Announcement of partnership with Defense CyberSecurity

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26-Oct-2021

In light of the growing demand on cybersecurity services in the region, we are proud to announce our partnership with Defense Cyber Security in Riyadh, KSA.

Defense Cyber Security is specialized in providing cybersecurity and risk assessment services to the highest standards and are experts in developing and deploying policies and procedures to protect companies from all kinds of risks and cyberattacks.

Moreover, Defense Cyber Security provides internationally accredited cybersecurity trainings and awareness programs to ensure that employees are informed of the best practices to face all sorts of threats and possible data breaches.

This partnership will enable us to better meet our clients’ needs and ensure the highest levels of service.

Should you have any inquiries regarding cybersecurity risk, compliance, governance, or training and awareness services, please don’t hesitate to contact Defense Cyber Security.

Defence Cybersecuirty website: https://dcybersecurity.sa/

THE IMPORTANCE OF ACCOUNTING IN TIMES OF CRISIS

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    Amidst the current economic slowdown, companies are understandably looking for ways to cutdown on overheads and maintain revenues. Non-core functions such as marketing, HR, or even accounting may be the first to be foregone.  

    This article aims to highlight the importance of the accounting function in a company especially in times of crises. In fact, it is in times of economic uncertainty is when the benefits of maintaining accurate accounts pays dividends.  

    Know Where to Focus Your Efforts 

    Maintaining accurate books of accounts can help companies identify and separate the profit generating functions from loss generating functions. This is never more important than in the times of economic slowdown. This is the type of information that decision makers need to make choices that can ensure the survival of the company. 

    Time for a Loan? 

    Governments across the world have implemented financial aid packages for companies to get through the current crisis. Some of these packages include loans for companies to ensure that they have sufficient working capital during these difficult times. In order to be able to get such loans however, companies will be required to submit financial statements explaining their financial position and the impact that the COVID-19 Pandemic had on their operations. In such situations, time is of the essence, therefore, preparing such statements at the spur of the moment would take too long. 

    The Tax Man Still Wants His Money 

    It is necessary for all companies to comply with the tax regulations that are imposed by the government regardless of the economic conditions. If the company’s accounts are not reliable and up to date, tax calculations will inevitably be affected and accordingly, companies might find themselves either paying more or less than what they should putting themselves at risk of penalties either way. Therefore, maintaining accounting records that are in line with the tax regulations can save companies money and protect them from potential penalties.  

    Insurance Claims 

    Accounting records may be essential for companies to prove ‘lost earnings’ due to the mandatory closure of the businesses or a drastic decrease in business activity. For companies insured against such natural disasters or circumstances such as the current COVID-19 pandemic, it would be wise to maintain accurate and up to date accounting records to support their insurance claims.  

    Life After VAT: Now that you are registered, what next?

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    Life After VAT: Now that you are registered, what next?

    vat bahrain

    vat bahrain

    Well, first of all, congratulations on successfully registering your business for VAT. For most establishments, it might have been a difficult and complicated task especially if your accounting books were not in order ahead of time.

    Now that you are registered though, business cannot continue as usual. Being a VAT registered company/establishment essentially means that you are now responsible for handling funds that essentially belong to the government. You are given a great responsibility and are required to rise up to the challenge in order for you to be able to continue doing business in Bahrain – and avoid the hefty penalties.

    First things first though, you need to make sure that you are issuing your invoices properly. By that I mean you are issuing your invoices on time and in the proper format while accounting for VAT appropriately. Articles 52 and 53 of the VAT Regulations specify the requirements of “VAT Invoices”. There are essentially two kinds of invoices, the Standard VAT Invoice and the Simplified VAT Invoice. The latter can only be issued in case the product or service has been delivered to a non-registered person or in case the total value of the invoice is less than 500 BD. I encourage you to download the VAT Regulations here and review the requirements yourself. This may mean that you will need to upgrade or even change your accounting or POS systems since not all systems can comply with these requirements. Moreover, some systems can only accommodate for 2 decimal places in the currency which may cause a problem since Article 55 of the VAT Regulations states that VAT calculations must be rounded to the nearest Fils, which is in the 3rd decimal place. In case you need someone to help you assess your systems, look no further than H.A. Consultancies. As far as I know, they are the experts on such matters.

