QuickBooks 2023 All-In-One by Golden MCpherson
QuickBooks 2023 All-In-One by Golden MCpherson
QuickBooks 2023 All-In-One by Golden MCpherson
2023
ALL-IN ONE
GOLDEN MCPHERSON
Copyright
QUICKBOOKS 2023 All-in-One for Beginners and Experts
Copyright © 2023 by GOLDEN MCPHERSON
All rights reserved. No part of this publication may be reproduced,
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Disclaimer!
"The information provided within this Book is for general
informational purposes only. While we try to keep the information
up-to-date and correct, there are no representations or warranties,
express or implied, about the completeness, accuracy, reliability,
suitability or availability with respect to the information, products,
services, or related graphics contained in this Book for any
purpose. Any use of the methods describe within this Book are the
author’s personal thoughts. They are not intended to be a definitive
set of instructions for this project. You may discover there are other
methods and materials to accomplish the same end result."
TABLE OF CONTENTS
Copyright
TABLE OF CONTENTS
INTRODUCTION
The Features of Accounting Information
CHAPTER ONE
Accounting fundamentals
Managers, inventory, and business owners
Managerial accounting's functionality
Managerial Accounting Types
ACCOUNTING SKILLS FOR ENTREPRENEURS
CORPORATE CREDITORS
Recognizing creditors
Governmental agencies
Capital Accounting
Governmental financial reporting's primary objective
Creation OF BUSINESS FORMS
Forming an Accounting Record
Strategies for Creating an Accounting Form
Examining the standardized financial statements
The Process of Examining Financial Statements
THE INCOME STATEMENT
How to Read an Income Statement
BALANCE SHEET
Operation of Balance Sheets
The assets on a balance sheet
Liabilities
The significance of a balance sheet
A balance sheet example
The Balance Sheet Formula: What Is It?
ANALYSIS OF CASH FLOWS
Operation of Cash Flow Statements
Cash Flows from Financing
The Function of Financial Statements
Analyzing Financial Statements
Assets
Comprehensive Income Statement
Net income (from the statement of income).
Financial Statements for Nonprofits organizations
THE ACCOUNTING PHILOSOPHY
Philosophy of Accounting Issues
REVENUE PRINCIPLES
implementation of the expense recognition principle
MATCHING PRINCIPLES
An illustration of the matching principle
Benefits of the Matching Principle
Negative aspects of the Matching Principle
Cost principle
The Cost Principle: How Does It Work?
An example, using the cost principle
Benefits of the Concept of Cost Principle
OBJECTIVITY PRINCIPLES
Principle of Objectivity in Auditing
Benefits of Objectivity in Auditing
Disadvantages
CONTINUITY ASSUMPTION
UNIT-OF-MEASURE ASSUMPTION
Description of a separate entity
Benefits of a Separate Entity
CHAPTER TWO
DOUBLE-ENTRY BOOKKEEPING
What Are the Rules of Double-Entry Bookkeeping?
The Accounting Formula
Double-Entry Bookkeeping Examples
The Importance of Double-Entry Bookkeeping
Recording rental expenses
RECORDING WAGES EXPENSE
Comparing incomes and expenses for wages
Various wage expenses
Useful Illustration
RECORDING COST OF GOODS SOLD
HOW TO DETERMINE ACCOUNT BALANCE
In the general ledger, account
How to Check Your Account's Balance
How to Determine an Account's Balance
ACCESSING RESULTS FROM T-ACCOUNTING ANALYSIS
Account T Debits and Credits
Explaining T Accounts
How Does QuickBooks Work? What Is It Used For?
Use of QuickBooks by Small Businesses
CHAPTER THREE
SPECIAL ACCOUNTING PROBLEMS
How are accounting problems handled in companies?
MANAGING ACCOUNT RECEIVABLE
Overview of Receivables
What are accounts receivable?
Accounting for Receivables Using the Cash and Accrual Basis
Credit for Recording Services Sales
Recording Credit Sales of Goods
Considering Early Payment Discounts
The Accounts Receivable's Aging
Accounts Receivables Reconciliation
RECORDING A SALE
A PAYMENT'S RECORDING
ESTIMATING BAD-DEBT EXPENSE
Bad debt: An Overview
The causes of bad debt
How to estimate bad debt costs
BAD DEBT FORMULA
How to enter a bad debt charge in the journal
RECORDING A BILL
How Do Payable Bills Work?
How Do Receivable Bills Operate?
DEALING WITH OBSOLETE INVENTORY
Keeping Track of Obsolete Inventory
GETTING RID OF OBSOLETE INVENTORY
ACCOUNTING FOR FIXED ASSETS
A fixed asset example
PURCHASING A FIXED ASSETS
APPRECIATION OF LIABILITIES
Accounting reporting of liabilities
Current vs. Non-current liabilities
BORROWING MONEY
Banks
Borrowing From a Bank
Credit Unions
Borrowing From a Credit Union
Credit Cards
Borrowing Through Credit Cards
ACCOUNTS CLOSING FOR REVENUE AND EXPENSE
Temporary Accounts
Permanent Accounts
Example of a Closing Entry
CHAPTER ONE
SETTING UP QUICKBOOKS Overview of QuickBooks
Easy Steps for QuickBooks Setup
HOW TO PLAN YOUR NEW QUICKBOOKS SYSTEM
WHY ACCOUNTING SYSTEMS ARE USED
What Distinguishes Single Entry from Double Entry?
One-entry systems have disadvantages.
INSTALLING QUICKBOOKS
Steps for Installing QuickBooks
COMPLETING SETUP
Individual QQube
GENERAL QUICKBOOKS SETUP WIZARD OPERATING
Customers, suppliers, and staff
What does trial balance mean?
Trial Balance Format
How to prepare a trial balance in steps
A bank overdraft trial balance
Second Illustration
Features of trial balance
The benefits of trial balancing
Trial balance's Drawbacks
Types of Trial Balance
CHAPTER TWO
Manager FILE LISTS LOADING
Inventories in QuickBooks
The QuickBooks Pricing Level List
Guidelines for Configuring the QuickBooks Payroll Item List
QuickBooks Class List Creation Guide
Making a Customer List in QuickBooks
Set up the vendor list and install QuickBooks.
CHAPTER THREE
FINE-TUNING QUICKBOOKS
SETTING THE ACCOUNTING PREFERENCES
Accounting Preferences Setting
USING ACCOUNT NUMBERS
Self-Assigning Account Numbers
SETTING GENERAL ACCOUNTING OPTIONS
SETTING THE BILLS PREFERENCES
CHANGING THE DESKTOP VIEW
SETTING FINANCE CHARGE CALCULATION RULES
How do credit card companies calculate finance charges?
How to avoid finance charges
CONTROLLING INVENTORY
Inventory management versus inventory control
What makes inventory control crucial?
Inventory control systems
Tips for inventory control best practice
ABC Analysis
Set reorder points
Perform regular audits
DEALING WITH MULTIPLE CURRENCIES
The General Ledger
STARTING INTEGRATED PAYMENT PROCESSING
TELLING QUICKBOOKS HOW REMINDERS SHOULD WORK
SETTING THE SEND FORMS PREFERENCES
FINE-TUNING THE SERVICE CONNECTION
CHAPTER ONE
INVOICING CUSTOMERS
Set Price
Cost Plus Time or Materials
Fixed Price
Layout design in QuickBooks
INVOICING A CUSTOMER
How to use a weekly timesheet
Timing single activities
How to include billable time on an invoice
PRINTING INVOICE
EMAILING INVOICES
RECORDING SALES RECEIPT
CHAPTER TWO
PAYING VENDORS
Setting up
Make a vendor payment
HOW TO CREATE A PURCHASE ORDER
Create purchase orders individually
How to fill out a purchase order
Retrieving a Voided Transaction in QuickBooks
ENTERING A BILL
Adding bills to QuickBooks Online
CHAPTER THREE
TRACKING INVENTORY AND ITEMS
Create an inventory tracking system
How to update the QuickBooks Item List to include a non-inventory part
The best way to include a discount item in the QuickBooks Item List
Performing inventory accounting in QuickBooks
Recording manufacture or assembly of items
Managing multiple inventory locations
CHAPTER FOUR
MANAGING CASH AND BANK ACCOUNTS
Viewing Your Accounts
How to Open a New Bank Account
Making an Opening Balance Entry
The Opening Balance's Editing
Deleting a credit card or bank account
Bringing Back a Deleted Account
MAKING BANK DEPOSITES
Examine previous bank deposits
Delete a bank deposit
USING EDIT MENU COMMANDS
RECONCILE BANK ACCOUNT
How to reconcile bank accounts
ORDER CHECKS AND ENVELOPES COMMAND
ENTER CREDIT CARD CHARGES COMMAND
The Credit Card register
keeping track of credit card charges
BANK FEEDS COMMAND
LOAN MANAGER COMMAND
CHAPTER FIVE
PAYING EMPLOYEES
WHAT YOU NEED TO DO FOR QUICKBOOKS PAYROLL
Direct Deposit
State Tax Withholdings
Federal & State Tax Information
Federal Taxes
SCHEDULING PAYROLL RUNS
EDITING AND VOIDING PAYCHECKS
PAYING PAYROLL LIABILITIES
Payroll liabilities types
How to pay your payroll liabilities
How to adjust payroll liabilities
CHAPTER ONE
FOR ACCOUNTANTS ONLY
Who Are Accountants?
Background/History of Accountants
Recognizing accountants
Using the journal entry feature in Quickbooks
ANALYZING THE TAX AND ACCOUNTANT REPORTS
CREATE AN ACCOUNTANT’S COPY
Handling the accountant's copy manually
Automatically sending the accountant's copy
CHAPTER TWO
PREPARING FINANCIAL STATEMENTS AND REPORTS
Creating Financial Statements
How to Prepare a Financial Report
CHAPTER THREE
CREATING A BUDGET
SET UP A BUDGET
COMMON BUDGETING TACTICS
TOP-LINE BUDGETTING
ZERO-BASED BUDGETTING
USING THE SETUP BUDGET WINDOW
CHAPTER FOUR
USING ACTIVITY- BASED COSTING
What is Activity-Based Costing?
