The Benefits of OCR Technology in Finance and Accounting

by Zach Haris

 

The world has already embraced the benefits of digitized processes and products. Smartphones are most individuals’ tools for everything from grabbing a ride, paying bills, sending work documents, to daily communication. Government offices schedule appointments and have applications done on their websites.

Digitizing records saves both time and paper. Archiving is done much faster and placed in a larger storage space. Access is more practical and efficient, making information easy to search and share among relevant parties.

Finance and accounting would benefit greatly from digitizing products and process. Optical character recognition (OCR) can scan documents and images, converting them to files in different formats. The technology lets accountants and financial analysts focus on the more specialized aspects of their jobs, leaving the routine tasks of deciphering old receipts and statements to computers.

More and more accountants are performing higher skills, rather than the manual ones most did during the analog age.  OCR will help accountants and analysts focus on the more technical aspects of their jobs while also introducing more accuracy and precision into mechanical tasks. Here are some benefits in using optical character recognition in any finance endeavor.

Better Auditing and Reporting on Expenses

Financial advisory firm Stout Risius Ross reports that businesses spend more than $1B in fraudulent expense reimbursement costs. Some instances include blank receipts from cab drivers, blank receipts on non-business transactions and adding more to the actual expense, double receipts from restaurants and hotels, and other means of adding fraudulent charges into business expenses.

OCR management can avoid and stop these types of reports. For instance, you can require staff to use a mobile device to capture their receipts in real time. The new protocol using OCR will force employees to stop reporting fraudulent expenses.

Optical character recognition in finance will also benefit auditors when they go through these expense reports. Audits can be conducted with better depth and faster turnover, providing auditors an easier search through expense documents and budget reports. The auditor can spend more time analyzing the transaction details rather than just collating and reporting each one as is.

Faster Processing of Accounts Payable

Human beings are prone to error. It takes time and practice before one can thoroughly manually enter data for records. The task itself is repetitive and tired eyes or hands will lead to more errors. If employees need to input massive amounts of data, the company ends up spending more on overtime and overhead costs like electricity.

OCR technology introduces improved efficiency by doing these things faster and with greater precision and accuracy.  At the same time, the business spends less on operational costs and labor expenses on employees. Employees can focus on resting after hours and devoting office hours to specialized tasks. Streamlining invoice processes for payables records is the first step to better accounting. The OCR would work by going through a volume of invoices from several suppliers or vendors. From here, they can configure the invoice formats and establish relevant data.

Other OCR technologies have a thorough step-by-step process. A good program can have the invoices from different sources move towards one destination, regardless of the form. Automated classification algorithms are used to recognize the information and organize them accordingly. Data can be extracted rapidly from each field indicated; numbers are validated in a faster process based on calculations and database. All information can be verified using an intuitive operator interface to assure accuracy. Gathered data is stored as searchable PDFs staff can easily refer to in the future.

Improved Payment Processing

Structured documents can also be interpreted by OCR technologies. They’re usually able to decipher key data found on a static layout, letting you perform tasks such as depositing checks using your phone. There’s no need to go all the way to your bank, line up, and wait an hour or so to process a check. If your bank’s app uses OCR, you can just take a photo and the check amount will be found in your account in no time.

Absorbing All Kinds of Information

Apart from receipts, transactions, and checks, OCR can read through long texts on books and presentations. More developed technologies can even analyze handwriting, making meeting notes and information collation faster after important gatherings.

For long texts, OCR can scan printed documents and convert each line into searchable, editable and selectable live text. There’s no need for you to manually retype each sentence while you write reports or disseminate the information. You also avoid inaccuracy in terms of spelling and flow.

Soft copies of each document will also be part of the system’s archive. There’s no need to worry about allotting enough office space for thick books and the paper settling dust over the years.

Small but Significant Benefits

Apart from converting information into accessible files, users are free to download what they need into their laptops, computers, and smartphones. Accessibility answers storage and compatibility, letting auditors, analysts, and accountants work remotely or from the comforts of their preferred device. There’s no need to worry about misreading the information or being unable to work with it on a business trip abroad.

