10 things

Posted by Bruce Mc on Jul 27, 2010 in Accounting, Bookeeping, Information, Opinions | 0 comments

Below is a list of 10 practices that you should run-through, and 10 practices you should avoid. In an effort to get this information out to my readers, I have taken this list and edited it to where from my outlook as owner of a small business accounting firm with our knowledge and experience makes a better working sense. Working on your business can be a challenging task if you are unprepared.  Please keep in mind that I have edited this for my readers, my clients, and my own commercialism. 

10 things you should be doing 

1. Even if it’s likely you’re not going to be managing most of the financial aspects of your business, learn basic accounting concepts yourself, such as what a profit and loss statement is, what a balance sheet is, and what a cash flow statement is, just so that you’re in the know. As the owner, you need to know why and how things flow the way they do.
2. Hire a small business accountant who is going to be familiar with your industry to manage the financial assets of your business. If you are starting your own pluming business and your accountant doesn’t know how to turn a faucet on anything else about the plumbing industry, find one that does.
3. All Accountants will offer programs that can certainly help you do your job better, find out which ones work best for you, and then use them. Make an informed decision on the services you engage and the products you use.
4. Update cash flow control spreadsheets at least once a month, but preferably at least weekly.
5. You should have internal controls in place whereby you know that your business has received all of the income you have coming. If you don’t know how to do this yourself, hire someone who is a small business accounting professional to help you.
6. When you first start, your business, it is likely to be small; because of that, you can probably manage your own bookkeeping tasks (QuickBooks Pro and Premier Conveniently come in Download Versions and are Easily Upgradable. Buy Now and Save up to 20%!). (see number one in this list) Do this if you can so that you can learn how bookkeeping works, and how to manage the finances of your business (please note, as you grow, you may/will have to turn these tasks over to someone else later).
7. Prepare financial statements at monthly:
   1. Income statement
   2. Owner’s equity statement
   3. Balance sheet
   4. Statement of cash flows
8. Reconcile your bank account immediately when your monthly bank statement is received. Bank reconciliations are extremely important. Unfortunately, many small business owners do not realize this, because they do not even reconcile their own personal checking account. They just figure they can look on line for a balance and as long as there is money in the account, they are fine. The issue is, bank reconciliations are a must because they are the final way to be sure all entries are made into your books and that there are not any double entries.
9. Keep business and financial records separate, and don’t intermingle the two.
10. Outsource your payroll and payroll accounting to a payroll service provider. (On-line payroll service provider, this is a less expensive choice.) 

Top 10 “should not”

1. Don’t brag or over-inflate your numbers; be modest about your sales projections, and don’t underestimate what expenses are going to be.
2. Never put your personal and business assets together.
3. Don’t hand over control; make sure you retain the authority to assign all of your checks, and DON’T delegate this job to someone else.
4. Don’t touch money that’s been withheld for tax purposes like payroll or sales tax and use it for anything else — even if you’ve got an “emergency.”
5. Never pay an invoice without matching it to your purchase order.
6. Don’t have someone else do cash flow projections analysis for you.
7. Don’t hire a small business accountant and/or a lawyer to help you with financial matters, only to ignore their advice. They are trained and experience in what they do. Yes they make a mistake or two. You pay them good money; listen to what have to tell you.
8. Verbal agreements are fine, but get everything in writing, too — including purchases.
9. Never assign to others your relationship with your lending sources.
10. Don’t wait to establish credit resources when you need financing. Instead, do it well in advance.

Okay some good advice that has been around the internet awhile. Remember while you work in your business you will need to also work on your business.

The Income Statement (Profit & Loss) Part 2

Posted by Bruce Mc on Jul 15, 2010 in Accounting, Bookeeping, Income Statement, Information, Preparer, QuickBooks | 0 comments

It has come to my attention that many of you could use some help in understanding how to use your Profit & Loss effectively in managing your business. Even more so, Some of you may not even know that this is a tool to use in managing your business. So here is just exactly what the Profit & Loss Statement is good for.

The Profit & Loss Statement is your major management tool. This report shows you many things that you will want to be aware of as you are managing from month to month.

The Profit & Loss lists all your income and all your expenses. It will first list your income and then list your Cost of Goods Sold (COGS), subtracting the total COGS from your total Income. COGS are the expenses that are directly related to your service or product you sell.

For example:

 if you are a contractor, then your COGS could be your labor, the building materials, the permit, things like that.

 Each industry has its own COGS. So the number that you get from subtracting your COGS from your total income is your gross profit margin. This number is very important and helps you to determine if you are making a profit on your services or product. This is not the infamous “bottom line” though, because all companies have “overhead” or expenses that are not directly related to the service or product.