    On the other hand, you will need to make sure that your suppliers also give you correct VAT invoices since you will be claiming back whatever VAT you paid them in your quarterly or monthly return. If their invoices are incorrect or not compliant with the requirements of the VAT Regulations, you might find yourself unable to claim back the VAT you paid.

    As for issuing the invoices on time, well, that is a bit easier. You have 15 days from the date of performing the service or delivering the product to issue the invoice. However, VAT may be due prior to the date of your invoice since according to the regulations, it is due on the sooner of performing the service or delivering the product, receiving the payment, or issuing the invoice. Therefore, in case you received an advance payment, VAT will be due on that portion of the advance even if you did not deliver the product or service yet. Moreover, VAT is due even if you did not receive a payment from your customer. Therefore, it would be smart to take advantage of the 15-day leeway in case you have delivered a service/product towards the end of a reporting period.

    All of this might be overwhelming at first and you might need to get some guidance from a professional accountant (call us in case you need any help). However, once you get your procedures in order, complying with the VAT requirements can induce more stringent control over your business resulting in a maximization of profits and a reduction of losses.

     

    Munther Al-Arayedh, CPA
    Managing Director
    Capital Profits Accounting Services

    Flavors of Accounting

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    Flavors of Accounting

    types of accounting

    types of accounting

    Just like ice cream, accounting comes in various flavors. There are so many to choose from, sometimes it is difficult to make up your mind.

    In reality though, most of these “flavors” are just plain old vanilla, strawberry, or chocolate. Some are a mix of more than one flavor. Others are more like frozen yoghurt (not real ice cream).

    Here we will try to shed light on the main accounting types that may have caused some confusion amongst those non-lingo-savvy business owners out there.

    Each of these types has a different focus area and different yet intertwined objectives. The main objective of all accounting services is the same though, to provide decision makers with clarity and control over their business operations at all times.

    Tax Accounting

    Many would agree, Tax Accounting is bittersweet. It deals with taxes such as Income Taxes, Sales Taxes, Value Added Taxes (VAT), Withholding Taxes, and so on.  The objective is to ensure compliance with the applicable tax laws and local regulations to avoid any fines or penalties that may be imposed due to non-compliance. If done properly, Tax Accounting can save the company money. For instance, proper implementation of VAT regulations can save companies from bearing the cost of input tax and hence reduce the VAT liability on the company.

    Cost Accounting

    Cost Accounting is plain old vanilla. It simply records all the direct and indirect costs that the company endures in order to keep track of all the money leaving the company or those who we owe money. Once we know where all the money goes (or is supposed to go), reports can be generated to help management take better decisions.

    Project Accounting

    Project Accounting allows companies to track revenues generated and expenses paid and/or accrued for each project undertaken by the company. The objective is obviously to track profitability of each project individually.

    Financial Accounting

    Financial Accounting is a mix of multiple accounting disciplines. The objective is to simply generate the three main financial statements, the Balance Sheet, Income Statement, and Cash Flow Statement. This can be easier said than done. Financial Accounting is governed by complex standards which are frequently updated to ensure more accurate reporting. Depending on where your business is located, and, in case you have branches, where those branches are located, you might find yourself preparing different sets of financial statements with subtle differences due to the different financial accounting standard being followed. For instance, the USA has its Generally Accepted Accounting Principles (GAAP) while Europe and most of the Middle East follow the International Financial Reporting Standard.

    Management Accounting

    Management Accounting is the “make it yourself” flavor of accounting. You can pick and choose what to put in it according to your independent needs. The objective here is to identify, measure, analyze, interpret, and communicate financial information to managers, all in order to be able to get accurate decision making. In this type of accounting, you can identify profitable products and services, generate pricing or marketing strategies, detect inefficient processes and improvement opportunities.

    Needless to say, this type of accounting can provide significant insight on a company’s performance, however, sadly, it is typically either not performed in a timely manner, drains resources, or simply overlooked.

    Public Accounting

    When a firm provides accounting services to other companies, it is called a Public Accounting firm – an example of which is our firm, Capital Profits (surprise!). Public Accounting may include financial audits and reviews, outsourced bookkeeping services, financial statement preparation, internal control policies implementation, physical asset and stock counts, analytical reports, tax return preparation, and accounting consultations.