Setting up your classes for ABC
Various Revenue Amounts
Classifying the cost of expenses
Producing ABC reports
CHAPTER FIVE
SETTING UP PROJECT AND JOB COSTING SYSTEMS
CHAPTER ONE
RATIO ANALYSIS
Ratio Analysis Definition
What does "liquidity ratio" mean?
Types of Liquidity Ratios
ACID-TEST RATIO
Interpreting the Acid Test Ratio
What is the ratio of inventory turnover?
Benefits of Activity Ratios
CHAPTER TWO
ECONOMIC VALUE-ADDED ANALYSIS
Understanding Economic Value Added (EVA)
Advantages and Disadvantages of EVA
Value-added types and their formulas
How to calculate value added
Example of value-added calculation
CHAPTER THREE
NUTSHELL GUIDE TO CAPITAL BUDGETING
Capital Budgeting: What Is It?
Capital Budgeting Process
CHAPTER ONE
ASSESSMENT OF PROFIT-VOLUME-COST
What Is the Break-Even Point (BEP)?
How to calculate your break-even point
Break-even analysis examples
RECOGNIZING THE DOWNSIDE OF THE PROFIT-VOLUME-COST MODEL
The Benefits of Cost-Volume-Profit (CVP) Analysis
Disadvantages of Cost-Volume-Profit Analysis
BREAK-EVEN-ANALYSIS FORECAST
A break-even analysis's advantages
Benefits of a break-even analysis
Importance of Break-Even
How to calculate break-even point
Break-even point formula
CHAPTER TWO
CREATING A BUSINESS PLAN FORECAST
A business plan workbook: What is it?
What Elements Make Up a Workbook for a Business Plan?
A Summary of Your Business Plan
How to Craft a Business Plan Workbook
UNDERSTANDING THE WORKBOOK CALCULATIONS
Manually Referencing Formulas
FORECASTING INPUTS
Forecasting Techniques
Forecasting characteristics
The Forecasting Process
BALANCE SHEET
Balance Sheet Function
Importance of a Balance Sheet
Limitations of a Balance Sheet
Example of a Balance Sheet
INCOME STATEMENT
Income Statement Elements
CASH FLOW STATEMENT
How to Use the Cash Flow Statement
How to Calculate Cash Flow
Example of a Cash Flow Statement
FINANCIAL RATIOS
Financial Ratio Analysis: Uses and Users
Ratios of Liquidity
Profitability Ratios
Ratios of Market Value
CALCULATING TAXES FOR A CURRENT NET LOSS BEFORE TAXES
NI Calculation for Business
NI vs. Personal Gross Income
Tax Returns and NI
CHAPTER THREE
WRITING A BUSINESS PLAN
What is a business plan?
How to Write a Business Plan
Definition of Strategic Planning
Process of Strategic Planning
The Benefits of strategic planning
COST STRATEGIES
A NEW- VENTURE PLAN
Grow a Business Venture
CHAPTER ONE
ADMINSTERING QUICKBOOKS
Using Windows security
Using QuickBooks security
Using QuickBooks in a Multiuser Environment
How to set up additional QuickBooks users
Adding users in QuickBooks Pro and Premier
CHAPTER TWO
PROTECTING YOUR DATA
BACKING UP THE QUICKBOOKS DATA FILE
Backing-up basics
CHAPTER THREE
TROUBLESHOOTING
BROWSING INTUIT PRODUCT-SUPPORT WEBSITE
Google Chrome
Firefox
Internet Explorer
Safari
CHAPTER 1
A CRASH COURSE IN EXCEL
Starting Excel
Using the Start menu to launch Excel 2010
Creating a desktop shortcut for Excel 2010
Leave Excel 2010
EXPLAINING EXCEL WORKBOOK
Differences Between Workbook, Worksheet, and Spreadsheet
Creating a new workbook
PUTTING TEXT, NUMBERS, AND FORMULAS IN CELLS
Cut, Copy, and Paste cell contents
Copying and pasting cell contents
Cutting and pasting cell contents
FORMATTING CELL CONTENTS
Save your workbook
Activate AutoRecovery
Opening a workbook
Closing a workbook
PRINTING EXCEL WORKBOOK
Selecting a printing area
CHAPTER 2
GOVERNMENT WEB RESOURCES FOR BUSINESS
BUREAU FOR ECONOMIC ANALYSIS
BEA's statistical analysis
Gross Domestic Product (GDP)
Balance of Trade (BOT)
FINDING INFORMATIONS AT THE BEA WEBSITE
Cookies
Google Analytics usage
Security of data processing
BUREAU LABOUR OF STATISTICS
Understanding the Bureau of Labor Statistics (BLS)
The Bureau of Labour Statistics's past (BLS)
SECURITY AND EXCHANGE COMMISSION
History of the SEC
The Functions of the Securities and Exchange Commission (SEC)
FEDERAL RESERVE
PURPOSE OF FEDERAL RESERVE
GOVERNMENT PUBLISHING OFFICE
HISTORY OF THE GOVERNMENT PUBLISHING OFFICE
CHAPTER 3:
Financial Accounting Terms Glossary
INDEX
AN ACCOUNTING PRIMER
INTRODUCTION
The Features of Accounting Information
Ø Relevance
Ø Reliability
Ø Comparability
Ø Understandability
Ø Timeliness
Ø Cost-benefit
Ø Verifiability
Ø Neutrality
Ø Completeness
1. Relevance
To affect the users' economic decisions, the information must be pertinent.
By assisting stakeholders, creditors, and other users in assessing past and
future occurrences, accounting information affects decision-making. As a
result, it supports or contradicts previously held beliefs. Information's
relevance is influenced by its kind, nature, and materiality.
2. Reliability
Accounting data should be accurate. In the sense that the information
accurately reflects what it is intended to show, reliability is related to
confidence in accounting information.
It has to be accurate. Errors and biases shouldn't exist in information. A
truthful representation of the facts, content over style, objectivity, prudence,
and completeness are the main characteristics of reliability.
3. Comparability
When accounting data from one company is compared to data from another
company at the same time as well as data from the same company throughout
a range of periods, it becomes valuable.
For users to meaningfully compare companies, the organization must display
the information consistently over time.
4. Understandability
Users who are anticipated to have a fair understanding of business,
economics, and accounting as well as a willingness to investigate the facts
with reasonable diligence should find it simple to understand.
5. Timeliness
The users must receive the information quickly for it to have an impact on
their choices. As a result, accounting information should be made
immediately and at the proper moment for decision-making.
6. Cost/benefit
Most people who want to use it must find it useful. Furthermore, the process
of preparing that helpful information shouldn't be expensive or time-
consuming. The focus is on cost-benefit analysis, and the value of the
information should outweigh the expense of giving it.
7. Verifiability
Verifiability guarantees that the transactions are accurately recorded. Aside
from the accountant himself, other people must be able to verify its accuracy.
8. Neutrality
Accounting data should be accurate and should not favor one party over
another; this is what it means to be neutral. For those who access information
from other sources, neutrality is crucial.
9. Completeness
Completeness is the state in which the financial statements contain all
relevant information that creditors or other users need to evaluate the
organization's financial position and operating performance.
CHAPTER ONE
Accounting fundamentals
The rules that a company must follow when disclosing financial information
are known as accounting principles. Several essential accounting principles
have arisen as a result of their broad use. These form the basis on which the
entire body of accounting standards has been built. The most well-known of
these are the concepts listed below:
Any set of accounting standards' ultimate goal is to guarantee that a
company's financial statements are complete, uniform, and comparable.
Investors can therefore more easily review and extract useful information
from the company's financial records, such as historical trend data. It also
facilitates the comparison of financial information between different
businesses. By increasing transparency and making it simpler to identify red
flags, accounting principles also help to decrease accounting fraud.
CORPORATE CREDITORS
Who Are the Creditors?
A creditor is a person or business that extends credit to another party so they
can borrow funds, frequently through a loan agreement or contract.
Frequently, personal and real categories of creditors are separated.
It is possible to classify someone as a personal creditor if they lend money to
friends, family members, or a business that provides rapid goods or services
to a person or business.
Real creditors are financial institutions or banks that have loan agreements
and legal contracts that provide the lender the right to confiscate any of the
debtor's tangible assets or collateral if the loan is not repaid.
KEY LEARNINGS
A creditor is a person or business that extends credit to another party
so they can borrow money, frequently via a loan agreement or
contract.
Creditors like banks have the legal power to seize the collateral—
including homes and cars—and take the debtors to court when they
fall behind on secured loans.
High credit scores are seen as a sign of low risk by creditors, and as a
result, these borrowers usually pay low interest rates.
Recognizing creditors
Creditors frequently charge interest on the loans they extend to their clients;
for instance, 5% APR on a $5,000 loan. The interest represents the cost of the
loan to the borrower, and the rate of interest reflects the creditor's risk that the
borrower won't repay the debt.
To minimize risk, most lenders base interest and fee amounts on the
borrower's creditworthiness and past credit history. High credit score
borrowers are seen as low risk by creditors, and they usually pay moderate
interest rates.
Lenders usually charge higher interest rates to consumers with lower credit
scores because they consider them to be riskier.
Debtor and Creditor
In legal agreements, the party who accepts credit or a loan owes the
obligation, and agrees to its payback is referred to as the debtor. The
company that extends credit is the creditor.
What Takes Place If Creditors Aren't Paid Back?
Secured creditors, typically a bank or mortgage firm, have the right to
repossess or lien the property used as collateral for a loan, such as a car or
home. A creditor is referred to as an unsecured creditor, such as a credit card
company, when the borrower declines to offer the creditor any property, such
as a car or home, as security to pay a debt. To collect on unpaid unsecured
debts, these creditors may bring lawsuits against these debtors, and the court
may impose judgments mandating payment, wage garnishment, or other
remedies.
Governmental agencies
Governmental accounting: what is it?
Government accounting divides activities into numerous funds while
upholding strong control over resources to make it evident how money is
being distributed to various programs. This accounting approach is utilized
by all types of governmental organizations, including those that are federal,
state, county, municipal, and special-purpose.
"
The income statement is composed mostly of four items: revenue, expenses,
profits, and losses. It does not differentiate between cash and non-cash
receipts (cash sales versus credit sales) or between cash and non-cash
payments or expenditures (purchases in cash vs. purchases on credit). Prior to
calculating net income or earnings per share, sales data is first calculated
(EPS). It essentially outlines the procedure by which the company's net
revenue is transformed into net profitability (profit or loss).
