As of now, a career that emerged in 1884 as a result of civil war loss claim has successfully sailed the calm and rough seas to become today’s Enrolled Agent (EA). An Enrolled Agent (EA) is an upskilled tax specialist who deals with US tax laws and applications in and outside the USA. EAs are entitled to tackle all US tax-related issues of an individual as well as business/corporate entities, trusts, NGOs, etc. that comes under the Internal Revenue Services (IRS) as a whole which includes tax return preparation to represent the client in front of IRS in relation to any dispute or settlement.
EAs are privileged because the IRS empowers them with special tools that make them much better equipped with knowledge and skills than non-EA tax preparers. As a result, EA is the top credential under the IRS umbrella, making it prestigious in the job market. A Certified Public Accountant (CPA) can also handle the same tax-related issues, but they have a broader horizon than the specific niche of EAs.
The EA credential involves successful clearance of a 3-part Special Enrollment Exam (SEE) rather than a 4-part CPA exam. The unique point in the EA journey is academic eligibility. Unlike CPA, there is no educational requirement to sit for SEE. Furthermore, the course duration is much shorter than a CPA course and is considered easier to pass. Lastly, a CPA has a state license, while an EA gets a federal license and can practice anywhere in the country and represent clients from any state.
Hence, anyone focusing on the IRS-governed US tax domain rather than public accounting should opt for an EA credential rather than a CPA. Moreover, EAs can work part-time or full-time as practicing status. It has to be noted that besides an attorney or a CPA, only EAs are authorized to plead and represent taxpayers before the IRS for tax-related issues.
The Job Security
As we all know, irrespective of the state of the economy, be it stable, inflation, or recession, taxes are there to stay with various reforms with increasing numbers of taxpayers. In this scenario, one can interpret the importance of an EA with continuous professional education (CPE). Thus, EA appears as a future-proof job type in all economic conditions of the country.
Job Sectors for EAs
Public Accounting Firm (PAF)
In this sector, EAs can play the role of tax return preparer and represent clients in front of the IRS concerning any tax-related issues. In addition, PAFs often offer higher salaries and work flexibility.
US Taxation
Many MNCs, including Big 4s as well as BPOs, KPOs, or any organization which follows US taxation and is accountable to IRS, are great places for EAs to venture. Attractive packages are offered to EAs more than an average commerce graduate.
Banking Sector
Banks under federal regulations hire EAs to review the rules and tax compliance. In return, EAs get a good salary, benefits, and job security.
Investment Firm
EAs are hired here because an EA can advise how to minimize the tax burden in various investments, including buying and selling, to maintain clients’ interests.
Law Firm
EAs find an excellent place to work in tax law firms, mainly for the representation of clients before the IRS. The packages of EAs in such organizations vary with the size of the clientele.
Own Business
Nevertheless, this option is open to every EA to start their consultancy firm where the sky would be the limit. Outsourcing for individuals and corporations, trusts, or NGOs can be highly rewarding regarding money and freedom.
Enrolled Agent (EA) – The Complete Kaleidoscope: Course, Eligibility, Syllabus, Exam Structure and Job Opportunities in India:– Want to learn more about Enrolled Angent course? Then click to learn more…. Continue reading
Adding the above to the Indian scenario, the horizon appears brighter for EAs. The advent of globalization imparted tremendous growth in various BPO and KPO sectors, where they very much follow the US taxation policy because of their US and international client base. Hence, EAs holding the top ladder of US taxation is much preferred in these sectors.
Apart from these, all Fortune 500 companies, including the Big 4s, rely on US taxation and have to file returns under the FATCA rules, which govern financial transactions with US investors and are dependable on EAs to comply with and proper financial functioning of the organization.
Professionals who help clients with taxes may benefit from becoming enrolled agents (EAs). The IRS empowers EAs with tools unavailable to most other tax preparers. These professionals can speak on clients’ behalf, argue disputes, and make cases to the federal taxation authorities. EAs can handle virtually any situation that may arise in the case of a taxpayer.
The best way to become an Enrolled Agent in one year is to pass each part of the EA exam on your first attempt. There are three exam parts you’ll have to study and sit for separately, but it doesn’t have to be as difficult as it sounds. To make becoming an EA manageable, you just need to set small, incremental goals and create a solid study plan. Being realistic about your expectations will help you make a plan you can keep. Candidates are more likely to stay on track when they regularly meet the benchmarks they set.
How to be an Enrolled Agent-Scope and Benefit for Tax Professionals: An EA is a federally authorized tax specialist that operates to provide advisory services to American taxpayers about matters concerning the IRS. Achieving “EA” status is considered the highest credential awarded by the IRS and is legally recognized throughout all U.S states…. continue reading
One of the most common questions often comes to mind: How long does it take to become an Enrolled Agent (EA)? The common reason behind this is quite understandable. Before you get too far into the process of becoming an EA, you want to know if it is worth the time, effort, and funds required. But the benefits of the EA include increased job opportunities, income, status before the IRS, and tax expertise, so I believe that the designation is very advantageous. One of the main reasons people choose to become an EA is the generous enrolled agent salary.
However, passing the EA exam (officially called the Special Enrollment Exam (SEE)) can take a good deal of time, so you need to prepare for that.
Depending on your tax knowledge, becoming an enrolled agent can take 3-8 months. You may hear some enrolled agents boast that the EA exam is easy and they passed it in just a few weeks. Yet, the reality is that most candidates are not able to pass in 1 month. You may need more than 1 month or even more than 1 year to pass. But as long as that timeline works for your lifestyle, you shouldn’t feel pressured to pass faster. You have two years* to pass all three parts of the EA exam, so while you do not technically need to pass all three in the same year, many candidates want to pass before tax season to get more clients. This means appointments to take the exam early in the year can fill up quickly.
*Note: Due to the global COVID-19 pandemic, the IRS has extended the 2-year period to 3 years, giving candidates more time to safely sit for and pass their exams.
When Can You Take the Enrolled Agent Exam?
The Enrolled Agent exam is available for candidates to take 10 out of the 12 months in a year. The testing window lasts from May 1 to February 28 of the following year. The 2 blackout months (March and April) allow the exam administrators to make any necessary adjustments to the exam. They also use this time to update the content according to the most recent tax law.
The Study Plan
The number of months your EA exam journey will last depends on how many study hours you will need. Also, the other half of the equation is how quickly you can accumulate those study hours. If you are not super familiar with the current tax code, getting ready to pass all 3 parts may take you a few hundred hours. A sample guideline is provided below.
Number of EA Exam Study Weeks
Exam Part
# Of Study Hours
10 Hours/Week
15 Hours/Week
1
80-100
8-10 weeks
6-7 weeks
2
80-100
8-10 weeks
6-7 weeks
3
60-80 hours
6-8 weeks
4-6 weeks
Total
220-280 hours
22-28 weeks
16-20 weeks
It’s a good idea to set aside regular time for studying, such as an hour before work or during your lunch break. You can try to study for the Enrolled Agent exam “during your free time,” but if you’re like most people, there just isn’t enough extra time when you’re also working or going to school. The Gleim study plan suggested devoting the following time span.
