability and equity accounts are listed and accumulated on the right side of the balance sheet. This provides a simple snapshot of accounts on both sides of the equation, letting a business owner see what they own, owe, and have invested, and whether or not they have their records properly balanced through the column totals.

Who Needs Balance Sheets?

All business owners should keep a balance sheet, in addition to other basic financial statements, to be able to quickly monitor trends in their assets and expenses. While a business owner would be the most interested party in a sole proprietorship, other types of businesses also need to keep balance sheets, especially those needing to account for shareholder equity rather than that of a single owner.

One of the most fundamental, and often most confusing, aspects of basic business accounting is the distinction between debits and credits. In accounting, the ultimate goal is to have your financials balance (such as on a balance sheet). In order to balance financial records, every business transaction has both a debit and credit (if money is being added to one account, it has to be coming from somewhere else, and vice versa).

Debit and Credit Confusion

For those new to accounting, and just learning the basics for their small or online business, the terms credit and debit may only be familiar through things like credit cards or debit cards through a bank. This causes confusion, because it sometimes leads to the assumption that debits are “bad” (such as a debit card taking money from a bank account) and that credits are “good” (such as a credit card giving someone extra finances). In fact, neither debits nor credits are “good” or “bad” at all. They’re simply opposite sides of the same coin, used to balance the books. Here’s how:

Accounts

In accounting, there are a series of account types that transactions fall into. These include assets, liabilities, owner’s equity, income, and expenses. When one account is debited, another is credited, hence causing a balance. For example, let’s just focus on assets and liabilities.

Assets are things a business (or its owner) owns that have some kind of value in the future (from bank accounts to owned property). Liabilities are essentially debts that the business (or owner) has to others. Let’s use an example of a company’s asset being their bank account, and a liability being the yearly salary of the company’s sole employee (the total amount owed to that employee for that year). If the employee is owed $52,000 for the year, the liability of the company is $52,000. Let’s assume the company has $200,000 in the bank account (asset), and a payment is being made for $1000 for one week. That $1000 has both a debit and a credit (it’s being reflected as a decrease in assets, but it’s also a decrease in the company’s liabilities).

Debits and Credits in Relation to Accounts

Debits and credits don’t mean the same thing for every type of account. Here’s what happens when you debit or credit assets, liabilities, owner’s equity, income, and expense accounts:

Assets – Debits increase, and credits decrease asset accounts.

Liabilities – Debits decrease and credits increase a liability account (think about credit cards – when the credit limit is increased, the cardholder’s debt to the credit card company increases).

Owner’s Equity – Debits increase, and credits decrease owner’s equity.

Income – Debits decrease and credits increase income.

Expenses – Debits increase and credits decrease expenses.

So using the salary payment example above, there would be a $1000 credit decreasing the company’s assets, but at the same time, there would be a $1000 debit to the liabilities account, decreasing the total amount owed by the company, causing a balance of debits and credits in the account.

Accounting is a foundation of business. It doesn’t matter if your business is a one-man operation or a multinational corporation. There is a serious need for effective accounting practices. Accounting takes a certain amount of knowledge and skill to be done effectively, and it is not an area to cut corners.

The government has certain guidelines that must be followed in tax preparation, year end reports and any number of other financial documents. It’s crucial to find the absolute best software or firms or individuals to suit your business needs.

Different businesses need different things. Every business needs record keeping, which can be done by the owner or an employee, but as record keeping progresses into payroll, compliance, and tax preparation, things become much more complicated. Finding a competent individual or firm to handle these needs can be time consuming and stressful. After all, this is your money we’re talking about.

Basic Accounting

Keeping track of income and expense can be more complicated than a stack of old receipts. Those expenses must be itemized and income must be categorized. Payroll throws another wrench into the works especially if you must also report employee compensation to the government. At the end of the year or each quarter, it’s time to begin forecasting and reporting. For a company or business of any size accounting can quickly become a full-time job.

Taxes

Taxes take on a whole new meaning when you beginning dealing with government compliance and business reports. Sales tax, income tax, and property taxes must be dealt with in different manners and often by different departments of the government.

The Accounting section can help you find the tax and accounting software or professionals you need to be sure you are giving the government their due and keeping your business operating in the black.