BALANCE SHEET
What exactly is a balance sheet?
The term "balance sheet" refers to a financial statement that details the assets,
liabilities, and shareholder equity of a business at a specific point in time.
Balance sheets serve as the basis for estimating a company's capital structure
and computing investor return rates.
A financial statement called a balance sheet provides a brief summary of a
company's assets, liabilities, and shareholder investment. Balance sheets can
be used in combination with other important financial data when doing basic
analysis or computing financial ratios.
MAIN LESSONS
• A balance sheet, or financial statement, lists an organization's assets,
liabilities, and shareholder equity.
• The balance sheet is one of the three key financial statements that are
evaluated when evaluating a firm.
• It provides a snapshot of the financial position of a corporation as of the
publication date.
• The balance sheet's assets are equal to the sum of the liabilities plus
shareholders' equity.
NOTE: Fundamental analysts use balance sheets to calculate financial ratios.
Operation of Balance Sheets
The balance sheet of a business provides a snapshot of its financial standing
at any one time. It is unable to provide a knowledge of the tendencies that
appear over a longer time period on its own. For this reason, it is important to
evaluate the balance sheet to those from earlier time periods.
Investors can assess the financial health of a firm using a variety of ratios that
can be created from a balance sheet, including the debt-to-equity ratio, the
acid test ratio, and many others. The income statement, statement of cash
flows, and any remarks or addenda in an earnings report that may make a
reference to the balance sheet all provide additional valuable information for
assessing a company's financial health.
Assets=Liabilities+Shareholders’ Equity
This equation is logical. This is done so that a company can either raise
money from investors or borrow money from other individuals to pay for all
it owns (assets) (issuing shareholder equity).
A company's assets (especially the cash account) will increase by $4,000 as a
result of borrowing $4,000 from a bank over the course of five years. Its
liabilities (more specifically, the long-term debt account) will increase by
$4,000 as well to equalize the two sides of the equation. If the company
raises $8,000 from investors, its assets and shareholder equity will both
increase by $8,000. Any surplus in revenue over expenses that the company
experiences will be put in the shareholder equity account. In terms of assets,
these revenues will equal out as cash, investments, inventory, or other assets.
Note: Since different industries use different financing strategies, balance
sheets should also be compared to those of other businesses in the same
industry.
The assets on a balance sheet
The accounts in this sector are ordered from top to bottom based on their
liquidity. They may be converted into cash so quickly. Those that can be
converted into cash in a year or less are classified as current assets, and those
that cannot are classified as non-current or long-term assets.
Following is a broad breakdown of the accounts within current assets:
Ø The most liquid assets are cash and its substitutes, which can also
include Treasury bills and short-term certificates of deposit. This
section also includes hard currency.
Ø Bonds and stocks with active markets are referred to as marketable
securities.
Ø Accounts receivable is the term used to describe the company's
financial obligations to its customers (AR). This might contain a
provision for shady accounts due to the risk that some clients will
default on their loan.
Ø Inventory is any item that is easily available for purchase and valued
at either its cost or its market value.
Note: Examples of prepaid expenses that have already been paid for include
insurance, contracts for advertising, and rent.
Liabilities
A obligation is any amount that a company owes to a third party, such as rent,
utilities, salaries, interest on bonds issued to creditors, and invoices it must
pay to suppliers. Obligations that have a one-year payback window and are
organized by due dates are considered current liabilities. Long-term
commitments, on the other hand, are payable at any moment after the first
year.
Current obligation accounts may include the following:
v One year is a present liability and nine years are a long-term liability,
for example, if a firm has a debt for its storehouse with 10 years to pay
it off, the percentage of the debt that is due during the upcoming year
is termed to as the "current portion of long-term debt."
v Cumulative interest is due, also referred to as interest payable, on a
past-due obligation, such as failing to pay property taxes on time.
v The phrase "wages payable" describes the salaries, wages, and
benefits that are owing to employees, often for the most recently pay
period. Client prepayments are sums of money that a customer
receives before a service or product is delivered.
v The company must either provide the requested good or service or
reimburse the customer for their payment, whichever comes first.
v Dividends payable are those that have been authorized for payment
but have not yet been distributed.
v Prepayments and earned and unpaid premiums are comparable in
that a company receives money in advance but hasn't yet performed
their obligation; if they don't, they must return the unearned money.
Accounts payable are typically a current liability. Accounts payable typically
represents a current liability. Accounts payable are the loans on invoices that
are paid as part of a company's operations and are generally due 30 days after
receipt.
Apple's $323.8 billion in total assets are depicted separately toward the top of
the report in this graphic. Current assets and non-current assets, the two
divisions in this asset area, are each further separated into a number of
accounts. Apple's non-current assets increased but their cash on hand
decreased, according to a cursory analysis of their assets.
This balance sheet also includes information about Apple's liabilities and
equity, with each item given its own section in the lower half of the
document. The liabilities section is split into current liabilities and non-
current obligations, just like the assets section, and each category shows
balances per account. The section on Total Shareholder Equity contains
information regarding the Common Stock Valuation, Retained Earnings, and
Accumulated Other Basic Income. The total assets on a balance sheet show a
company's financial status at a certain point in time. Apple's total liabilities
climbed while its total equity decreased.
The Balance Sheet Formula: What Is It?
The assets, liabilities, and equity of a firm are balanced to create a balance
sheet. Total assets = Total Liabilities + Total Equity is the equation.
To calculate total assets, all short-term, long-term, and other assets are
combined together. Total liabilities are calculated by adding all short-term,
long-term, and other obligations. Total equity is determined by adding net
income, retained earnings, owner contributions, and shares of issued stock.
ANALYSIS OF CASH FLOWS
A Cash Flow Statement: What Is It?
A cash flow statement is a sort of financial statement that summarizes all
cash inflows a company experiences from ongoing operations and outside
sources of investment. It also includes any monetary outlays for investments
and business expenses that were made during a certain time frame.
Investors and analysts can get a clear picture of all business dealings and how
each one affects the organization's success from a company's financial
statements. The cash flow statement is regarded as the easiest to comprehend
of all the financial statements since it shows how much money the firm
makes from its three main sources: operations, investments, and financing.
These three categories together are referred to as net cash flow.
The data presented in these three key sections of the cash flow statement can
be used by investors to determine the value of a company's stock or the
company as a whole.
POINTS TO NOTE
• A cash flow statement details all cash inflows a company experiences from
ongoing operations and outside investments.
• The cash flow statement's net cash flow represents the cash generated by
operations, investments, and borrowing.
Transactions from all functional business activities are included in the cash
flow from operations section of the cash flow statement.
• The second part of the cash flow statement, cash flow from investments,
displays how cash flow has been impacted by investment gains and losses.
A breakdown of the cash used for debt and equity is provided in the final
section, Cash Flow from Financing.
Operation of Cash Flow Statements
The Securities and Exchange Commission must receive financial statements
and reports from every company that issues and sells stock to the general
public (SEC).
1. The three main financial statements are the cash flow statement, the
income statement, and the balance sheet. An important document that
informs interested parties of all transactions that occur within a firm is the
cash flow statement.
2. There are two different types of accounting: accrual and cash accounting.
Because most public firms employ accrual accounting, the cash position of
the company differs from the income statement. The cash flow statement,
however, emphasizes cash accounting.
3. Profitable companies may find it difficult to manage their cash flow
effectively, making the cash flow statement a crucial tool for companies,
analysts, and investors. On the cash flow statement, the three business
activities of operations, investment, and financing are divided into their
corresponding divisions.
4. Take into account a company that offers a product and extends credit to its
customers. The company could not actually receive payment for that sale
straight away, even if it is counted as revenue. On the income statement, the
corporation declares a profit and pays income taxes on it, although the
company's real cash flow may be higher or lower than anticipated sales or
revenue.
5.Analysts and investors should be cautious when evaluating changes to
working capital because some companies might be trying to enhance their
cash flow before reporting periods.
Cash Flows from Financing
Cash flows from finance is the last element of the cash flow statement (CFF).
This section provides an overview of how cash is used in business finance. It
measures the flow of funds between a company's owners and its creditors,
and it is often funded by debt or stock. These figures are often presented in a
company's 10-K report to shareholders.
Analysts determine the amount of dividends and share repurchases the
company has made using the cash flows from the finance section. Finding out
how a company obtains funding for operational expansion is also useful.
This comprises funds obtained or returned from stock or debt-based capital-
raising efforts, as well as funds borrowed or repaid. A positive cash flow
from operations figure shows that the company is taking in more money than
it is using. If the number is negative, it can mean that the company is
rebuying stock, paying dividends, or paying down debt.
Key Points
• Depending on a company's accounting method, location, whether it is a
public or private corporation, and other factors, the requirements for
recognizing revenue may vary.
• A fundamental tenet of accrual-basis accounting is the revenue recognition
principle, which states that companies must record revenue as it is earned
rather than when it is paid.
• Accurate revenue recognition is essential since it immediately impacts the
dependability and consistency of a company's financial reporting. • To
standardize processes for this process, the FASB developed ASC 606, which
offers a five-step framework for recognizing revenue.
• The similar IFRS 15, Revenue from Contracts with Customers, was
developed in collaboration with the FASB and IASB.
Cash
When money really passes hands, cash accounting is used to report income
and costs regardless of when the transaction actually occurred. When using
cash accounting, a company doesn't worry as much about trying to match
income and expenses in the same period as it does about keeping accurate
records of the cash flow of its accounts.
Due to its simplicity and user-friendliness, cash accounting is usually chosen.
Businesses can frequently benefit from tax-deductible expenses earlier with it
than they could with accrual accounting. That's why they don't start recording
expenses until after they've been paid, but before revenue starts to flow. Cash
accounting is not, however, an option for every business.
Accrual
Accrual accounting is in contrast to cash accounting, which mandates that
businesses record income and expenses as they are incurred rather than when
money is transferred. Accrual accounting is essential for many businesses,
particularly those that operate on credit and those with annual sales of more
than $26 million over a three-year period.
Accrual accounting is essential because it allows businesses to connect
revenues with related costs. Businesses that use accrual accounting can view
this transformation of assets into expenses in their financial statements.