Average time spent studying per part of the EA exam
Part 1
85 hours
Part 2
125 hours
Part 3
55 hours
Based on this, one can make two types of time-based study plans as mentioned below.
Deadline -based study Plan for EA exam
If you have a firm deadline to become an EA, you may need to sacrifice other obligations to fit in enough study time to pass then you can follow the steps mentioned below.
Mark your deadline and make sure to note any obligations that may interrupt your studies, such as holidays or other life events.
Work backward from the deadline you marked. If you have weeks where three or more days are not available for studying, count them as half-weeks.
Take the total amount of hours you will need to study (see chart above) and divide it by the number of weeks you have until your exam. That will give you your study hours per week. If it seems unattainable, you’ll have to either make some scheduling sacrifices or reconsider your deadline.
These hours are included in the total time chart above, so you should aim to complete all of your review material at least one week before your exam. This is when you touch up on topics you haven’t practiced in a while or might still be struggling with.
Be sure to set a benchmark every week to check your progress against.
Example: For a nine-week plan, if you are studying 10 hours a week, and your first three weeks are full weeks, you should be at least 30% done with your studies by the end of the third week. Write “30% done” for the final day, and check your progress when you get there. If you start to fall behind (for example, by missing two benchmarks in a row), you may need to adjust your study plan.
If you are behind or think you need more time, you can reschedule your exam as long as you do so at least five days before your current exam date. Rescheduling your exam will require a $35 fee. If you know you need to reschedule and do so 30 days or more before your exam, you can reschedule for free.
Hours- based study plan for EA exam
If you only have a certain number of hours each day available to study, you should set test dates that give you enough time to hit your hours targets. It is more or less similar to above with the following parameters.
Make sure to note any important obligations that may interrupt your studies, such as holidays or other life events.
Set a realistic goal, but be serious about it. It might be easy to commit to studying for only an hour a week, but you should aim as high as you reasonably can.
Divide the total number of hours you need to study by the hours per week you can study. If you have weeks where three or more days are not available for studying, count them as half-weeks. This will give you the approximate number of weeks you will need to be ready to sit for the exam.
Sample Enrolled Agent study plan (Gleim)
Because the Enrolled Agent exam tests the previous year’s tax law, there is no better time to start studying than right after-tax season. All of that year’s tax laws are fresh in your mind, which will just help you more while studying and answering questions. Below we cover a sample plan to study for the Enrolled Agent exam using an average of 10 hours per week. Your exact plan will likely differ based on your goals and commitments.
EA Part 1
Start Date April 22
Final Review June 24
Exam Date July 1
EA Part 2
Start Date July 5
Final Review September 27
Exam Date October 4
EA Part 3
Start Date October 17
Final Review November 28
Exam Date December 5
How Long Do You Have to Pass the EA Exam?
Once you pass your first EA exam part, your credit for that section lasts for 2 years from the date you passed. Therefore, you should pass the remaining 2 sections within those 2 years to avoid losing credit for your passed section and having to take it again. However, if you don’t pass a part of the EA exam after taking it 4 times in the same testing window, you must wait until the next testing window to try for the fifth time.
Enrolled Agent (EA) – The Complete Kaleidoscope: Course, Eligibility, Syllabus, Exam Structure and Job Opportunities in India:An enrolled agent (EA) is a person who is authorized to represent taxpayers before the Internal Revenue Service (IRS) by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee…. Continue reading
What Can You Do to Pass the Enrolled Agent Exam Faster?
If you’d like to pass the EA exam as soon as possible, follow these tips:
Skip Content You Already Know
No matter which course you choose, you may be able to speed up the process by skipping the reading and moving straight into the quizzes. If your review course suggests you study an exam content area more than you think is necessary, you can try to take the shortcut by answering practice questions first. In doing so, you may find that you’re already proficient in that area. However, if you try this study strategy and score low on the practice quizzes, you should do the reading. You must have sufficient comprehension of every exam topic. So, read the book or watch the videos to refresh your understanding of the material. Then, after you’ve gone back to the basics, you can return to the MCQs.
Focus on Your Weak Areas
Only by focusing on your weak areas can you truly save time. If you ignore the troublesome topics, you risk failing an exam part, which just draws the exam process out even longer. To focus on your weak areas, take a mock test at the start of each study unit. Then, use the results of the quiz to figure out which topics need more of your attention. After that, prioritize those topics in your reading and quizzing until you’ve aced them.
Make Sacrifices with Your Time
You may be able to pass the exam within 2 years by going about your life as usual and studying for the exam in your free time. But if you want to get the exam over with so you can enjoy the EA designation ASAP, you’ll have to adjust your agenda. To pass the exam fast, you must make a study schedule. In the process, you can carve out even more weekly study time when you temporarily drop non-essential activities from your normal routine. It might not be fun, but it will be worthwhile once you’ve finished the exam and have the EA to show for it.
Pass Each Section on the First Attempt
This mandate may be easier said than done, but it’s the ideal goal for someone who feels the need to speed up their EA proceedings. To pull it off, you must
Rely on an EA review course,
Give yourself plenty of time to prepare,
Stick to a realistic but consistent study schedule, and
Use your study materials to master all of the exam content.
Remember: Passing each part, the first time can be done: it just takes dedication, hard work, and persistence.
How Long Does It Take to Get the EA License After You Pass the Exam?
After you pass all 3 parts of the Enrolled Agent exam, you must submit the Application for Enrollment, A.K.A. Form 23. You have 1 year from the time you pass your final exam part to fill out this document. You’ll also have to pay your enrollment fee to the IRS at this time.
How long does it take to become an enrolled agent after completing the exam?
Approving your application can take up to 90 days because it involves a background check. And because this final procedure can extend so long, becoming an EA can take you anywhere from 3-8 months.
Follow these steps to become an EA:
Obtain a Preparer Tax Identification Number;
Apply to take the Special Enrollment Examination (SEE);
Achieve passing scores on all 3 parts of the SEE;*
Apply for enrollment; and
Pass a suitability check, which will include tax compliance to ensure that you have filed all necessary tax returns and there are no outstanding tax liabilities; and criminal background.
Summary
The best way to become an Enrolled Agent in one year is to pass each part of the EA exam on your first attempt. There are three exam parts you’ll have to study and sit for separately, but it doesn’t have to be as difficult as it sounds. To make becoming an EA manageable, you just need to set small, incremental goals and create a solid study plan. It is advisable to do a self-evaluation check by asking the following questions to oneself.
How familiar am I with the material on the Enrolled Agent exam?
When was the last time I studied for an exam or took a tax course?
How much time do I have available to study each week?
Do I have a deadline to become an Enrolled Agent?
How long can I concentrate in one sitting?
Being realistic about your expectations will help you make a plan you can keep. Candidates are more likely to stay on track when they regularly meet the benchmarks they set. On an average, depending on experience, you should expect to invest up to 40-70 hours of total study time for each exam part.