    Nowadays, keeping a company’s accounting books in an orderly manner and following all the regulations enforced by the state can be a stressful endeavor for any business. The risks of penalties and fines are high and hiring an accounting team might be unfeasible. Therefore, having a Certified Public Accountant by your side on a retainer basis can help alleviate concerns with regards to non-compliance and allow business owners to do what they do best, run their business.

    Revenue vs. Profit

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    Rev vs Pro

    Rev vs Pro

     

    Any business owner needs to know how to maximize their profit and to demonstrate to investors that the company is heading in the right path since revenue can indicate a firm’s potential.
    The most important difference between revenue and profit is that while any company can increase its revenue, it may well be registering a net loss of earrings at the same time.

    Revenue

    Revenue means the total amount of money that the company generated through its business activities (in other words, it is the total sales of the company).

    Profit

    1. Gross profit
    It is basically revenue minus cost of goods sold, on the income statement, gross profit appears directly after revenue, it is calculated by subtracting Cost of Goods Sold (COGS) from the total revenue.
    As a metric, it is used by business owners to gain an idea of how much money they have with which to fund the business after their core product is produced and sold.

    2. Operating Profit
    Operating Profit means Gross Profit minus all fixed expenses encountered when you run the business, such as rents, utility bills & payroll. It is used to demonstrate the earning power of any business in terms of its regular operations, removing external factors to show its potential profitability.
    Some companies may choose to use Operating Profit over Net Profit to highlight the financial impact of external overheads. For example, investors can use Operating Profit to compare the business with a similar firm operating under a different tax structure.

    3. Net Profit
    Whenever people start to talk about any firm’s profit, they usually refer to Net Profit which means the remaining income after all the operating costs, debts, expenses, interest and taxes are deducted.
    Net Profit is the most important financial metric on the income statement, it is the most important figure to the investors and shareholders.
    In terms of Operating Profit, Net Profit can be expressed as Operating Profit minus interest and taxes:
    Net Profit = Operating Profit – Interest – Tax

    4. Net profit margin
    The Net Profit Margin is the ratio of the company’s net income to its revenue, it is presented as a percentage.

    Taking all of this into account, a business owner should always try to maximize his Gross, Net, and Operating Profits rather than just increasing sales revenue. Nevertheless, if operating expenses are kept under control, increasing sales revenue might well result in an increase in profits.

    Inventory Valuation Methods Impact on VAT

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    VAT

    VAT

     

    Would changing the inventory valuation method from First In First Out (FIFO) to Weighted Average (WA) or vice versa reduce my VAT payments?

    VAT is computed on the amount paid to purchase or sell an item. So, in case a retailer purchases stock for 1,000 BD from a distributor, the VAT amount would be 50 BD on top of the 1,000 BD that is to be paid for the stock.

    Subsequently, when the retailer sells the stock for 2,000 BD, he would have to collect 100 BD on top of the 2,000 BD as output tax. The retailer would then deduct the 50 BD paid to the distributor from the 100 BD collected from the customer and give the difference (50 BD) to the government.

    Inventory valuation on the other hand has to do with calculating the value of stock that a company has on hand in order to identify the value of the assets in stock and accordingly the Cost of Goods Sold when a sale is done.

    To clarify this, let’s take an example of an item that a reseller purchases at one time for 10 BD and another time for 9 BD and then sells the items for 20 BD.

     

    Weighted Average Method

    If the reseller buys 100 items for 1,000 BD at 10 BD a piece and then another 100 of the same item for a discounted price of 9 BD a piece for a total of 900 BD, the value of each stock item would be (1000 + 900)/200 = 9.5 BD if the reseller was following the Weighted Average inventory valuation method. Therefore, for each sale of this item, the reseller would have to record COGS of 9.5 BD.

    The reseller would have paid 5% on each purchase, hence, he would have paid 50 BD on the first purchase and 45 BD on the second purchase totalling 95 BD.

    The reseller would then sell each of the 200 items for 20 BD and collected 5% VAT on each sale totalling 200 BD for all the items (200 x 20 BD x 0.05 = 200 BD).