Additionally, this makes it less difficult for companies to assess the
profitability of diverse operations across specific time periods. For more
details, see our article on accrual versus cash accounting.
implementation of the expense recognition principle
Organizations can benefit from the expense recognition principle and accrual
accounting in the following situations:
Salaries and wages: Employing accrual accounting, businesses can
determine wage expenses prior to the actual completion of work rather than
after the cashing of checks.
Commissions from sales: If a company receives commissions from a sale,
the commission must be acknowledged as soon as the transaction occurs.
Bonuses for employees: Bonuses should be reported in the year they are
earned, not when checks are written out.
Depreciation: An asset must be depreciated in the year that it was used and
some of its usefulness was utilized.
Supply acquisition: When a business buys supplies for production in the
future, the cost should be reported when the supplies are actually used, not
when they are purchased.
Responsibility for rendered services: The expense recognition concept
holds that once you have reaped the advantages of work accomplished, even
if you haven't yet paid for it, you should go ahead and incur such costs and
accrue them as liabilities for bills payable.
MATCHING PRINCIPLES
How does the matching principle work?
Businesses must report expenses concurrently with the revenues to which
they are tied, in accordance with the matching principle, an accounting
precept. Revenues and costs on the income statement are equal for some time
(e.g., a year, quarter, or month).
An illustration of the matching principle
Consider a scenario where a company rewards its employees annually for
their efforts over the fiscal year. It is standard practice to distribute 5% of the
prior year's total earnings in February of the succeeding year.
Due to the company's $100 million in revenue in 2018, it will reward its
workforce in February 2019 with a $5 million bonus.
Despite the fact that the incentive is not paid until the next year, the matching
principle requires that the expense be recorded on the 2018 income statement
as a $5 million expense. In order to keep the balance sheet in balance, a $5
million balance for bonuses due will be recorded on the balance sheet at the
end of 2018, and retained profits will be reduced by the same amount (due to
lower net income).
When the bonus is paid out in February 2019, there won't be any impact on
the income statement. Due to the $5 million credit to the cash balance and $5
million debit to the balance of bonuses payable, the balance sheet will
continue to be in balance.
Determine the salary and pay expenses for the month of January.
Answer: The salaries of employees 1 and 2 are $6,000 each per month
(salary). The cost of salaries is $12,000 for the month of January. Employees
3, 4, and 5 all receive a $15 hourly pay. They worked for a total of 525 hours.
The compensation expense for January is calculated as 525 times $15, which
comes to $7, 875.
The cost of goods sold includes the costs incurred by the business in creating
the items or providing the services it provides. The variable costs of making
goods, such as labor and raw materials, may be included in these costs.
They may also include fixed costs like production overhead, storage fees, and
possibly depreciation expenditure, depending on the appropriate accounting
principles.
COGS does not include general selling costs like management pay and
advertising costs. Under the gross profit line, under the selling, general, and
administrative (SG&A) expense section, are where these costs will be
reported.
HOW TO DETERMINE ACCOUNT BALANCE
What is the Account Balance exactly?
The balance of an account on a company's general ledger is the difference
between debits and credits. Accounts are in the negative. When credits
surpass debits, an account is in balance. Since credits outweigh debits in this
instance, the account has a net credit account balance.
In the general ledger, account
The account balance in accounting refers to the account's current residual
balance. This description states that an account is a record in an accounting
system that a business maintains to keep track of debits and credits as
evidence of accounting transactions. As a result, if an asset account has
$1,000 in total debits and $200 in total credits, the account balance is $800.
Any type of account, including a revenue, expense, asset, liability, or equity
account, can have a balance. Due to the accounting department's regular use
of account balances to identify these accounts, the least active accounts can
be consolidated into larger, more active accounts that are of a similar type.
Consolidating accounts in this way improves the efficiency of the accounting
department by reducing the number of accounts that need to be kept track of.
How to Check Your Account's Balance
The quickest way to determine an account balance in accounting is to print
the trial balance report for the most recent accounting period. In all accounts
for which there is a non-zero balance, this report solely shows the ending
account balances.
Account Balance Formula:
ƒ Sum(Account Credits - Account Debits)
ƒ Sum(Account Debits - Account Credits)
How to Determine an Account's Balance
A store makes a total of $10,000 in new sales (credits) in a single day and
sends out $1,500 in refunds (debits). The net credit amount for the day on the
store's revenue account is $8,500.
ACCESSING RESULTS FROM T-ACCOUNTING
ANALYSIS
The operation of T Accounts
If you're interested in an accounting career, T Accounts can become your new
best friend. With the T Account, all additions and deductions (debits and
credits) to the account may be easily tracked and visually shown. It is an
image of individual accounts that looks like a letter "T."
There will be a distinct T Account for each account, which looks like this:
Account T Debits and Credits
The names "debits" and "credits" are commonly used to refer to debit and
credit cards, however in accounting, they actually refer to completely
different ideas.
Debits and credits are accounting terms with a long history that are used in
the double-entry accounting system that is still in use today. Each transaction
a company makes is recorded in at least two accounts using a double-entry
accounting system, with one account receiving a "debit" entry and the other
receiving a "credit" entry.
These transactions are recorded as journal entries in the company's books.
Each of these transactions has a journal record in the company's books.
Debits and credits can reflect an increase or reduction for distinct accounts,
but their representations in T Accounts have the same left and right
placements in relation to the "T."
Explaining T Accounts
The debit side and credit side are always on the left and right, regardless of
the type of account.
For different accounts, debits and credits might reflect increases or decreases,
but in a T Account, the debit is traditionally always on the left and the credit
on the right.
Let's take a closer look at the T accounts for the assets, liabilities, and
shareholder equity—the three major sections of the balance sheet or
statement of financial position—in more detail.
The left side of the T Account (debit side) represents an increase to an asset
account, which includes cash, accounts receivable, inventories, PP&E, and
other asset accounts. In contrast, the asset account decreases on the right side
(credit side). Credits always represent an increase to the account, while debits
always represent a drop for liabilities and equity accounts.
T Accounts for the Income Statement
T Accounts are also used for income statement accounts, which cover
receipts, costs, gains, and losses.
Debit Credit
Account 25,000
receivable
Sales 25,000
Cost of goods 12,000
sold
Inventory 12,000
The time of the previous selling transaction has a problem. When the package
departs the shipping dock, the seller is required to record the sale transaction
and any corresponding charge to the cost of the goods sold if the purchase
was made under FOB shipping point terms. From that point forward, the
buyer or a third-party shipper are technically responsible for the delivery.
Since the delivery is still the seller's responsibility up until it gets at the
customer's location, if the sale is done under FOB destination terms, the seller
is required to record these transactions when the cargo arrives at the
customer.
Practically speaking, because it is simple to verify, many businesses record
their sale transactions as though the delivery terms were FOB shipping point.
When you record the transaction when you get to the consumer, it takes a lot
more labor to verify
Considering Early Payment Discounts
If customers take advantage of a company's offer to get a discount for paying
in advance, they will pay less than the invoice total. The accountant will have
to deduct this final sum from the profit on the income statement by charging
it to the sales discounts account.
For instance, ABC International will give a customer a $100 discount if they
pay a $2,000 payment within 10 days after the invoice date. Client carries out
this. ABC uses the following entry to record the transaction:
Debit Credit
Cash 1,900
Sales discounts 100
Accounts receivable 2,000
The Revenue has not altered, as you will see. It's been reported before. The
sole activity occurring in the business at the moment is the transformation of
one asset (accounts receivable) into another (Cash). The equation is balanced
because the change in liabilities and equity is equal to the change in assets.
4. Ahead-of-time sales
A well-known business may frequently request upfront payment from
customers. This can be for a rare commodity or an unique order.
A customer orders a $2000 item that will be delivered in two months. The
record of the transaction would be as follows:
Receiving cash has boosted our assets but also produced a liability (unearned
revenue liability) for the item's potential future delivery to the client.
Technically speaking, when you purchase something online, you pay for it up
front. Prior to mailing your order to you, the company must prepare it. The
business doesn't technically make money until your order is delivered to you,
if you want to be extremely nerdy with your accounting.
5. Finishing the work for sales that were made in advance
Let's say the consumer made an advance payment and we delivered the items
two months ago. The record of the transaction would be as follows:
Please note that our assets are unaffected. There has been no modification;
the money is still in our bank account. When we provide the product to the
customer, we are fulfilling our obligation, which reduces unearned revenue
by $2000. The $2000 in revenue can now be recorded. The equation is
balanced since the sum of the liabilities and equity sides is zero, and the
change in assets likewise equals zero.
A PAYMENT'S RECORDING
How Are Payments Supposed to Be Documented in Accounting?
Accounts payable is another name for recording payments in accounting and
refers to the total amount of money that a specific company owes to
companies or suppliers for goods or services. All unpaid invoices are also
reflected on the accounts payable balance, which may be found on the
balance sheet, more especially in the current liabilities section.
For instance, a company that just paid $500 to Company B for office supplies
should record the transaction in its accounts payable sub-ledger and make the
payment on time to improve cash flow and avoid late payment fees.
ESTIMATING BAD-DEBT EXPENSE
What Is Bad Debt?
When a debtor misses a payment, the creditor must declare that sum of
money as a bad debt. When bad debts are present on a creditor's books and
become uncollectible, they are recorded as charge-offs. Every business that
extends credit to customers needs to prepare for the prospect of bad debt
because there's a chance the money won't be paid back.
The term "bad debt expenditure" refers to an expense made on an account
receivable that your business believes it will never be able to recover. On
your company's financial records, bad debt costs, sometimes referred to as
questionable debts, are recorded as a negative transaction.
KEY LESSONS
Loans or unpaid balances that must be written off because they are no
longer considered recoverable are referred to as bad debt.
As there is always some danger of default when granting credit, bad
debt is a component of the price of doing business with clients.
The allowance technique must be used to estimate bad debt expense in
the same period as the sale in order to adhere to the matching
principle.
The accounts receivable aging approach and the percentage sales
method are the two basic techniques for estimating a bad debt
allowance.
Tax filings for both businesses and individuals can deduct bad debts.
Bad debt: An Overview
Any credit given to a borrower by a lender that has a remote probability of
ever being repaid, in whole or in part, is considered a bad debt. Any lender—
be it a bank, another financial institution, a supplier, a vendor, or another
organization—may have bad debt on their books.
Bad debts are a result of the debtor's unwillingness or incapacity to pay as a
result of bankruptcy, monetary hardship, or incompetence. These businesses
may exhaust all legal and collection avenues before concluding that a bad
debt is uncollectible.