Enrolled Agent-the Complete Kaleidoscope: Course, Eligibility, Syllabus, Exam Structure and Job Opportunities in India
An enrolled agent (EA) is a person who is authorized to represent taxpayers before the Internal Revenue Service (IRS) by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee.
Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years post enrollment. EAs, like attorneys and certified public accountants (CPAs), have unlimited practice rights.
This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before. Furthermore, EA license is a federal token, not a state license, thus not restricted to a particular territory.
Professionals who help clients with US taxes may benefit from becoming enrolled agents (EAs). Through the enrolled agent course, syllabus and exam, the IRS empowers EAs with tools unavailable to most other tax preparers. These professionals can speak on clients’ behalf, argue disputes, and make cases to the federal taxation authorities.
EAs can handle virtually any situation that may arise in the case of a taxpayer. The EA credential can verify your credibility, open doors to new careers, and attract work opportunities. Tax preparers, accountants, and those wanting to move into tax preparation can gain confidence with an EA license.
Briefly, an enrolled agent is a federally licensed tax practitioner meant for tax preparation, who has unlimited rights to represent taxpayers before the IRS for any issues relating to collections, audits, or tax appeals. According to the National Association of Enrolled Agents (NAEA)—the organization that represents licensed EAs—they are allowed to advise, represent, and prepare tax returns for people, corporations, partnerships, estates, trusts, and anything else that is required to report to the IRS.
Remember that obtaining certification through enrolled agent course is an IRS certified accounting degree on US taxation. Before opting to be an EA, as an exam candidate, one should have thorough information on
Enrolled Agent Course
Enrolled Agent Syllabus
Enrolled Agent Exam
Job Opportunity of Enrolled Agents in India
Requirements for EA Certification under Internal Revenue System
This is quite fascinating to note that EA certification follows a straightforward process. Applicants do not need to hold a particular academic degree or must fulfil certain credit hours or meet experience requirements. Furthermore, this online course duration is comparatively shorter than other international online bachelor accounting degree programs.
Steps to becoming an enrolled agent
Obtain a Preparer Tax Identification Number (PTIN).
Visit Prometric’s Special Enrollment Examination (SEE) webpage to schedule your test appointments, review the SEE Candidate
Achieve passing scores on all three parts of the SEE* within three years.
Apply for enrollment and pay enrollment fee electronically using Pay.gov Form 23 or by downloading Form 23, Application for Enrollment to Practice Before the Internal Revenue Service and mailing the completed form and a check to the IRS.
Pass a suitability check, which will include tax compliance to ensure that you have filed all necessary tax returns and there are no outstanding tax liabilities; and criminal background.
*Certain IRS employees, by virtue of past technical experience, are exempt from the exam requirement.
Professional Requirements for EA Certification Course
Once you become an Enrolled Agent you must:
Renew your status as an enrolled agent every three years
Obtain continuing education (CEE)
Renew your PTIN annually
Syllabus for Enrolled Agent Certification Exam
The enrolled agent exam is called the special enrollment exam (SEE). The SEE consists of three sections:
taxation and individuals;
taxation and businesses; and
representation, practices, and procedures.
All questions are multiple choice.
Enrolled Agent Exam Structure-SEE
PART ONE: TAXATION AND INDIVIDUALS
PART TWO: TAXATION AND BUSINESSES
PART THREE: REPRESENTATION, PRACTICES, AND PROCEDURES
· Taxpayer data (14 questions)
· Business entities and considerations (30 questions)
· Practices and procedures (26 questions)
· Income and assets (17 questions)
· Business tax preparation (37 questions)
· Representation before the IRS (25 questions)
· Deductions and credits (17 questions)
· Specialized returns (18 questions)
· Specific areas of representation (20 questions)
· Taxation (15 questions)
· Filing process (14 questions)
· Advising the taxpayer (11 questions)
· Specialized returns (12 questions)
Source: Prometric
Exam Schedule for Enrolled Agent Certification
Candidates must schedule four hours for each section. This includes 3.5 hours to take the test and 30 minutes for a pre-examination tutorial and post-examination survey.
Candidates do not have to take all parts of the test on the same day or on consecutive days. They also do not have to complete the parts in any order. Prometric only offers the exam at its testing sites and not through off-site proctors.
Each exam part may be taken 4 times per testing window, which runs from May 1 to the end of February. The test is offered from May 1 to the end of February of the following year. The test is not offered during the annual blackout period in March and April. During this time the test is updated with the most recent tax law.
Enrolled Agent Exam Scoring
The scoring methodology was determined by the IRS following a scoring study. A panel of subject matter experts composed of Enrolled Agents and IRS representatives established a passing score for a candidate who meets the minimum qualifications to be an Enrolled Agent. The scaled passing score is 105.
The EA licensing examination contains three parts, each consisting of 100 multiple-choice questions. Of those 100 questions, 85 questions count toward the test-taker’s score. The other 15 questions are experimental and are not scored. Each question is marked right or wrong. No weighting system applies to the final score.
The Internal Revenue System (IRS) uses a scaled scoring system for the SEE. This approach evaluates the total number of questions answered correctly against the number of questions on the exam. The system converts this number to a scale that runs from 40-130. Test-takers must earn a scaled score of 105 or higher to pass.
At the end of the exam, candidates receive a notification on their computer screen indicating that they have passed. They will not see their scaled score. The IRS only determines if a test-taker is qualified, not how qualified they may be.
SECTION
QUESTIONS
AVERAGE PASS RATE
Individuals
100
66%
Businesses
100
74%
Representation, Practices and Procedures
100
83%
The cut-off score is 105.Test-takers who fail receive their scaled score of 40-104 and diagnostic information indicating which areas need improvement. The system ranks a candidates’ performance in each exam area on a scale of 1-3. A score of one shows an area of weakness, while three indicates relative strength.
Source: Prometric
Enrolled Agent Exam Fees
There is a $203 fee per part paid at the time of appointment scheduling. The test fee is non-refundable and non-transferable
Enrolled Agent Fees after Passing
Candidates who pass the exam must pay a $67 enrollment fee when they apply to practice before the IRS.
Enrolled Agent Exam Costs
Obtain or Renew PTIN (annual)
$35.95
Scheduling Fee (each part)
$203
Enrolment Fee
$67
Rescheduling fees
You may reschedule the EA exam without forfeiting your EA exam fee as long as you do so at least 5 days prior to your testing date. But there is a rescheduling fee depending on when exactly you reschedule your exam appointment.
If you reschedule the EA exam at least 30 days prior to your appointment, there is no rescheduling fee.
If you reschedule the EA exam 5 to 29 days prior to your appointment, there is a $35 rescheduling fee.
If you reschedule the EA exam fewer than 5 calendar days before your appointment date, you will be required to pay another full examination fee.
What Is Needed to Maintain EA Accounting Certification?
Enrolled agents must renew their certification with the IRS every three years. Each EA’s renewal year is determined by the last digit of their Social Security number. Agents can file their renewal applications online or on paper. Based on their renewal cycle, each agent must complete 72 hours of continuing education, with a minimum of 16 hours each year. At least two hours per year must focus on ethics. An IRS provider must conduct the continuing education experiences.