For example:

your accounting, the receptionist, taxes, office supplies, and many other expenses not directly related to what you do or sell.

So after you have subtracted the COGS and the overhead expenses from your income, that is what your net profit is for the month or the infamous “bottom line.”

There are many things to be aware of and to look for on your Profit & Loss in helping you to manage your company. The following is a Top Ten list:

1. Did I make a profit? If so how much?
2. Use your Profit & Loss to determine your financial viability, not your online bank balance. Small business owners think that if they have money in the bank, they are good. The problem is that your bank account is only one facet of your business at a specific point in time, and your Profit & Loss will provide you with the overall picture.
3. If I did not make a profit, why?
4. Did we spend too much on a given expense, like tools? Computer repairs? Cell phone fees? Meals out? Advertising?
   1. You can see this at a glance as a total for each expense category on your Profit & Loss.
5. How much income do I need to break even?
6. How many months have I lost money?
7. Based on your numbers, you will be able to tell if you need to get a loan.
8. Do you need to lay people off?
   1. You can determine this from this Statement.
9. Do you need to make your company more efficient in order to break even or make a profit?
10. Based on your income numbers, you might find one income source essentially non-existent and another is booming. This will give you direction on what to promote, what to put your money into and what not to.

So as you can see, your Profit & Loss will provide you with crucial info in the management and direction of your company.

You can use your Profit & Loss to help with many facets of the business. But as you may have figured already, it is very essential that your accounting/bookkeeping be accurate, because if the accounting is off, then these reports are incorrect and therefore, worthless. If you have QuickBooks and do not know accounting, it would be good to outsource the review of your books and maybe the entry of your transactions to a reliable accounting/bookkeeping service, so that you can have effective tools in your tool bag and have control of your business.

Understanding what to look for and how to use it can save your company in tough times and make your company extremely profitable in the good times.

Related articles

• What is the importance of profit and loss account (wiki.answers.com)
• Profit and Loss, By Leontia Flynn (independent.co.uk)
• One trading statement for Companies House and HMRC for small firms in future (telegraph.co.uk)

The Income Statement (Profit & Loss) Part 1

Posted by Bruce Mc on Jul 13, 2010 in Accounting, Bookeeping, Income Statement, Information | 0 comments

The Income Statement is one of the three main financial statements. (The other two being the Balance Sheet and Cash Flow Statement.) The important thing to remember about an income statement is that it represents a period of time. As opposed to the balance sheet, which represents a single moment in time.

The income statement is sometimes referred to as the profit and loss statement (P&L), statement of operations, or statement of income. In QuickBooks it is the P & L.

This financial statement indicates changes in the financial position of the business for a particular period of time, i.e. month, quarter or year. The portion of the income statement that deals with operating items is interesting to investors and analysts alike because this section discloses information about revenues and expenses that are a direct result of the regular business operations. The non-operating items section discloses revenue and expense information about activities that are not tied directly to a company’s regular operations. For example, if the sport equipment company sold a factory and some old plant equipment, then this information would be in the non-operating items section.

An Income Statement is related with the Balance Sheet in the terms of net result for the period, i.e. profit or loss for the period from this financial statement goes to the Balance Sheet as an increase or decrease in Retained Earnings (result not distributed to the shareholders as dividends).

The Items Included in

Considering the structure of Income Statement, it is important that this statement indicates not only net result for the period, but also fundamental parts, which make this result. So this statement will include the following:

Revenue:

amounts earned for the goods sold or services provided

Cost of Sales:

cost of goods sold or services provided. In case only goods are being sold, this items will be called Cost of Goods Sold. Here all the cost which are directly related to the revenues earned are included

Gross Profit:

difference between two mentioned items, which indicate how much business earns from the main operations

Operating Expenses:

this items consists of the expenses which cannot be directly related to the cost of goods sold or services provided. Examples can be salaries of accountants, administrative office space rent and other

Operating Profit:

difference between Gross Profit and Operating Expenses

Interest Expenses:

these expenses are shown separately to indicate financial costs the business incurs and whether it earns sufficient profit to be able to pay interest on time

Net Profit (Loss):

this is the net result for the period. If it is positive, we have a profit. If it is negative, we have a loss.

Important to notice, that the Income Statement is usually prepared on the accrual basis, i.e. income and related expenses are recognized despite the fact that cash was not yet paid or received, but based on the obligation from customers to pay for goods sold or services provided and based on the obligation of the business to pay its liabilities.

It is very important to format an income statement so that it is appropriate to the business being conducted.