Having a capable and experienced OCR provider will assure your company each stated benefit. You look forward to more efficient operations, cost-saving solutions, and focus on employees. But you need the right OCR partner to make sure the information is safe and only kept among relevant partners. Outside access to delicate financial information could compromise any client relations or projects you’re currently working on.

Worlds Forum Accounting has excelled in providing outsourcing services in finance and accounting. If you’re looking into solutions, Debt-ridden Accounting has the expertise to get you started and provide this specific service. The company’s credentials include Six Sigma Certification, ISO 9001:2008, ISO 27001:2013, compliance with HIPAA and Sarbanes-Oxley. Given the specificities of OCR, you need a provider that truly understands the technology and assure expertise. Debt-ridden Accounting is sure to offer these, particularly at a feasible cost.

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5 Simple Ways To Create A Balance Sheet

by Selina Stewart

First things first: what is a balance sheet? A balance sheet is an essential way to evaluate a business’ financial health and can be calculated every month, quarter or half-year to create a snapshot of a company’s net worth.

In this article, we will be discussing how to calculate an annual balance sheet for a business. Creating an annual balance sheet will help you evaluate the equilibrium between your company’s assets against its liabilities, to determine the overall financial strength and value of your business. For an example of a full balance sheet, scroll down to see the example at the end.

1. Understand the Basic Equation

The following equation is a simplified representation of what a Balance Sheet calculates: the total sum of your company’s assets equals the value of the company’s liabilities and owner’s equity.

Assets = Liabilities + Owner’s Equity

As with any math equation, you can play around with the equation to isolate one category. Most business owners and investors use the following equation to calculate the value of the company’s equity.

Owner’s Equity = Assets – Liabilities

2. Calculate Assets

Assets, money, investments, and products the business owns that can be converted into cash: These are what put companies in the financial positive. A thriving company should have assets that are greater than the sum of its liabilities; this creates value in the company’s equity or stock and opens up opportunities for financing.

It’s important to list your assets by their liquidity—the facility by which they can be turned into cash—starting with cash itself and moving into long-term investments at the end of the list. For the purpose of an annual balance sheet, you can separate your list between “Current Assets,” anything that can be converted into cash within a year or less, and “Fixed Assets,” long-term possessions that can be sold or that retain value down the line, minus depreciation.

“Current Assets” may include:

  • Cash: All money in checking or savings accounts
  • Securities: Investments, stocks, bonds, etc.
  • Accounts Receivable: Money owed to the business by a client or customer
  • Inventory: Any products or materials that have already been created or acquired for the purpose of sale
  • Prepaid Insurance: Any payments made in advance for business insurance coverage or services (this tends to be paid in advance for the year).

“Fixed Assets” may include:

  • Supplies: Important objects used for business operations (manufacturing equipment, computers, office furniture, company cars, etc.)
  • Property: Any office building or land owned by the business
  • Intangible Assets: Intellectual property such as patents, copyrights, trademarks and other company rights that retain intrinsic value

3. Determine Liabilities

Liabilities are the negative part of the equation; these include operational costs, debt and material expenses. Generally speaking, the lower your liabilities, the greater the value of your company (and equity) can be. “Current Liabilities” include cash spent, as well as any debts that must be paid out within one year, while “Fixed Liabilities” refer to bills due anytime after one year.

“Current Liabilities” may include:

  • Accounts Payable: Money owed by a business to its suppliers or partners
  • Business Credit Cards: Company credit card bills due
  • Operating Line of Credit: Any money owed to a bank that has extended the business an operating line of credit
  • Taxes Owed: Any federal and state taxes owed for one year
  • Wages and Payroll: Employee compensation, including wages, medical insurance, etc.
  • Unearned Revenue: Any revenue garnered from a service or product that has yet to be delivered to the customer or client

“Fixed Liabilities” may include:

  • Long-Term Mortgages: Property or building mortgage expenses
  • Bonds payable: Long-term bonds owed to the government, as well as any interest paid on the bond (this interest is often semi-annual and can be added to “Current Liabilities”)
  • Pension Benefit Obligations: The total amount of money the company owes to employee pension plans up to the current date
  • Shareholder’s Loan: A form of financing provided by shareholders
  • Car Loan: Any long-term car loans on company vehicles (plus insurances costs)

4. Equity Valuation

Owner’s Equity = Assets – Liabilities

The value of your assets minus your liabilities will result in an estimation of the value of your company’s capital. If this equation results in a negative net worth, this can be dangerous for a small business; it will make it difficult for to secure financing, which can be troubling for a company whose expenses are already eclipsing its profits.