Enrolled Agent-Practice Exams and Study Resources
Internal Revenue Service
The IRS is the definitive source of information regarding the SEE, becoming an EA, and the EA retirement program. Aspiring enrolled agents can discover the latest news affecting their profession and stay up to date with certification requirements.
National Association of Enrolled Agents
Founded in 1972, this community of tax practitioners serves more than 10,000 professionals. The association’s site offers extensive information on becoming an enrolled agent, plus tips for passing the SEE. The NAEA also provides continuing education opportunities and career development resources.
Prometric
An international test administration agency, Prometric administers the SEE on behalf of the IRS. Test-takers can access a variety of resources through Prometric. Resources include extensive information about the test, scoring, and retesting. Prometric also offers a 30-minute test simulation.
Enrolled Agents Job Opportunities in India
The Enrolled Agent course is an affordable online accounting course which is useful if anyone wishes to continue any kind of US taxation jobs. There is a wide scope of work opportunities for many who wish to pursue this field. Many opportunities lie in the US as the course deals with US taxation. Indian ITES – BPO and KPO industry servicing International and US Financial and Accounting domain is growing leaps and bounds.
All these firms, including BIG4, require knowledgeable and skilled resources to service their US and International clients on US taxation, practice, and procedures. Enrolled Agent certification, being the highest credential awarded by IRS for US taxation practice; Job seekers with EA qualification are most preferred resources by these companies.
All fortune 500 companies which have their shared services, International Banks, Financial Institutions, Big 4 and other accounting companies need EAs in their system. New FATCA (Foreign accounting tax compliance act) rules stipulate that all the Indian banks and Financial Institutions also need to submit reports on transactions entered by US investors. EA’s will be a prime resource to handle these work processes.
Enrolled agent will have opportunity to work in:
Big 4 audit firms
Accounting and taxation BPO’s & KPO’s
Shared service centers
International Banks & FIs BPO & KPO’s
Indian banks & FIs
Indian International companies
Advantages of EA over other courses in India:
Particulars
EA
PROF.COURSES
No. of Subjects / Papers
3 Papers
16 Papers
Course duration
3-6 months
3-6 years
Exam pattern
MCQ
Theory
Pass Percentage %
69%
8-10%
Certification value
Highest tax qualification offered by the IRS
Professional qualification in India
Course cost
INR 1.5 Lacs
INR 3 Lacs
Career opportunities abroad
High
Low
Starting salary for freshers
INR 4-7 Lacs
INR 4-7 Lacs
While annual salaries range between $97,000 and $25,500, most Enrolled Agent salaries currently range between $45,000 (25th percentile) to $68,500 (75th percentile) with top earners (90th percentile) making $86,500 annually across the United States.
Enrolled agents, or EAs, specialize in all kinds of tax issues, both individual and for businesses large and small. As an EA, they earn the right and privilege to represent clients before the IRS, covering all tax topics and working with any administrative level. It is a highly respected accounting certification that has the power to boost careers and expand opportunities within the profession.
How to become an enrolled agent:
Tax accountants who want to become an EA need to pass a comprehensive three-part exam that tests their knowledge of tax law and processes. This exam, known as the SEE, covers individuals, businesses, tax procedures, representation, and tax practice.
Participants must pass each of the parts within two years to earn their license. There’s no educational requirement or hourly threshold that qualifies a person to become an EA, just the exam itself.
Once the tax accountant has passed the exam, they must go through a background check administered by the IRS. Every three years after that, the EA must keep up on continuing education credits throughout their career.
The honor and distinction of becoming an enrolled agent can make a big impact on a tax accountant’s professional life, and it’s worth looking at the many benefits.
Whether someone is just starting out in their career or they have plenty of tax preparation experience and want to take things to the next level, they should consider becoming an enrolled agent.
Here are three of the most valuable benefits in becoming an enrolled agent.
Verification of Tax Expertise
Earning an EA license means that the tax accountant is part of an elite group that is recognized as a tax expert. As the highest certification given by the IRS, an EA is an easy way to signal that the professional who holds the license has a very high level of tax expertise.
The IRS has such strict standards about earning an EA credential that everyone understands it means deep knowledge and a range of expertise. An EA is not limited to state or regional knowledge, either. Because it is regulated by The Department of Treasury, EA credentials are recognized and revered in every state.
Opportunities for Job Growth
Becoming an enrolled agent is an excellent way to explore job opportunities and business prospects that may not otherwise be open. EAs specialize in tax issues of all kinds ranging from businesses to individuals.
An EA license makes tax accountants highly desirable when it comes to jobs at a tax firm, a government entity, or for a CPA in the private sector. With an EA on their resume, it’s easy for someone to stand out among other job applicants.
Expanded Earning Potential
For tax accountants, earning an EA can increase their salary by several thousand dollars and allows them to take the next step in their career. The higher salary potential is one of the many benefits that an EA license can provide.
In the eyes of their clients, EAs are incredibly valuable because they need help understanding the complexities of taxes and how they affect their business or their individual earnings.
EAs can represent taxpayers in any kind of situation in front of the IRS on an unlimited number of tax topics. From collections and audits to appeals and advising, EAs can work in any state and there are no limits to the type of clients or the type of IRS offices they can take on.
No matter where they are in their career, EAs will always be able to provide a wide range of tax services to an increasing number of clients from all backgrounds.
Study Support
In order to get the enrolled agent certification through completion of the Enrolled Agent syllabus, one must go vividly through the Enrolled Agent course for successful clearance of the Enrolled Agent exam, to finally come out with flying colors as an IRS certified US tax professional.
To achieve this smoothly, one needs good study support in terms of good standard review materials and quality mentoring process for this online accounting program. Uplift Professionals, one of the premier institutes provide effective study support to pass EA exam in shorter duration. A sample study plan is provided below.
To obtain an enrolled agent certification, studying from accounting textbooks or the tax code can save you money on materials, but it has massive opportunity costs. You must spend time figuring out what and how much to study, and you likely will have to purchase books to make sure you get complete content coverage.
Get it wrong, and you may have to pay to retake part of the exam. Working with time-tested review material from the best online study provider will require you to spend money up front, but it takes the guesswork out of your preparations. Plus, you will be following a system that has helped many other candidates pass their exams.
An Enrolled Agent (EA) is a licensed tax professional who represents taxpayers that face asset forfeiture, are undergoing audits, or who want to file appeals for various decisions of the Internal Revenue Service (IRS). Specifically, those with this certification, similar to a certified public accountant (CPA), can represent taxpayers before the Internal Revenue Service.
EAs has become a bona fide career with the benefits of technical experience, federal oversight of the practice, governmental oversight, and even their own publications. In fact, EA certification is the highest credential the IRS offers.Though not quite at the level of a CPA or a lawyer, EAs are able to offer a broad scope of services to their clients.