The causes of bad debt
You'll probably encounter uncollectible accounts at some time if your
company accepts credit card payments from clients. Bad debts typically occur
as a result of clients who are unable or unwilling to pay an outstanding
invoice. Financial difficulties, like a client declaring bankruptcy, may be to
blame for this. It may also happen if there is a disagreement regarding the
delivery of your good or service.
For instance, if you execute a printing order for a client and they are unhappy
with the results, they might not want to pay. This credit sum may ultimately
become a bad debt after attempts to negotiate and request payment have been
made.
How to estimate bad debt costs
The calculation of bad debts is emphasized heavily in accounting standards
for corporations. It assists you in producing accurate financial records and
identifies whether bills are receivable and uncollectible.
There are two approaches to calculate your business's bad debt expenses:
1.Utilizing a Direct Write-Off If most of your customers pay their credit card
bills on time and you don't have many bad debts, you can decide to write off
each one separately. Once the due date for an invoice has passed and you've
made several attempts to collect the outstanding sum, it might be time to
write off bad debts.
2.Method of allowance: Bad debts are often more common in companies that
do the majority of their sales on credit. The allowance technique of
anticipating uncollectible payments may be useful in this case. This option,
commonly referred to as the allowance for suspect accounts, preemptively
labels a specific portion of your total credit sales as questionable debts. In
this way, you can plan ahead for bad debts.
The allowance technique can be used to estimate bad debts using the bad debt
formula. The algorithm uses historical information from previous bad debts
to calculate your percentage of bad debts based on your entire credit sales
over a certain accounting period.
BAD DEBT FORMULA
Percentage of bad debt=total bad debts/total credit sales
Let's look at recording bad debts now that you understand how to compute
bad debts using the write-off and allowance procedures.
Ø If you want to adopt the allowance technique, you should record bad
debts as a contra asset account on your balance sheet, which is an
account with a zero or negative balance. In this instance, you would
credit your allowance for bad debts and debit the bad debt charge.
Many times, there are no fees for giving the recipient cash in person
the business is fully funding payment due. Buying or utilizing a
unique item, like an order for money or prepaid cards could be
expensive.
Using cash does not need you to getting into debt.
No chance of overdrawing in your account
Risks
1.Give your salespeople incentives if they sell the inventory at the regular
price. Offer your customer-serving sales team a bonus if they sell a certain
volume of out-of-date products. This may encourage them to prioritize selling
these items rather than more recent stock.
You may, for instance, include a fixed bonus on their subsequent salary or a
share of the sales.
2.Offer closeout discounts to customers to make some profit.
Reduce the cost of the merchandise to attract more customers. Promote the
sale as a percentage-off discount or draw attention to the new closeout prices.
You won't make as much money, but you'll free up space, and you won't have
to worry about what to do with the products.
Products may be discounted every three months or at the end of each season.
The amount you discount is based on the financial health of your company. If
you want to recoup the majority of the cost, you might offer a modest
discount; otherwise, you might opt to offer a big discount on the sale price.
If you wish to stagger the discounts, decide in advance. For instance, begin
your initial sales drive at 20% if you don't want to mark it down by more than
60%. Next, mark the items down by 30%, and so on.
3.Bundle obsolete inventory with fast-selling items to sell a lot of goods
quickly
Group products together for one price and sell the bundle at a fair price if you
truly want to clear out space and sell a lot of inventory at once. It's a terrific
approach for you to move products that might not sell on their own because
customers like to feel like they're receiving a deal.
For instance, pair two items from your outmoded inventory with one item
that sells well. Price the package so that it is less expensive than purchasing
each item separately, or provide the free item with the purchase of the normal
item.
Remember to specify that discounted or packaged sales are not eligible for
refunds or exchanges.
4.Create a discount sales event to bring in more customers
If you have inventory that contains a lot of metal, get in touch with a nearby
scrap dealer and find out if they will pay you to remove it. If you wish to
charge the junk dealer a little fee, haggle the worth of your inventory.
Be upfront about charges when you set up the arrangement because some
scrap sellers could charge you to come and pick up the stuff.
If you can get a good bargain, you might be able to turn a small profit, but if
you have to pay to have it removed, it might end up costing you.
B.Getting Rid of the Inventory
3.Trade the inventory with competitors or partners if you want to swap goods
Ask companies who sell comparable products whether they would consider
trading inventories. Be willing to bargain so you can get rid of outdated
products and get new ones to market. Trading is a fantastic approach to
strengthen your relationship with rivals.
If a company asks you to help them get rid of any of their outdated goods,
keep in mind those times when they were helpful and do business with them
again.
5.Donate the inventory and claim it as a tax write-off if you can't sell it.
Find a local charity that could use the things before you run out of places to
sell or trade them. Then, consult with your accountant to determine how
much you may write off for business taxes on the purchased items. [10]
The inventory ought to be in good shape and beneficial to the cause. When
you donate the items, request a receipt from them, and keep a copy for your
accountant.
6.Recycle or trash the inventory if you can't get rid of it any other way.
1.Review your inventory at least once a year so you know if products are
piling up.
If your business sells a lot of goods, you can set aside one week each year to
count and keep track of your inventory. If your company is smaller, you
might carry this out more frequently, perhaps once every three months. By
keeping track of your product numbers, you can determine which items you
have an abundance of and stop ordering them needlessly.
To gauge how well a product sells, you can compare your inventory levels
over time. For instance, reduce your order of a certain type of goods if you
consistently seem to have an excess of it.
2.Track which products are slow to sell.
Establish a sales tracking system to keep track of when and how much an
item sells for. Review this data from time to time, especially before placing
fresh stock orders.
This is crucial if you're introducing new products and unsure of how
customers would react.
Income summary
v An interim account called the income summary is used for closing
entries.
v At the end of the accounting month, all temporary accounts shall be
reset to zero. To do this, their balances are emptied into the income
summary account. Following that, via the income summary account,
the net balance of each temporary account is moved to retained
earnings, a permanent account on the balance sheet.
Permanent Accounts
Permanent accounts are accounting that show a company's long-term
financial condition. The accounts on the balance sheet are standing ones.
These accounts carry over their balances over numerous accounting periods.
To further understand this, let's look at an account like inventory. The
following is a portion of Amazon's 2017 yearly balance sheet.
A snapshot of a company is provided by the balance sheet. The following can
be seen by looking at this balance sheet: As of December 31st, 2016, Amazon
reported having $11,461 million in inventory. Into the first quarter of 2017,
this amount was carried over.
As of December 31, 2017, Amazon's inventories were valued at $16,047
million.
Amazon increased their stockpiles in 2017 by $4,586 million for the amount
they declared on December 31.
This makes it evident that Inventory is a standing account that consistently
maintains a positive balance over a range of accounting periods.
Example of a Closing Entry
The income statement's temporary accounts are zeroed, and the amounts are
transferred to the permanent retained profits account as shown in the closing
entries examples below. Utilizing the income summary account, this is done.
1.Closing Revenue Accounts
By debiting revenue and crediting income summary, the balance in the
revenue account is cleared.
4. Close Dividends
Retained earnings should be debited and dividends should be credited to
close the dividends account.
Verify that there are just two "Info" lines after clicking View Log.
• Configure the closing date and password in QuickBooks Preferences.
• Read the QuickBooks Support article's advice.
The Closing Date/Password forbids transactions from any third-party
applications, such as Acctivate.
• The Password cannot be entered to override specific transactions while
synchronization is taking place.
• Re-join the QuickBooks synchronization system.
• An immediate synchronization is required in order to change the Closing
Date in Acctivate.
• All new Acctivate transactions will be halted before the closure date.
• Before the closing date, no transactions may be canceled.
Step 3: After that, you'll be sent to the dashboard, which is shown below,
where you can customize every part of your company.
Step 4: Let's take a closer look at all the settings that may be set up from the
dashboard to start using QuickBooks. You may obtain a summary of all
financial activities occurring in your firm by selecting the business overview
option on the dashboard, as shown below.
Step 5: The logical next step is to enter the information about your business
and the tax information into QuickBooks, as illustrated below. The dashboard
provides access to the Add your GST and company details and Finish set up
buttons, respectively. Depending on where you are in the world, you can
observe a slight variation from what you see here.
Step 6: After establishing your company, you must add your products and
services to QuickBooks. You require this in order to use QuickBooks to
create invoices, which is one of its primary uses for small enterprises.
Products and services can be added by clicking the gear symbol and then
choosing the Products and Services link from the drop-down menu, as seen
below.
Step 7: Select the type of item you wish to add by clicking Add Product or
Service as shown below. At this stage, let's keep to inventory-based things.
Step 8: To complete adding the product, input the inventory count, product
category, and tracking code as shown below.
Step 9: Before creating invoices, you must input your clients' information.
You can do this by clicking Add Customer in the left-hand column of the
Dashboard's Sales tab.
Step 10: Go to the Sales page after adding clients to begin raising invoices.
You can pick and choose the products and clients for your invoices, as shown
below.
Step 11: By clicking the gear icon, you can access the Accounts and Settings
section, where you can modify the invoice's terms or the company's
information.
6. Search for dialog boxes that include modal arrows. Look for any Modal
Dialogue Boxes that might show and prevent the sync from happening by
opening the QuickBooks instance where the sync happens. View examples
here.
You need to rebuild your QuickBooks file. Despite the fact that file size and
the likelihood of corruption in the QuickBooks file are directly correlated, we
strongly advise against doing this for any size file.
7. Should QuickBooks be open or closed when syncing?
Individual QQube
Make sure QuickBooks is running solely in one instance while you do the
sync. (To be safe, check the task manager for any malicious QBW32.EXE
instances.)
If you are logged in, the QuickBooks file will have the permissions of that
user. If you want complete access throughout the sync process, open
QuickBooks to NO business file before beginning.
For Single-User QQube systems, the scheduler is frequently not
recommended.
A QQube With Many Users (Server). Start QuickBooks, then choose NO
business file. After data extraction, QQube will open each company before
closing it. This method will result in substantially fewer errors.
GENERAL QUICKBOOKS SETUP WIZARD
OPERATING
The same way you would launch any other program, you can also run
QuickBooks Setup by choosing FileNew Company after starting the
application.
v Being greeted with a smile.