    Finally, the reseller would deduct the 95 BD VAT that he paid to his distributor from the 200 BD VAT that he received from his customers and pay the difference (200 – 95 = 105 BD) to the government.

     

    First In – First Out (FIFO) Method

    If the same reseller is following the FIFO inventory valuation method, the reseller would have to track the sales of the items to make sure that for the first 100 items sold, a COGS of 10 BD is recorded, and then the next 100 items a COGS of 9 BD is recorded. However, the reseller would still have paid 50 BD VAT for his first purchase and 45 BD VAT for his second purchase. Moreover, the reseller would still have collected 5% VAT for each of the items sold. Assuming that the selling price was maintained at 20 BD per item, the total VAT that he would have collected for all 200 items would still be 200 BD.

    Again, the reseller would have to deduct the 95 BD that he paid on his purchases from the 200 BD that he collected from his customers and pay the difference (105 BD) to the government.

    As we can see from the preceding example, the inventory valuation method has nothing to do with the amount of VAT that is going to be paid. Inventory valuation methods are concerned with the value of stock and COGS while VAT impacts the selling/purchasing price of the goods.

     

    Advantages of using Accounting Software

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    Accounting Software

    Accounting Software

    Advantages of using Accounting Software

    Updated accounting data has many advantages for any establishment, and these advantages will be more valuable if you manage it through an accounting software. Through it you will know what happens in your business, reports will be generated automatically and without losing effort or time in them.

    Accounting software or accounting systems are designed to organize, control and simplify accounting tasks within a company, whether a small, medium or multinational company. The implementation of accounting software in your company allows you to unify and automate the accounting and commercial operation, and to manage resources more efficiently.

    All this will cause you to improve a lot in the management and planning of the company’s financial and accounting resources.

    Therefore, let us discuss about the benefits of using accounting software:

    1. Savings.

    Generally, a software transforms the operative tasks into automatic tasks. This allows users to save a lot of their company’s resources such as time and people; for instances, a company will need fewer people and less time to accomplish a task, as accounting software streamlines each task that you had to do manually before.

    Accounting software allows you to save a lot of time, not only with the updated operational functions, but also with the ease of generating statistics and quality reports. In addition, having everything automated reduces the possibility of errors.

    1. Improvement of business management

    Accounting software facilitate the management and decision making of the company, by having the ‘management of income and expenses accounts’ feature, in which the data are unified and stored in one place. Moreover, the data will be provided to keep the business running smoothly, to take it on the right path.

    1. Simplification

    Keeping up to date accounting and doing it properly has been a big headache for many workers. However, accounting software allow users to simply automate the work and streamline the daily tasks; users will have time to focus on important tasks and free up from unnecessary manual activities and the stress they bring.

    1. Availability

    Having the information unified and centralized all in one Accounting software, allows users to have the data always available, and to access it at all times and without any limitation. As before employees had to always access from the same computer or depend on the report, nowadays employees work with information stored in the cloud, allowing them to manage the information from any place and at any time.

     

    1. Confidentiality and security

    Accounting software in the cloud gives you the peace of mind you need. Your information is available 24/7, at your fingertips when and where you require it, stored in fully reliable and secure systems, away from any computer attack or any accident. You can monitor your accounting movements from your preferred mobile device: cell phone, tablet, laptop, etc. With your updated information you have transparency and facility to make decisions. The benefits of accounting software in the cloud are mainly:

    • have the information updated;
    • access the information you require on time;
    • Keep all information secure.

    There is no better way to ensure compliance with accounting standards than to use a solid accounting system. Capital Profits provides a full range of accounting systems that can accommodate for the needs of any small, medium, or large companies operating in Bahrain. Our accounting experts will be able to provide guidance in choosing the best accounting software to meet your needs and help setup the system and migrate accounting data error-free.

    How Outsourced Accounting Works

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    Accounting Services

    Accounting Services

     

    Companies have the option to prioritize their core business activities by outsourcing support functions such as accounting.

     

    Accounting activities include bookkeeping, inventory costing and related internal controls, financial statements preparation, fixed asset controls, assessment of taxes and preparation of guides for payment of taxes, assistance in the processes of importing products, and bookkeeping of fiscal books.

    The corporate area also works in parallel with accounting in a way that comprises of opening, altering, and shutting down the services of a branch or subsidiary which can all impact the financial position of the company.