Also, unlike a certified public accountant, these agents do not need approval from a state board and they do not need state licenses; their professional certification is accepted throughout the nation. Outside of standard tax prep, you and your client will also enjoy client-EA confidentiality. Thus, when you are representing a taxpayer in a matter involving an audit or Internal Revenue Service collections, you can discuss the content of those filings with protected confidence and security.
These days, the profession is still available to nearly anyone. No special education is required. However, all licensed EAs must pass a special enrollment examination (SEE) and tend to do better with previous employment and work experience in the field. The IRS oversees the EA exam through Prometric that likely offers a testing center near you. In 1994, the initials E.A. were officially recognized by the Treasury Department.
A licensed enrolled agent (EA) has many duties and responsibilities, both to their clients and to the Internal Revenue Service. Failure to comply with rules can result in suspension, disbarment, or other penalties. Conceivably, criminal charges could be filed in extreme circumstances. However, you will enjoy a long and fruitful career and nearly unlimited earning potential in the private sector if you maintain an honorable practice.
When becoming an enrolled agent you will have several obligations and one of the first obligations is to the IRS. If the agency requests documentation from you, you must comply with the request or order for documents. When you receive such a request, you should scrutinize it and determine that it follows tax law and that the requested documents do not violate your client-EA confidentiality.
After all, while it is important to be in compliance with the IRS, it’s also important to fulfill on any contractual agreements you have with your client. Not only are you required to submit any lawfully requested documentation, but you must also be available to testify before the IRS.
As you work with a client, it is your duty to inform them of various statutes and rules. For instance, if you see that they may be omitting certain information from their paperwork when you file it, you must let them know that their action will carry consequences. Failure to properly inform your client may result in negative consequences for both you and your client. These types of due diligence are required throughout your practice.
The Benefits of Becoming an Enrolled Agent
1. Unlimited Representation before the IRS
The U.S. CPA license is one of the most respected accounting certifications. But when it comes to representation before the IRS, the EA is right there with the CPA. Therefore, if certain obstacles prevent you from earning the CPA, but you plan to specialize in tax, you can get the EA license and be just as capable. The IRS grants both CPAs and EAs the ability to represent a taxpayer without any limitations.
As an EA, you will always be in the IRS National Database so long as you maintain the continuing education (CE) and Preparer Tax Identification Number (PTIN) requirements. As a result, you can handle any type of tax matter (even audits, collections, and appeals), represent clients before any IRS office, and represent any taxpayer in any state. You don’t ever have to turn away clients because of situations outside your professional clearance level.
2. Verified Tax Expertise
The IRS doesn’t award unlimited representation to just anyone. No, everyone knows that with the IRS’s stamp of approval, enrolled agents are the real tax experts. That’s because, in the process of earning the EA designation, you will increase your tax knowledge and abilities. Then, once you have the credential, you’ll have the credibility that comes with it. The Department of Treasury regulates the EA designation, so all 50 states recognize and respect it. The EA’s universal acceptance and esteem stand in stark contrast to the CPA license, which the state boards of accountancy grant individually.
The variance among CPA license applications and requirements as well as the lack of tax depth in the CPA Exam syllabus means CPAs may or may not be capable of providing knowledge and services equivalent to that of an EA. Accordingly, CPAs don’t usually have the same amount of passion to keep up with and perform tax services. So, when you have the EA license, you’ll be known as the most committed and qualified of tax professionals. Then, when CPAs decline opportunities to provide tax assistance, you can swoop in and deliver the help clients need.
3. Limitless Earning Potential
Because you’ll be a confirmed tax expert with unlimited rights before the IRS, you won’t have to turn down any chance to make money by supplying tax services. Instead, you can complete more complicated tax returns, which means you can increase your earning potential. The services you can offer include helping people with audits, preparing and filing documents on a client’s behalf, attending hearings and conferences in place of your client, and providing written advice to third parties on the tax implications of business transactions.
These services are lucrative not only because they are vast, but also because they are in demand across all industries. All kinds of entities require the assistance of enrolled agents, such as accounting firms, law firms, investment firms, corporate accounting departments, state departments of revenue, banks, and private practices. With so many work opportunities available, you’ll have the freedom to decide if you’d like to work full-time or part-time; year-round or just during busy season; for yourself or someone else. In fact, with the independence you’ll have to work as much as you like and on whatever kind of accounts you like, your earning potential is unlimited.
4. Recession-Proof Job Security
Basically, as long as people must pay taxes, they’ll need the aid of enrolled agents. Therefore, enrolled agents will be in demand indefinitely. Even when the country goes through tough economic times, you can stay afloat on the EA designation. Likewise, in light of continuous changes to the tax code, the enrolled agent designation is always valued. And that’s not to mention the increasing need for enrolled agents in healthier economic climates. The IRS has been bumping up the number of examinations they perform each season, so more people are calling on enrolled agents to get them through audits each year.
5. Educational Requirements
The IRS does not require any specific educational background to become an enrolled agent. Applicants have to pass each section of the three-part exam and undergo a background check. Aspiring EAs may find that an accounting degree sets them apart from their peers. Candidates who already hold undergraduate degrees may boost their skills and knowledge with a certificate in accounting or master’s in taxation.
Jobs You Can Have with an Enrolled Agent Credential
Public Accounting Firm Tax Staff
Public accounting firms are a great place for EAs to work for a variety of reasons: they often offer great benefits, including higher than normal paid time off and a strong sense of job security. At a public accounting firm, EAs can work as tax staff, helping to prepare returns and representing clients before the IRS. EAs will likely work with a variety of clients, from individuals to corporations, and will get highly experienced guidance on tax related matters. Public accounting is a great place to start your career and jump into other jobs, or it can be a great place to continue your career well into the future depending on your need for growth and your firm’s ability to provide it.
Small Accounting Firm Tax Staff
There are plenty of smaller CPA firms out there who have more clients than they know what to do with. This is a great opportunity for an EA – they can come in and take quite a few tax related matters off a small practice owner’s hands. EAs can take on a variety of responsibilities and grow into the role of a tax professional. Small accounting firms can also offer a lot of benefits in terms of scheduling, time-off, work from home opportunities, and growth.
Banking
Banks are regulated by the Federal Reserve and therefore have to deal with government oversight on a consistent basis. Having an EA on staff can help banks work with regulations while also making sure they are tax compliant. Banks offer similar benefits to public accounting firms: good salary, good benefits, and high job security. They also have an added benefit of having more paid holidays than most businesses. However, you may have less flexibility in terms of your schedule, so you’ll have to evaluate what’s most important to you in your career.
Law Firm Staff
Tax law firms will definitely benefit from having an EA on staff who can represent clients before the IRS (for example, if the client was audited) and deal with any IRS related notices received on behalf of the client. Law firms are also small businesses which may benefit from having tax personnel on their staff to help them handle their small business taxes. Law firms offer different benefits depending on size. Similar to public accounting firms vs small CPA firms, a large firm will likely offer better pay, more security, and better benefits, while a small firm will offer more ownership and more flexibility.