In QuickBooks Setup, the Let's Set Up Your Business! screen (see figure)
appears when you choose FileNew Company. For the purpose of setting up a
new company in QuickBooks, the page encourages you to start entering some
general information. This screen's information should presumably be read.
When you're ready to begin, select either the Express Start or the Detailed
Start button.
In the EasyStep Interview dialog box, you can select the start date.
TIP: It's ideal to start using a new accounting system at the beginning of the
calendar year. The root? You can enter a trial balance that is simpler. As an
illustration, you simply enter the asset, liabilities, and owner's equity account
balances at the beginning of the year.
Additionally, you may always enter the balances of your year-to-date revenue
and expense accounts. It is customary for you to only have access to this
year-to-date income and expense information at the start of each month. You
can only select a start date other than the first of the month as a result. In this
case, your old accounting system gives you information on your yearly
earnings through the last day of the previous month. If you've been using
Sage 50 Accounting, for example, get year-to-date income and cost amounts
from Sage.
Once you've entered the start date, the essential company data, the majority
of your accounting settings, and the day you want to start using QuickBooks,
you're essentially finished.
TIP: By choosing the Leave option, QuickBooks takes you back to the
QuickBooks program, where you can get to work right immediately. There
are still some parts of the EasyStep Interview process left. Open the file you
were preparing to enter the interview again. This causes the EasyStep
Interview to reset.
Customers, suppliers, and staff
To add descriptions for customers, partners, and staff, click the first Add
button. QuickBooks will ask you if you want to manually enter the data into a
spreadsheet or if you can get it from another place, like email software or an
email service like Outlook, Gmail, etc. Pick the appropriate button, then
select Continue because it's likely that the information will be manually
entered. In the worksheet box that QuickBooks shows, enter each customer,
supplier, or employee in a separate row, being sure to include the customer's
name and address.
• After you're done, click "Continue" (not visible).
• Following that, QuickBooks will prompt you to input opening balances for
customers and vendors, or the amounts you owe or are due, respectively.
You can confirm that you do by choosing the Enter Opening Balances option,
after which you can enter the opening balances on the screen presented by
QuickBooks.
Services and inventory items you sell
• To add a description of the things you sell, click the second Add button.
• QuickBooks asks you whether you want to keep track of any sales of the
things you sell, as well as whether you provide services or sell inventory
items.
• Click Continue after selecting the choice button that best represents your
answer to each question.
When QuickBooks displays a worksheet window, each row should have a
description of the item you are selling (not shown). If you have any inventory
items on hand at the time of the QuickBooks conversion, include a
description of them. When finished, select Next. If you sell many sorts of
items, you must repeat this process for each type of product.
What does trial balance mean?
Remember that the construction of ledger accounts and the extraction of
balances are the first two steps in the accounting cycle, and that the
development of a trial balance is the third. The transactions that took place
within a specific financial period are listed in a trial balance. A trial balance,
in its simplest form, is a financial statement that totals the debit and credit
balances of all accounts. On the debit side of the trial balance, all accounts
with debit balances or totals are shown, and on the credit side, all accounts
with credit balances or totals are shown.
Trial Balance Format
This means that if there is a CR balance in the bank column of the cashbook,
a bank overdraft has taken place and is regarded as a short-term loan. Despite
the fact that it appears in the trial balance as a bank account entry, the amount
is really recorded on the credit side of the trial balance, as can be seen below;
The trial balance shows a bank overdraft of $3,000 as a credit amount.
Both brought-down and carried-down trial balance balances are used.
Balance carried down (bal c/d) and balance brought down (bal b/d)
transactions are separate from one another. The difference between the two is
that what matters when preparing the trial balance is the balance brought
down (bal b/d).
Features of trial balance
1. A summary of all data from the relevant ledger accounts—This financial
statement contains all data from the accounts that the company used
throughout the relevant financial period.
2. It is made up of the credit column, the debit column, and the particulars
column. The details section includes a brief description of the account name
and either a debit or credit value.
3. It is a financial statement that was made at the conclusion of the
accounting period to reflect decreasing account balances.
4. All of the accounts whose debit and credit amounts have been decreased or
added together are copies in both its debit entry and credit entry.
5. It's flexible; as a tool for financial accounting, it can account for
adjustments made throughout the course of the year, such as accruals and
depreciations.
The benefits of trial balancing
1. It helps to double-check the veracity of entries made in multiple ledger
accounts. The accountant has to know whether there are any errors so they
can be addressed before creating more financial statements, so this is vital.
2. To ensure that all accounts with a non-zero balance have been accounted
for in the compilation of the financial statements, it is helpful to compile a list
of all participating ledger accounts.
3. This platform enables easy access to accounting data for the preparation of
financial statements, including a detailed income statement and a statement of
financial condition.
4. End-of-year adjustment platform—this is the channel utilized to make
modifications to some ledger accounts that are impacted by the close of the
fiscal year, such as accruals and prepayments.
5. A tool for error detection—this parameter is used to spot mistakes that
happen during the financial period. It can be utilized to some extent to locate
flaws that fit into a specific category, albeit not all defects will be discovered.
Trial balance's Drawbacks
1. It does not catch every error; one of the objectives in developing the trial
balance was to find errors. The instrument is selective in its detection,
though, as some errors, such as commission and payment faults, are missed
by it.
2.Duplication of effort: The information from the pertinent ledger account
can be used to generate additional financial statements even if a trial balance
hasn't been made yet. We can therefore survive without it. As a result, there is
no need to train someone to access data that we can get immediately from the
ledger account.
3. Provides very little insight into the company's financial status; a trial
balance essentially lists all transactions that took place throughout the fiscal
year. Therefore, stakeholders in a corporation shouldn't rely on it to find out
more about the company's financial situation.
4. The trial balance preparation is not cost-effective; it requires financial
resources but has a narrow scope of use. The same information is also
included in other financial statements like the profit and loss account and
balance sheet.
The QuickBooks general ledger and the Fixed Asset Item list are not actually
integrated. You can keep track of the purchase or sale of fixed assets using
typical QuickBooks transactions. You can easily record the purchase of a
certain fixed asset by simply typing a check the standard method.
Additionally, the disposal of a fixed asset may be recorded in a general ledger
journal entry.
In order to keep track of the fixed assets you've purchased, the list of Fixed
Assets Items only functions as a standalone list.
CHAPTER THREE
FINE-TUNING QUICKBOOKS
You can adjust the service connection settings in QuickBooks. You can
choose from two check boxes on the My Preferences tab of the Service
Connection Preferences dialog box to influence how QuickBooks behaves
when you establish web connections. You have the choice to save
downloaded files using one check box. The other instructs QuickBooks to
keep your web browser open after it has finished using the internet.
For smaller organizations that don't retain much stock or have a wide variety
of inventory, using a spreadsheet as a manual inventory control strategy
works best. While maintaining an inventory spreadsheet is less expensive
than the other two methods, it might be challenging. However, none of your
team members will have to spend time learning how to use an automated
system for inventory control.
Even though you might think using a spreadsheet to manually manage your
inventory gives you more control, this method is labor-intensive and much
more prone to human mistake. Because an employee must keep track of
numerous moving elements, supply chain management may be more difficult
to maintain.
Furthermore, a manual approach will make it more difficult to track stock
replenishment.
Accounts Payable/Receivable
The system displays all the amounts in Party/Account Currency in the
Accounts Receivable/Payable report.
What format would you like your calendar to be in? You can select from a
variety of alternatives in QuickBooks.
Additionally, you can specify Upcoming and Past Due Settings. You have the
option to Show only if data is present, Hide these, or remember the last
settings. You can specify in QuickBooks how many days' worth of data will
be shown for both upcoming data and past-due data.
3.Navigating the Calendar
The Calendar itself can be accessed via the Company menu, a link in the
Toolbar, or the Home Page. The View you chose will display a graphical
calendar. Every day that has had activity or is expected to have activity will
have one of the following words: Due or Entered, with the associated number
of transactions in parenthesis. You can double-click on any of the entries in
the list of transactions entered below that to view the actual transaction form.
In the right vertical pane, a list of upcoming and past-due transactions is
displayed. You can alter the View and narrow down the list to only see
certain types of transactions using the fields and buttons at the top of the
screen. On this page, you may also add tasks.
SETTING THE SEND FORMS PREFERENCES
1.Setting Send Forms Preferences
Invoices, estimates, statements, purchase orders, and other documents that
you email can all have default cover notes that you can customize. All of
your business emails will look more professional as a result of this time-
saving technique, and you can still change the note before sending it if you
want to add a personal touch. 1.Then click Edit, Preferences.
2.Press the Send Forms button.
3. Date the invoice: Date the invoice and include the terms of payment
you anticipate the buyer will abide by if you wish to get paid
promptly. Additionally, these conditions must to be made clear at the
time of purchase.
For instance, the invoice should include both the date it was issued and
the date the products or services were purchased.
Make it clear to the consumer while describing the terms of payment
how quickly they need make a payment. For instance, the payment can
be due in 30 days.
Some businesses decide to give discounts. If you do, be sure to
explicitly state them on the invoice as well. For instance, if the client
pays the invoice within 30 days, you might give a 1% discount.
4. Retain a copy of all invoices: All invoices sent by small firms should
be kept on file for at least six years. This is crucial for both effective
corporate accounting and tax purposes.
You can learn the guidelines for record-keeping from an accountant.
You could maintain records electronically. But if you do, make sure to
have a backup copy. Post cash receipts as soon as possible so you can
keep track of which clients are sending money and which aren't so you
can see which accounts are still unpaid.
Invoiced payments are simply you offering credit to a consumer, and
the law views this as an unsecured loan because there is no security to
protect it, which makes it more difficult to get the money back from a
customer who cannot pay.
5. Keep invoices to a minimum: Every payment can count in the early
stages of a small business because there may be less room for error in
terms of revenue.
When beginning business, make an effort to obtain payment in cash up
front as often as you can.
A third of your receivables being over due is not uncommon for many
small firms.
Take into account if it would be more advantageous to provide
services for a lower upfront flat payment as opposed to a higher hourly
rate since you might not be able to recover what is owing with the
latter.
Before printing your invoice templates, I'd also advise altering them. This
enables you to include the data that is most important to your company.