Income statements, along with balance sheets, are the most basic elements required by potential lenders, such as banks, investors, and vendors. They will use the financial reporting contained therein to determine credit limits

It may look like this:

Mistakes made in QuickBooks

Posted by Bruce Mc on Jul 1, 2010 in Accounting, Bookeeping, QuickBooks | 0 comments

Common QuickBooks Mistakes

 Okay truth be known (for those of you not in the know) I am a big QuickBooks fan. Meaning a lot of companies, new businesses and the such who can’t afford to take on an accounting firm to handle their needs they need something to handle their books. In cases like that, I recommend only QuickBooks products. Why? Well for what it is, it is the best on the market.    

 Okay that being said:  

I want to  address some Common Quickbooks Mistakes. Things I have seen a lot of lately. QuickBooks is a very user friendly program, and is used by the majority of small businesses without bookkeeping or accounting pros. Being user friendly is its strong point and its flaw. What I mean is, QuickBooks is very simple to use yet if you are not trained in bookkeeping/accounting, you can make many mistakes without being aware that you’ve made them.    

Yes, QuickBooks is easy to use, but it is also easy to make mistakes in. Unfortunetly, there are not very many safeguards in place to help those that are not trained in bookkeeping or accounting to keep from making these mistakes.    

It is my recommendation that you have a professional bookkeeper do your books for you. If not, send your Accountants copy to your/an account on a regular basis (QuickBooks Services From L & R Tax), or you get well trained in accounting/bookkeeping in order to be sure your books are correct.      

Why?    

 The importance of this is that if your data is entered incorrectly, then your financials and reports that you will be printing and using from QuickBooks will be incorrect, making you unable to make proper financial decisions for your company. Even worse, you will think the reports are correct, because you are not aware of the errors and make decisions based on these inaccurate reports. This can be serious, especially in regards to cash. You may think you have more than you do, you may think you are making more money than you are.    

This can be a very important ‘life or death’ issue for a small business. You must know the condition of your company and you must have financials that are accurate.   

“Garbage in, Garbage out!”   

So it is to your advantage to be sure that your books are correct and that your data is continuously being entered properly, in order to have it be helpful.    

Bank reconciliations are not done. - Bank reconciliations are extremely important. Unfortunately, many small business owners do not realize this, because they do not even reconcile their own personal checking account. They just figure they can look on line for a balance and as long as there is money in the account, they are fine. The issue is, bank reconciliations are a must because they are the final way to be sure all entries are made into your books and that there are not any double entries. And don’t make the mistake of not finishing your bank reconciliation. This means that when the bank reconciliation is done, all the transactions on the statement are checked off, but the balance is not at zero for reconciling in QuickBooks. If you do not find why you are not balanced, then QuickBooks will just make an entry in the reconciliation discrepancy account, and you will not ever find out what is incorrect in your books.    

It cannot be emphasized enough how important bank reconciliations are in establishing correct books.    

Again, if you have ‘garbage in.’ then you get ‘garbage out,’ meaning your financials and other reports will be worthless.    

Bank reconciliations are your best way to double check all of your books. If these are not done or are done poorly, then you‘ll never know that your books are incorrect. Do not just click on the ‘reconcile now” button.    

Find the error, make sure to zero out.    

I have seen books where the reconciliation amount that is recorded in the reconciliation discrepancies ‘catch-all’ account have been in the hundreds and thousands of dollars. If this is the case, it is a guarantee that your books are off and it could be serious.    

16 Bank Reconciliation Tips and Tricks

Expense accounting.  -  For the inexperienced in bookkeeping/accounting, it is thought that entering your expenses is very simple. Another common mistake that happens is that an expense is entered in an asset account. 

For example,

you may have bought a part for a computer repair for $35, you go to enter it in your books and see an account called computer equipment. Without understanding that there is an asset account called computer equipment and an expense account called the same, you may enter this expense in an asset account inadvertently.  

 !!!  QuickBooks will not warn you of the error.  !!!

This is improper accounting and impacts both your balance sheet and your profit and loss statement.    

Quick Lesson:

 An asset account is listed on your balance sheet and is only to have asset values and depreciation entered in them. An expense account is listed on your profit and loss statement and an expense decreases your profit for the month.

Asset accounting - A common mistake in asset accounting is that it is simply not done. If you do not do asset accounting, then you do not have a true value of your company. Many times, the inexperienced do not know what should be entered as an asset and what should be entered as an expense. Or it may be done, but it is not done correctly.   

 For example:

 there is no depreciation entered monthly and so you do not have correct values for your assets.

Loan accounting. -  You may have loans and you simply have not known how to enter them, but tried. There are two kinds of loan accounting, payable and receivable. I have seen where someone loaned money and entered it as a billing and it reflected in their accounts receivable. This is not correct accounting of a loan you made.

 Quick Lesson: 

 When you loan someone money, it is an asset that should be listed as such on your balance sheet, and so it is entered differently and should be separate from your billings/accounts receivables.