Investment Firm Staff
Investment firms need tax professionals on staff who can help them minimize the tax obligations of their clients. An EA can advise investment firm staff on how to handle the purchase and sale of investments to ensure the goals of clients are met in any given tax year. Larger investment firms tend to offer very good benefits for their staff, as well as more progressive flexibility. If you’re an EA and you’re interested in investing, this would be a great opportunity to do something you enjoy while also having a lot of salary and work-time flexibility.
Department of Revenue Staff
A great benefit of being an EA is having the ability to work for the IRS or state departments of revenue. This is at the heart of an EAs core duties and responsibilities, and you’ll be guiding people through tax obstacles on a daily basis. Working in government means you’ll likely have better vacation, health, and retirement benefits, as well as increased job security. You may not be paid quite as well as if you worked in the private sector, but you may enjoy knowing you’re working for an entity meant to serve the public.
CEO or Owner of Your Own Business
Many EAs start their own tax preparation and planning businesses. You would perform all the essential duties of an EA: tax preparation, tax strategy, and representing clients before the IRS. You may also incorporate bookkeeping services into your practice, or start a small business with a partner who does advising and accounting related work to have a fully rounded accounting practice.
The sky’s the limit when you start your small business, and it really gives you a chance to work with your passions. Having your own business offers the greatest benefits while posing the largest risk. You may have unlimited flexibility, but you’ll have to earn clients to make money. You can make a lot of money, but you may have more clients than you want to deal with. It’s all about balance when owning your own business.
Staff of Small Businesses in Various Industries
Most every business would benefit from having an EA on staff. Small business owners don’t usually have the time to deal with tax related matters or IRS notices, and would really benefit from having someone on staff who could help them with their accounting throughout the year and their taxes during tax season. Having an EA in house also means small business owners can actively take advantage of tax minimizing decisions on a regular basis. Each of these areas offer upsides and downsides, and different firms within each area may offer different opportunities. You may find a bank that offers a great salary and flexible schedule, it’s just a matter of looking at your options.
Also, keep in mind that you don’t have to pick one of these careers to be in forever. You may start out in a public accounting firm, move to a bank, and then start your own business. Being an EA means you have the opportunity to try out a few different areas and see what you like. It’s a great career choice for anyone who enjoys helping people while also earning a great salary and having a fair amount of flexibility.
This excerpt from a chart produced by the National Association of Tax Professionals (NATP) breaks down the rights the candidates have after becoming an EA:
EA Job Opportunities in India
An Enrolled Agent is a person who has earned the privilege of preparing US tax returns and also representing taxpayers before the Internal Revenue Service (IRS) by passing a three-part comprehensive IRS test covering individual and business tax returns. The course is really useful if you wish to continue any kind of US taxation jobs.There is a wide scope of job opportunities for many who wish to pursue this field.
Many opportunities lie in the US as the course deals with US taxation. Indian ITES – BPO and KPO industry servicing International and US Financial and Accounting domain is growing leaps and bounds. All these firms including BIG4, require knowledgeable and skilled resources to service their US and International clients on US taxation. Enrolled Agent being the highest credential awarded by IRS for US taxation practice; Job seekers with EA qualification are most preferred resources by these companies.
The course is really useful if you wish to continue any kind of US taxation jobs. There is a wide scope of job opportunities for many who wish to pursue this field. Many opportunities lie in the US as the course deals with US taxation.
· Indian ITES – BPO and KPO industry servicing International and US Financial and Accounting domain is growing leaps and bounds. All these firms including BIG4, require knowledgeable and skilled resources to service their US and International clients on US taxation. Enrolled Agent being the highest credential awarded by IRS for US taxation practice; Job seekers with EA qualification are most preferred resources by these companies.
· All fortune 500 companies which have their shared services, International Banks , Financial Institutions , Big 4 and other accounting companies need EA’s in their system . New FATCA (Foreign accounting tax compliance act) rules stipulate that all the Indian banks and Financial Institutions also need to submit reports on transactions entered by US investors. EA’s will be a prime resource to handle these work processes.
Enrolled agent will have opportunity to work in:
· Big 4 audit firms
· Accounting and taxation BPO’s & KPO’s
· Shared service centers
· International Banks & FIs BPO & KPO’s
· Indian banks & FIs
· Indian International companies
Average Enrolled Agent Salary in India
₹460,838/ year
The average salary for an Enrolled Agent is ₹460,838
Base Salary
₹100k – ₹730k
Bonus
₹58k – ₹110k
Total Pay
₹120k – ₹730k
Based on 19 salary profiles (last updated Mar 08 2022) Source: PayScale
Average Deloitte Tax Consultant salary in India is ₹ 6 Lakhs per year for employees with less than 1 year of experience to 4 years. Tax Consultant salary at Deloitte ranges between ₹ 3.9 Lakhs to ₹ 7.6 Lakhs per year.
Summary
As an Enrolled Agent you have opportunities to increase your salary by charging a fee for representation services, tax advice, or opinions on tax matters. EAs can work year-round, representing taxpayers in examinations, audits, installment agreements, collections and appeals. Armed with the ability to provide additional services, the Enrolled Agent credential increases the value you bring to clients, but it also increases the revenue potential that current clients bring to a tax practice. For these reasons, EAs are in high demand and often earn a higher salary than tax return preparers who are unable to offer these services.
On average, EAs can earn more per year than tax preparers. Individuals who are considering a new career path may find that becoming an enrolled agent is the right choice. Offering excellent job security and the opportunity to have jurisdiction throughout the United States, the position of enrolled agent can provide a good salary along with a rewarding career. Candidates who already hold undergraduate degrees may boost their skills and knowledge with a certificate in accounting or master’s in taxation.
Enrolled Agent Training in India
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June 2, 2022 | Dr Rathindramohan Mukherjee | Finance, USA CMA
The US CMA certification is a marvelous path to enhance one’s career and stand out from the crowd of conventional applicants vying for accounting job profiles. However, before going head on into the world of US CMA, it is important to understand the skills and basic accounting knowledge a CMA US needs. To get a better understanding of the skill sets required to be a CMA, it is important to understand what a CMA US does.
Here’s a summary of some of the financial and accounting duties that Morgan International says real world US CMAs perform:
· External Financial Reporting
· Planning and Budgeting
· Performance Management
· Cost Management
· Internal Controls
· Profitability Analysis
· Risk Management
· Investment Decision
Therefore, to undertake the US CMA certification, it is essential that the candidate must have completed a bachelor degree.
The skills a CMA needs to augment his pursuit of the much-coveted profiles of US CMA are:
· Knowledge of basic accounting, generally accepted accounting principles (GAAP) and basic tax principles
· Clear theoretical conception and practical applicability of cost accounting
· Good grasp on finance tools, such as discounted cash flow
· A good grounding in economics
· Knowledge in both human capital management and financial capital management
· Well-versed in areas such as capital investment, operational structuring and foundational risk assessments
· Softer skills such as communication and presentation skills, writing, persuasion and interpersonal skills.