If, however, a company has positive equity, this means that business owners have the option of acquiring capital by selling part of their business through equity, stocks and/or dividends.

In a sole proprietorship, this is called the “Owner’s Equity”; in a corporation, this is called “Stockholder’s Equity,” and it can include common stock, preferred stock, paid-in capital, retained earnings, etc.

“Equity” may include:

  • Opening Balance Equity: The initial investment into the company
  • Capital Stock: The common and preferred stock a company issues
  • Dividends Paid: Profits paid out to shareholders by a company (applies to corporations)
  • Owner’s Draw: Portion of the revenue used by company’s owner (applies to sole proprietorships)
  • Retained Earnings: The sum of a company’s consecutive earnings since it began

Having an Income Statement will assist you in filling out this section since it helps you determine the opening balance equity and the retained earnings.

5. Consider All Applications

A solid balance sheet is an essential financial statement and part of a complete financial report. It can be used to secure financing or take a snapshot of a company’s current financial state, but it can also be used to evaluate the worth of your company over time. While accounting software like QuickBooks can easily generate balance sheets and other financial statements, it’s good to know the process to ensure your calculations are accurate.

Comparing your “Current Assets” minus “Current Liabilities” on a yearly basis will paint a picture of your company’s annual growth and expenses, which may have room for improvement. Calculating “Fixed Assets” minus “Fixed Liabilities” can provide a more long-term view of the company’s value over time and its ability to pay back long-term debts or expenses built up over many years.

Remember, the expenses of different companies may vary greatly, so don’t forget the assets and liabilities that are specific to your industry or area. For more help with balance sheets and other financial statements, see our infographic on financial reporting.

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Don’t Leave Money On The Table! Access Your Education Tax Benefits.

by Junita Jackson

A report by the Government Accountability Office found that nearly 14 percent of all tax filers failed to claim a credit for which they were eligible. Tax credits help us afford higher education expenses by reducing the amount of income tax we have to pay or by issuing a refund. Unfortunately, millions of students and their families are unaware or don’t apply for the correct tax benefits, leaving much-needed dollars on the table—an average of $466 for each qualified filer!

Are you one of them?

Recently, NCLR joined Rep. Danny Davis (D–Ill.) and others on a campaign to get more people to apply for their education tax benefits. The Tax Breaks 4Students campaign encourages eligible students and families to apply for tax credits.

While eligibility criteria vary for each credit, there are a number of options available for students and families. The two largest tax credits available are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), although there are many others.

American Opportunity Tax Credit

The AOTC can be claimed for the first four years of post-secondary education if a student is enrolled at least part time in courses. The maximum tax credit for AOTC is $2,500, and up to $1,000 is available as a refund if you owe no taxes. If you are a current graduate student, you are not eligible for AOTC; however, you may be eligible for the Lifetime Learning Credit.

Lifetime Learning Credit

The LLC provides up to $2,000 per year for a student enrolled at least part time. Unlike the AOTC, the LLC has no limit on the number of years it can be claimed, meaning it is available to graduate students and those in continuing education programs. However, if the credit is greater than the total amount owed in taxes, it will not be issued as a refund.

How do I claim these credits?

The IRS provides an interactive guide to help you determine whether you qualify for a tax credit. Only students who attend schools participating in federal student aid programs can qualify for the AOTC. Once you confirm eligibility, the IRS provides Form 8863 to help you calculate the education tax credit. Most education institutions will mail you Form 1098T, which provides this information for you.

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Timing Strategies Could Become More Power In 2017, Depending On What Happen With Tax Reform

by Zach Haris