    Outsourced accounting firms also perform the classification of all the documents of the company, issue reports such as balance sheets, cash flow statements, and income statements. They can provide insight on Human Resources and Payroll, making monthly payroll calculations, give advice on admissions and layoffs, calculate charges, contributions, and taxes, and follow up on conventions and collective agreements of work and obligations that may arise.

    Finally, we also offer outsourced accounting support in the fiscal and financial areas. We perform bookkeeping of incoming and outgoing invoices with tax calculation, manage cash flows, record payments and receipts, as well as reconciliation of financial statements.

    There are many the benefits to outsourcing accounting activities. It has become somewhat of a standard practice to outsource non-core activities due to the numerous tangible and non-tangible benefits. Financial audits run smoother with an experienced accountant on your team since he understands what auditors are looking for. Synergies can be created thanks to advice that can be given on taxes, human resources, corporate finance and other areas of your business. All in all, approaching specialized professionals to take care of the accounting needs of your company will ensure management’s total dedication to growing the business and increasing profitability.

     

    5 Reasons to Outsource Accounting Services for Your Company

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    When you start your own business, it may seem that you have everything under control, as being a new or small company, both the registration, as the management of finance and accounting are easy to carry out. However, as time goes by and our company becomes bigger, the burden of managing your accounts also grows and it is common that, before you know it, you find yourself buried under the weight of your own finances. It suddenly becomes more difficult to track banking transactions, handle receipts and make payments.

    At this point, the question we need to ask ourselves is: “Is it time to leave my accounting to third parties?” Before we can answer, here are 5 good reasons why hiring third parties could be extremely beneficial.

    Reason #1: Time is Money

    When you are at the head of a business, time is money. Deciding to hire a third-party service to maintain your accounts can save hours of trying to do it by yourself without making any mistakes, from the management of credit cards, to talking with banks, to the collection of invoices.

     

     

    Sometimes there is not even time to supervise an accountant within your company, so doing it on your own may seem impossible. Putting your accounts in the hands of an accounting firm will be profitable and will allow you to concentrate your energy on the development of your business.

    One of the main functions of a business owner is to work to generate more income for the company. How can you do it if you’re stuck in the accounting department? By contracting outsourcing services, your time can be spent searching for new potential clients and improving the areas that will make your company a successful business.

    An experienced professional is always better

     

    Reason #2: Timely, Reliable Service

    Unless you have first-hand experience with accounting, it is probably best to have a professional who is dedicated only to keep a good record of our finances and, most importantly, to do so with all the required experience.

    Let’s stop wasting time trying to find out how the world of accounting works and better let us be guided by experienced professionals, which will be reflected in a better quality of work.

    People who work in accounting firms know how to handle payroll, develop financial statements, and manage audits. Therefore, by hiring someone you trust, you will ensure that they provide you with a timely and reliable service that matches your needs and timelines.

    Reason #3: Reduce Expenses

    Especially for small and new companies, expenses can be a real problem. Leaving the management of accounting to a professional organization that is only dedicated to that will help you save money. At first glance it would seem cheaper to hire an accountant to keep track of finances, but when considering the total costs of training, benefits, visa, and social insurance, it becomes cheaper and less complicated to go to a third party.

    One of the main benefits is the freedom to pay for the specific services you need, which translates into lower costs and more productivity, compared to a full-time employee.

    Reason #4: Flexibility

    A good accounting firm will provide efficient cost perspectives and lists full of options to choose from to help you increase profits. In addition, they can advise you professionally on how to expand your business or find aspects in which you can reduce costs. In other words, outsourcing gives you all the necessary flexibility to grow your business. Outsourcing will allow you to have the best services without the additional expense of constant training.

     

     

    Reason #5: Minimize Fraud and Errors

    Perhaps the biggest advantage is that by having a team of experts working on your accounts, the risk of fraud or errors is significantly reduced and, when this happens, the probability that the responsibility falls on your own company is almost null.

    In the long term, having a person to manage your finances is not effective, because even the best accountant can be wrong, which translates into loss of time and money. But when outsourcing to accounting experts, you are ensuring that there is a team of competitive specialists with different tasks that will manage the accounts of your business in the best possible way.