If you are serious about the CMA with no accounting experience, or get detached from your study for a prolonged period then you should start by getting up to speed with accounting basics. The idea is to get familiar with basic accounting concepts and principles. It is also a good way to decide whether you like this field enough to take the exam.
Hence, before going to study your US CMA review materials or start taking classes, be sure you have gathered or recapitulate your basic accounting terminologies/concepts for a smooth US CMA journey.
Basic accounting concepts used in the business world cover revenues, expenses, assets, and liabilities. These elements are tracked and recorded in documents including balance sheets, income statements, and cash flow statements. Introduction to accounting frequently identifies assets, liabilities, and capital as the field’s three fundamental concepts.
Assets describe an individual or company’s holdings of financial value. Liabilities are debts and unpaid expenses. Capital describes the money the entity has on hand. Accounting is the process of tracking and recording financial activity. People and businesses use the principles of accounting to assess their financial health and performance.
Accounting also serves as a useful way for people and companies to honor their tax obligations. The history of accounting dates back to ancient times. In the modern world, it is most closely associated with businesses’ financial reporting.
However, everyone can benefit from a knowledge of accounting basics. Here in this article, you can find the basic accounting terms and concepts which will surely benefit you in your US CMA journey.
Simple Accounting Definitions:
1. Accounting Period
An accounting period defines the length of time covered by a financial statement or operation. Examples of commonly used accounting periods include fiscal years, calendar years, and three-month calendar quarters. Some organizations also use monthly periods. Each accounting period covers one complete accounting cycle. An accounting cycle is an eight-step system accountants use to track transactions during a particular period.
2. Accounts Payable
Accounts payable (AP) tracks money owed to creditors. Examples include bank loans, unpaid bills and invoices, debts to suppliers or vendors, and credit card or line of credit debts. Rarely, the term “trade payables” is used in place of “accounts payable.” Accounts payable belong to a larger class of accounting entries known as liabilities.
3. Accounts Receivable
Accounts receivable (AR) tracks the money owed to a person or business by its debtors. It is the functional opposite of accounts payable. Accounts receivable are sometimes called “trade receivables.” In most cases, accounts receivable derive from products or services supplied on credit or without an upfront payment. Accountants track accounts receivable money as assets.
4. Accrual basis accounting
Accrual basis accounting (or simply “accrual accounting”) records revenue- and expense-related items when they first occur. For example, a customer purchases a $2,000 product on credit. Accrual accounting recognizes that $2,000 in revenue on the date of the purchase. The method contrasts with cash basis accounting, which would record the $2,000 in revenue only after the money is actually received. In general, large businesses and publicly traded companies favor accrual accounting. Small businesses and individuals tend to use cash basis accounting.
5. Accruals
Revenues and expenses recognized by a company but not yet recorded in their accounts are known as accruals (ACCR). By definition, accruals occur before an exchange of money resolves the transaction. For example, a company that hired an external consultant would recognize the cost of that consultation in an accrual. That cost would be recognized regardless of whether or not the consultant had invoiced the company for their services.
Accounts payable and accounts receivable are accrual types. Others include accrued costs (costs incurred but not resolved during a particular accounting period) and accrued expenses (expenses or liabilities incurred but not resolved during a particular accounting period).
6. Assets
Assets are items of value, or resources that a business owns or controls. More technical and precise definitions specify two technicalities: First, assets result from past business activities. Second, they will or are expected to generate future economic value. Assets come in many types and classes. Types include current and noncurrent, operating and non-operating, physical, and intangible. Classes include broad categories such as cash and equivalents, equities, commodities, real estate, intellectual property, and fixed income, among others.
7. Balance Sheet
A balance sheet (or “statement of financial position”) is a standard financial statement. It specifies the business’ current state regarding its assets, liabilities, and owners’ equity. Some sources abbreviate the term as BAL SH. Accountants use multiple formats when creating balance sheets: classified, common size, comparative, and vertical balance sheets. Each format presents information as line items that combine to provide a snapshot summary of the company’s financial position.
8. Capital
In common usage, capital (abbreviated “CAP.”) refers to any asset or resource a business can use to generate revenue. A second definition considers capital the level of owner investment in the business. The latter sense of the term adjusts these investments for any gains or losses the owner(s) have already realized.Accountants recognize various subcategories of capital.
Working capital defines the sum that remains after subtracting current liabilities from current assets. Equity capital specifies the money paid into a business by investors in exchange for stock in the company. Debt capital covers money obtained through credit instruments such as loans.
9. Cash Basis Accounting
Cash basis accounting records revenues and expenses when the money involved in each transaction officially changes hands. It contrasts with accrual basis accounting. Accrual accounting recognizes revenues and expenses when they occur without regard to whether the associated funds have been exchanged.
10. Cash Flow
Cash flow (CF) describes the balance of cash that moves into and out of a company during a specified accounting period. Accountants track CF on the cash flow statement.
11. Chart of Accounts
Accountants record financial transactions in a bookkeeping system known as a general ledger. A chart of accounts (COA) is a master list of all accounts in an organization’s general ledger. Five main types of accounts appear in a COA: assets, equity, expenses, liabilities, and revenues.
12. Closing the Books
The informal phrase “closing the books” describes an accountant’s finalization and approval of the bookkeeping data covering a particular accounting period. When an accountant “closes the books,” they endorse the relevant financial records. These records may then be used in official financial reports such as balance sheets and income statements.
13. Credit
Credits are accounting entries that increase liabilities or decrease assets. They are the functional opposite of debits and are positioned to the right side in accounting documents.
14. Debit
Debits are accounting entries that function to increase assets or decrease liabilities. They are the functional opposite of credits and are positioned to the left side in accounting documents.
15. Depreciation
Depreciation (DEPR) applies to a class of assets known as fixed assets. Fixed assets are long-term owned resources of economic value that an organization uses to generate income or wealth. Real estate, equipment, and machinery are common examples. Fixed assets can decline in value. Accountants record those declines as depreciation.
16. Diversification
Diversification describes a risk-management strategy that avoids overexposure to a specific industry or asset class. To achieve diversification, people and organizations spread their capital out across multiple types of financial holdings and economic areas. The term is also widely used in finance and investing.
17. Dividends
In corporate accounting, dividends represent portions of the company’s profits voluntarily paid out to investors. Investors are often paid in cash, but may also be issued stock, real property, or liquidation proceeds. In most cases, dividends follow a regular monthly, quarterly, or annual payment schedule. However, they can also be offered as exceptional one-time bonuses.
18. Double-Entry Bookkeeping
Double-entry systems record each financial transaction twice: once as a credit, and once as a debit. When the sum total of all recorded debits and credits equals zero, the accounting books are considered “balanced.” The system is also known as double-entry accounting. It is a completer and more accurate alternative to single-entry accounting, which records transactions only once. Single-entry systems account exclusively for revenues and expenses. Double-entry systems add assets, liabilities, and equity to the organization’s financial tracking.