I've also included the following articles to help you understand more about
the activities you can take regarding your invoice transactions:
Create and transmit progress invoices
Custom Form Styles for Invoices Import
The Sales Forms Invoice Number May Be Modified
Please check in again and update us on the status of printing your invoices.
My top objective is to assist you in completing this QuickBooks task.
EMAILING INVOICES
Directly sending invoices to customers via email from within QuickBooks
can significantly increase cash flow and reduce receivables.
To email invoices to customers using QuickBooks Online:
Step 1: Find your client's invoice by clicking Customers in the left menu bar,
then click on the customer to display their invoices.
Step 2: Double-click the invoice to open it, then, in the bottom right corner,
select "Save and send."
From QuickBooks Windows (Pro, Premier, Enterprise), you may email
invoices
Step 1: Select Customer Center under Customers in the top menu bar.
Step 2. Select the customer you want to send an invoice to, then double-click
the invoice to open it when it appears in the list to the right.
Step 3: Select Invoice after clicking Email in the screen's middle.
Step 4: If it is not already filled in, enter the client's email address and click
Send Now.
NOTE: The email will be sent from the address that you provided when
setting up your firm. Go to Company, then Company Information, and
modify the email address if necessary.
From QuickBooks Mac, send customers' invoices via email
Step 1: Select Customer Center by going to Customers in the top menu bar.
Step 2: Select the customer you want to send an invoice to, then double-click
the invoice to open it when it appears in the list to the right.
Step 3: Select File, then select E-mail Invoice as PDF.
Step 4: Personalize the email message or decide whether to send the invoice
without one.
Step 5: Click "Send."
RECORDING SALES RECEIPT
Receipts are essential for your business's records and customer interactions if
it accepts cash sales and other forms of payment. When you have a full
payment for a service or product, you may use QuickBooks to create sales
receipts for new transactions. If you want to preserve hard copies of your
receipts on file or when consumers return or exchange items, receipts can be
useful.
1.Start QuickBooks first. Choose "Enter Sales Receipt" from the toolbar's
"Customers" menu.
2. From the "Customer: Job" drop-down list, choose the customer for whom
you want to create a sales receipt. If you categorize sales receipts, choose a
choice from the "Class" list. If you do not want to see the current date, which
is displayed by default, change the date.
3. Choose a payment method from the options, such as cash, cheque, or credit
card. If the client made a check payment, enter the check number in the
"Check No." field.
4. In the "Item" column, choose the product the consumer bought. Fill up the
respective cells with the quantity and rate. On a separate line, enter each item
you bought.
5. If desired, choose a message from the "Customer Message" box. To obtain
a print preview of the receipt, click "Print Preview." When you are prepared
to print the sales receipt, click the "Print" button. When you're done, click
"Save and Close."
CHAPTER TWO
PAYING VENDORS
Setting up
There are a few things to keep in mind while setting up bank transfers with
your vendor:
A private bank add is the only way to set up bank transfers with a
vendor.
We'll start a test deposit of one penny into the bank account of your
seller. To ensure the bank account is capable of receiving payments,
this is done. (Note: The bank account input will be deemed invalid if
the test deposit fails. The seller will require a new bank account input.)
The earliest process date that can be chosen after manually adding a
vendor's bank account is two business days after the bank account was
added.
This is to guarantee that the test deposit works. (Note: Processing will
take an extra day on a federal holiday.)
The payment will still go through even if the test deposit fails and the
bank account is invalidated. The payment will be made using a
cheque.
Before integrating the vendor's bank account, schedule a check
payment if an immediate payment is required.
Make a vendor payment
When making a payment, a bill will be generated in the background and
synced back to QuickBooks Online along with the payment initiated. The
required tracking categories for the bill can be coded.
Log in to your QuickBooks Online account.
Choose the "Bill pay online" widget from the dashboard.
Choose the Make a payment tab.
Ø Enter the vendor's payment details.
ENTERING A BILL
STEP 1: CHOOSE A VENDOR
Step 1 of entering a bill is choosing a vendor
Pick the supplier who sent you the bill from the drop-down menu. If you
haven't added this vendor to QuickBooks yet, click "Add New" and adhere to
the guidelines in How To Add Vendors In QuickBooks Pro.
The data on the bill is similar to what you would need to make a check. Some
of the most popular fields include the ones below:
Vendor: You have the option of selecting the vendor that sent the bill or
adding a new vendor. Once the vendor has been selected, all of the necessary
information is immediately filled in.
The bill's effective date is: Date of the invoice should be entered here. Enter
the date of the actual invoice, not the day you received the bill.
Due date: The due date is calculated automatically based on the date of the
bill and the terms of payment. However, to be sure the due date is true, it's a
good idea to confirm it to the one on the actual bill. On the vendor's bill, there
is an invoice number that you must enter. This will come in handy if you
have to talk to the vendor about the bill.
Category: Choose the proper category from the drop-down menu, or
establish a new account if none is available, suitable, or this charge won't be
billed to customers directly.
Description: Clearly describe the cost. You can be as brief or as specific as
necessary; by providing this information, you'll find it easier to recognize and
understand the type of charge when you're eventually canceling accounts.
If you want to charge the customer sales tax for the cost, check this box.
The number displayed here represents the total cost or value of the bill.
Markup percentage: This column is crucial if you plan to bill the fees to the
customer. Enter the markup percentage if you wish the billable amount to be
higher than what your supplier or vendor is invoicing.
Billable: If you want to charge the customer for this expense, choose this
option. When a billable expense is applied to the good or service rather than
the category, it is managed effectively.
Product/service: Each client purchase must be connected to an item in the
inventory. To the services that the consumer is billed, assign service items.
Click Add New to create a new product or service, or select one from the list.
After being selected, fields like rate, description, tax, markup%, and class
instantly populate.
Enter the number of hours or items that were purchased: The amount is
calculated by multiplying the price by the quantity you enter and adding any
appropriate markup percentage.
Project/customer: You can either add a new project or customer to the bill
or use an existing one.
Save: After providing all the required information, select Save to save your
bill.
3. Examine your bill.
Visit the Vendor Center to double-check a bill you've entered. To view a list
of vendors, go to the Expenses menu and choose Vendors. To get the
vendor's outstanding balance, locate the vendor and look up the open balance.
To view all outstanding bills, click on the vendor's name. The bill you just
input ought to be visible to you.
CHAPTER THREE
TRACKING INVENTORY AND ITEMS
Inventory management and tracking take time, but they are vital to make sure
you have enough of your products available to please your clients.
QuickBooks Pro, Premier, and Enterprise editions all come with inventory
tracking, however it is turned off during installation. By activating and
utilizing the inventory monitoring capabilities, you may manage inventory,
receive notifications when to place reorders, and create purchase orders. The
training for QuickBooks inventory is simple, and you can begin adding
products or services right away.
Create an inventory tracking system
By going back to the Account and Settings menu and choosing Sales, you may turn on inventory
monitoring. For tracking current inventory, quantity, and price, turn on the setting.
A simple process is used to enable the inventory tracking features. When the On option is selected,
your account can enter information about the products, prices, and quantity that is readily available.
You can input the necessary data, such as inventory additions, deletions, and inputs, to manage your
orders, expenses, and margins in relation to the things you sell through your business.
By dragging and dropping the accounts in any order you choose after clicking
the pencil symbol in this panel, you can change the order of each account.
To keep the accounts' order, click Save. Not only does it save here, but it also
stores the updated order on the Banking page.
Now that you know where bank accounts appear on the dashboard, let's look
at how to create a new account.
How to Open a New Bank Account
The first step in creating a new bank account is to select Chart of Accounts
by clicking the gear-shaped Settings symbol in the header. The Accounting
area of the left-side Navigation Pane also provides access to the Chart of
Accounts page. Click the New button located on the Chart of Accounts page.
The Account panel will then appear. You must choose the type of account to
create in the first option. Accounts Receivable (A/R), Other Current Assets,
Bank, Fixed Assets, Other Assets, Accounts Payable (A/P), Credit Card,
Other Current Liabilities, Long Term Liabilities, Equity, Income, Other
Income, Cost of Goods Sold, Expenses, and Other Expenses are among the
possibilities available here.
Please choose Bank from the dropdown menu since we are creating a bank
account.
The options you see in the Detail Type section will vary depending on what
you choose under the Account Type option. There are several options
available in this case, including Cash on Hand, Checking, Money Market,
Rents Held in Trust, Savings, and Trust Account.
You'll see that when you select Checking for Detail Type, the Name field
immediately updates to reflect your selection.
That name can be modified to be more precise. You can also complete the
Description area if you choose.
The amount on that date as well as the date you wish to start tracking your
account are the next two fields you can fill out. You can avoid entering an
opening balance and enter it later if you don't want to.
Whereas QuickBooks Online requests, enter the balance now if you wish to
do so. You have the option of starting your financial tracking from this
account at the start of the current year, the beginning of the current month,
today, or another time.
Choosing The tracking will begin today. The current account balance can
then be entered. By selecting Beginning of this Year, the date will be set to
the first day of the current year. The account balance as of December 31st of
the preceding year must then be entered.
It will be set to the first day of the current month when you select Beginning
of the Month. The account balance as of the previous month's last day will
then need to be entered.
By selecting Other, you can choose a certain date in either MM/DD/YYYY
format or by choosing the day of the week from their pop-up calendar. The
account balance from the day before the one you choose must then be
entered.
Ø Click the Save and Close button at the bottom once you have
completed selecting the date and balance. Your new bank account will
now be shown in the Chart of Accounts.
Ø Now let's look at adding a new credit card account.
Ø A New Credit Card Account Added
Ø A new credit card account can be added similarly to a new bank
account. Just as you did in the section before, click the New button
from the Chart of Accounts.
Ø The same Account panel that you created while creating a bank
account will appear as a result.
Ø Select Credit Card as the Account Type this time.
Ø The only option available for the Detail Type when you choose the
Account Type to be a credit card is Credit Card. To better identify this
account, you can change its name and, optionally, its description.
Ø To improve organization, you may also make it a sub-account of
another account.
Ø In the following line, exactly like you would for a bank account,
provide the commencement date and balance if you choose.
Ø Where QuickBooks Online inquires You have the option of choosing
Beginning of this Year, Beginning of this Month, Today, or Other as
the start date for your financial tracking in QuickBooks.
Ø Choosing The tracking will begin today. The current account balance
can then be entered.