19. Equity
At a basic level, equity describes the amount of money that would remain if a business sold all its assets and paid off all its debts. It therefore defines the stake in a company collectively held by its owner(s) and any investors.The term “owner’s equity” covers the stake belonging to the owner(s) of a privately held company. Publicly traded companies are collectively owned by the shareholders who hold its stock. The term “shareholder’s equity” describes their ownership stake.
20. Fixed Cost
A fixed cost (or fixed expense) is a cost that stays the same regardless of increases or decreases in a company’s output or revenues. Examples include rent, employee compensation, and property taxes. The term is sometimes used alongside “operating cost” or “operating expense” (OPEX). OPEXs describe costs that arise from a company’s daily operations. However, these costs can be fixed or variable. Variable costs change as output or revenues change.
21. General Ledger
Businesses and organizations use a system of accounts known as ledgers to record their transactions. The general ledger (GL or G/L) is the master account containing all ledger accounts. It holds a complete record of all transactions taking place within a specified accounting period. Major examples of individual accounts in a general ledger include asset accounts, liability accounts, and equity accounts. Each transaction recorded in a general ledger or one of its sub-accounts is known as a journal entry.
22. Generally Accepted Accounting Principles
Generally accepted accounting principles (GAAP) describe a standard set of accounting practices. GAAP are endorsed by organizations including the Financial Accounting Standards Board and the U.S. Securities and Exchange Commission (SEC), among others. However, GAAP are only one of multiple such standards.
One well-known alternative is International Financial Reporting Standards (IFRS). In the United States, privately held companies are not required to follow GAAP, but many do. However, publicly traded companies whose securities fall under SEC regulations must use GAAP standards.
23. Gross Profit
Gross profit (or gross income) defines the value of the products and services sold by a business before factoring in the cost of goods sold. If the gross profit is a negative number, it is instead called a gross loss. It contrasts with “net profit,” which describes the actual profit earned after accounting for those costs. Gross margin is a related term: It specifies the value of the organization’s net sales, minus the cost of goods sold. Net sales are calculated by correcting gross sales for adjustments such as discounts and allowances.
24. Income Statement
An income statement is a type of financial document businesses generate. It specifies the total revenues earned by the company in a given accounting period, minus all expenses incurred during the same period. Other terms used to describe income statements:
· Earnings statement
· Profit and loss statement
· Statement of financial result(s)
· Statement of operation
Income statements are one of three standard financial statements issued by businesses. The other two include the balance sheet and cash flow statement.
25. Inventory
As used in accounting, inventory describes assets that a company intends to liquidate through sales operations. It includes assets being held for sale, those in the process of being made, and the materials used to make them.
26. Liability
A liability (LIAB) occurs when an individual or business owes money to another person or organization. Bank loans and credit card debts are common examples of liabilities. Accountants also distinguish between current and long-term liabilities. Current liabilities are liabilities due within one year of a financial statement’s date. Long-term liabilities have due dates of more than one year.
The term also appears in a type of business structure known as a limited liability company (LLC). LLC structures allow business owners to separate their personal finances from the company’s finances. As such, owners cannot be held personally liable for debts incurred solely by the company.
27. Liquidity
In accounting, liquidity describes the relative ease with which an asset can be sold for cash. Assets that can easily be converted into cash are known as liquid assets. Accounts receivable, securities, and money market instruments are all common examples of liquid assets.
28. Net Profit
Net profit describes the amount of money left over after subtracting the cost of taxes and goods sold from the total value of all products or services sold during a given accounting period. It is also known as net income. If the net profit is a negative number, it is called net loss. The related term “net margin” refers to describing net profit as a ratio of a company’s total revenues. Net profit contrasts with gross profit. Gross profit simply describes the total value of sales in a given accounting period without adjusting for their costs.
29. On Credit
Accountants track partial payments on debts and liabilities using the term “on credit” (or “on account”). Both versions of the term describe products or services sold to customers without receiving upfront payment.
30. Overhead
Overhead (O/H) costs describe expenses necessary to sustain business operations that do not directly contribute to a company’s products or services. Examples include rent, marketing and advertising costs, insurance, and administrative costs. Businesses must account for overhead carefully, as it has a significant impact on price-point decisions regarding a company’s products and services. Overhead costs must be recouped through revenues.
31. Payroll
Tracking operations that record, administrate, and analyze the compensation paid to employees are collectively known as payroll accounting. Payroll also includes fringe benefits distributed to employees and income taxes withheld from their paychecks.
32. Return on Investment
Usually expressed as a percentage, return on investment (ROI) describes the level of profit or loss generated by an investment. Accountants calculate ROI by dividing the net profit of an investment by its cost, then multiplying by 100 to generate a percentage. For example, consider a person who invests $10,000 in a company’s stock, then sells that stock for $12,000. The exchange would generate an ROI of 20%. When an investor incurs a loss, the ROI is expressed as a negative number.
33. Revenue
Revenue (REV) describes the income a business earns by selling products and/or services associated with its main operations. For example, a restaurant’s revenue covers all food and beverage sales. It would not cover additional sources of income, such as the liquidation of equipment or real estate owned by the business. The terms “revenue” and “sales” can be synonymous. For example, revenue is used to establish the datapoint comprising the “sales” component of a price-to-sales calculation.
Single-Entry Bookkeeping: Single-entry bookkeeping records all revenues and expenses with a single entry in the company’s books. It is also known as single-entry accounting. Single-entry systems are simplified financial tracking methods often used exclusively by small businesses. Transactions are recorded in a document known as a “cash book.” It contrasts with the more precise and accurate double-entry accounting method. Double-entry accounting records all transactions twice: once as a debit, and once as a credit.
34. Trial Balance
A trial balance is a report of the balances of all general ledger accounts at a point in time. Accountants prepare or generate trial balances at the conclusion of a reporting period to ensure all accounts and balances add up properly. In professional practice, trial balances function like test-runs for an official balance sheet.
35. Variable Cost
Variable costs are expenses that can change depending on the volume of goods produced or sold by a company. For example, a manufacturer would incur higher costs if it doubled its product output. Companies may also face higher tax rates as their sales and profits rise. These are both examples of variable costs. By comparison, fixed costs remain the same regardless of production output or sales volume. Examples of fixed costs include rent, wages, and salaries.
Summary
The world of knowledge is infinite, which means that there is no end to learning, unlearning and relearning new skills that are in sync with the changing times. The same is in the case of accounting, where managerial accountants need to have varied basic accounting skills and need to keep themselves abreast of the new developments in the domain.
However, there are certain jargon, buzzwords and basic accounting skills that are considered as a prerequisite to becoming a successful management accountant. Some of the basic accounting terms required to make your US CMA journey better has been discussed here. However, going through the basic accounting books are highly recommended.
To make your US CMA journey smooth, Uplift Professionals, an IMA approved premier training institute of US CMA has introduced special orientation classes on basic accounting for its students apart from the regular US CMA classes as an add-on at no extra cost. This is going to be highly beneficial for students who don’t have basic accounting degree, the working professionals who are not in touch with study for prolonged period and obviously to students who are weak in basic accounting concepts.