Ø By selecting Beginning of this Year, the date will be set to the first
day of the current year. The account balance as of December 31st of
the preceding year must then be entered.
Ø It will be set to the first day of the current month when you select
Beginning of the Month. The account balance as of the previous
month's last day will then need to be entered.
Ø By selecting Other, you can choose a certain date in either
MM/DD/YYYY format or by choosing the day of the week from their
pop-up calendar. The account balance from the day before the one you
choose must then be entered.
Ø The Opening Balance Equity account will be updated when a balance
is entered here.
Ø To complete the account creation, click the Save and Close button.
Making an Opening Balance Entry
You can go back and adjust the opening balance if you didn't do so initially.
Verify that the account has not yet been reconciled.
To begin, make sure there isn't an opening balance on your account. This can
be accomplished using the Chart of Accounts. Choose View Register from
the Action column after locating the account in the Chart of Accounts.
Check to see if there is an opening balance entry in the register. Opening
Balance Equity and Opening Balance should both be present in this entry's
Payee/Account and note tabs, respectively.
If there isn't an opening balance, you can create one by making a journal
entry. That will be done in the following action.
The Opening Balance's Editing
You can access the account register from the Chart of Accounts if you need
to enter transactions that occurred before the opening account date that you
previously defined.
Find the opening balance entry in the account register. The Opening Balance
Equity should be the entry's account.
By expanding it with a click, you may now change the opening account
balance. Edit the Deposit column to accurately reflect the account
information provided by your bank.
Click the Save button after you've adjusted the opening balance.
You have merely reconciled the opening balance of the accounts thus far.
Let's look at how you can balance out the account's other transactions.
Deleting a credit card or bank account
An account that you no longer require can be deleted. Making an account
inactive in QuickBooks Online is the same as deleting it. The transactions an
account was associated with will remain after deletion. If necessary, you can
also restore a deleted account.
Go to the Chart of Accounts by selecting Chart of Accounts from the
Accounting menu in the left-side Navigation Pane to delete an account.
Choose Make Inactive under the Action column for the account you want to
delete.
A confirmation window will then show up for you to confirm that you truly
do wish to deactivate it. It won't by default appear in the Chart of Accounts
after it becomes inactive.
Bringing Back a Deleted Account
You can reactivate a deleted account. Go to the Chart of Accounts and select
the gear icon to the right of the list. Select the Include Inactive checkbox.
You can now access the accounts you deleted.
[Figure: Including inactive accounts in the Chart of Accounts is chosen]
You can choose Make Active from the Action column after the deleted
account appears in the list.
MAKING BANK DEPOSITES
Payments from several sources are frequently deposited at once when you
make a deposit at the bank. Typically, your bank keeps track of all of your
deposits under a single record with a single total. These same payments won't
match your deposit if you input them as separate records in QuickBooks.
In these circumstances, QuickBooks offers a unique method for you to
integrate everything and ensure that your records correspond to your actual
bank deposits. Your Undeposited Funds account should contain the
transactions you intend to combine. Then combine them by recording a bank
deposit.
Record a bank deposit in QuickBooks to combine payments:
1.When you have your bank's deposit slip, you're prepared to record the
deposit in QuickBooks.
2.Make a selection under Record Deposits / Make Deposits on the
Homepage.
3.Make your selections in the Payments to Deposit window for the payments
you want to combine. then choose OK.
4.From the Deposit to dropdown on the Make Deposits window, choose the
account you wish to deposit into.
5.Verify the total deposit. Verify that the specified payments and the account
match those on the deposit slip from your bank. Refer to your deposit slip as
a guide.
6.At your bank, enter the day you made the deposit.
7.Add a memo if necessary.
8.Choose Save & Close once you're finished.
Every bank deposit has its own unique record. For each of your deposit slips,
make one deposit at a time.
NOTE: In the Bank Deposit window, only transactions that have recently
been made to your Undeposited Funds account are visible.
Next steps: Manage your bank deposits
Examine previous bank deposits
To view previous deposits and the aggregated transactions:
Choose Reports from the menu. Select Report Center next.
Choose the Banking category.
Select the Run icon after locating the Deposit Detail report.
All of your documented bank deposits are listed in the report. To view more
information, choose certain deposits.
Delete a bank deposit
A bank deposit can be deleted if you ever need to start over:
1.Navigate to the Reports menu. Next, choose Report Center.
2.Decide on the Banking category.
3.Discover the Deposit Detail report. then click the Run button.
4.Discover and access the deposit you want to remove.
5.All of the payments that are part of the deposit are shown in the Make
Deposits window. Make sure you need to start over by reviewing them.
6.Choose Delete deposit from the context menu when doing a right-click in
the window. To confirm, click OK.
USING EDIT MENU COMMANDS
Editing Key
Edit transaction selected in register Ctrl + E
Delete character to right of insertion point Del
Delete character to left of insertion point Backspace
Delete line from detail area Ctrl + Del
Insert line in detail area Ctrl + Ins
Cut selected characters Ctrl + X
Copy selected characters Ctrl + C
Paste cut or copied characters Ctrl + V
Copy line in an invoice Ctrl + Alt + Y
Paste copied line in an invoice Ctrl + Alt + V
Increase check or other form number by one + (plus key)
Decrease check or other form number by one – (minus key)
Undo changes made in field Ctrl + Z
RECONCILE BANK ACCOUNT
Each transaction that you enter into your QuickBooks Online file, including
costs, bill payments, deposits, and payments against customer invoices, needs
to be verified and compared to bank data. Reconciling is the action of doing
this. Every month, you should do this for each of your connected bank and
credit card accounts to your QuickBooks Online file.
Your company's bank account should be shown in QuickBooks Online's
transactions. This is a crucial step in the bookkeeping process. If you don't
take the time to reconcile properly, you can discover that you missed certain
crucial transactions that weren't entered or that were entered more than once.
These mistakes could result in major differences in your file, which could
affect:
Financials: How accurate will they be, how is your company performing,
and how can you use this information to make critical business decisions?
The BAS: If you miscalculated the transactions, you can owe the ATO more
money or you might have to pay more GST.
the tax return How precise will this be when your accountant processes your
tax returns at the conclusion of the fiscal year? Your tax obligations could
increase.
The online banking feed is one of the features of QuickBooks Online. By
doing this, accuracy will be aided and it will be made sure that all
transactions are recorded. See our earlier posts on bank policies and online
banking.
One of my clients, who works in the construction sector, tried to manually
reconcile his credit card and bank accounts. Before using and becoming
accustomed to internet banking feeds, he would frequently show up at my
office at the end of the quarter with unfinished and unreconciled accounts.
We would spend hours trying to fix the problems, missing transactions, and
incorrectly recorded sums. His and my time would be very well spent on this.
Because of the proper bank feed allocation I taught my customer, he can now
balance his bank accounts in under two minutes. Correct reconciliation helps
him save time and money.
How to reconcile bank accounts
Let's examine this procedure. The following action is taken after all of your
online banking feed transactions for the month have been matched and added:
Reconcile can be accessed from the Company gear icon (top-right
corner) by selecting Tools.
Examining the account known as Westpac Chq Acc - 246814 will be the
focus of the example below. The closing balance of the bank statement as of
the end date, August 31, 2015, is $45645.81.
Make this account your selection from the drop-down option in the Reconcile
window. This bank account's last reconciliation was on July 31, 2015, as can
be seen. The report is seen by clicking the date. Tap Reconcile Now.
Statement Ending Date: August 31, 2015; Ending Balance: $45645.81; Enter;
then click OK.
1.Transactions that have come through from the online banking feeds are
those that are marked in yellow with the green paper emblem. These are
highlighted and checked, as you can see.
2.You must look into whether these transactions belong here because they
were manually entered. Do they hold true? Have they multiplied?
3.Initial balance on the bank statement
4.Statement Total at the end of the bank statement
5.Difference: Because the ticked transactions are accurate and there is no
balance, the bank account has been reconciled.
6.Cancel: If you need to close the reconcile window, all of the transactions
you have checked will be lost.
7.Close Later: If you need to finish it later, click this button. Any transactions
that you have checked will not be lost.
8.Close now: Done! Congratulation on the bank reconciliation!
9.Edit the following from the statement: If you accidentally entered an
inaccurate balance or date, edit it here.
ORDER CHECKS AND ENVELOPES COMMAND
A submenu of commands that you can use to order QuickBooks checks and
envelopes or to find out more about ordering QuickBooks checks and
envelopes is displayed when you choose the Order checks and envelopes
command.
ENTER CREDIT CARD CHARGES COMMAND
Ø How to track business credit cards
If you haven't previously done so in QuickBooks Setup, you must create a
credit card account if you want to use QuickBooks to manage credit card
purchases and balances. (In contrast, bank accounts are used to monitor
things like the flow of funds into and out of a checking, savings, or petty cash
account.)
Ø A credit card account being set up
The procedures for opening a credit card account are similar to those for
opening a bank account:
1. Select Chart of Accounts under Lists.
Alternatively, you can tap the Chart of Accounts icon on the home screen.
The Chart of Accounts window for QuickBooks is displayed as illustrated.
Displaying the Chart of Accounts
2. In the Chart of Accounts box, click the Account button in the lower-
left corner, and then select New.
The first Add New Account box in QuickBooks is a simple list of selection
buttons for the various types of accounts that are supported by the program.
3. Pick the Credit Card radio button.
You can notify QuickBooks that you wish to create a credit card account by
choosing Credit Card. I'm sure these surprises you. Then click Next. The
second Add New Account window for QuickBooks appears as illustrated.
2. Select the credit card that you used to pay for the expense from the drop-
down selection under Credit Card.
Select a card from the drop-down menu by clicking the down arrow next to
the Credit Card field.
3. Write the name of the company you used a credit card to pay in the
Purchased From box.
Click the down arrow with the pointer over the Purchased From line. A list of
names is displayed. Select a dish from the menu.
Select Add New and enter the name of the restaurant if you've never eaten
there before.
4. Click the relevant option button to specify whether the transaction is a
credit or a buy.
If you want to register an acquisition, click the Purchase/Charge option
button (which is what you do most of the time and what this example shows
you). If you want to record a credit on your account, click the tab labeled
"Refund/Credit" (if you returned something, for example).
5. Fill out the Date column with the charge date.
If the cursor isn't already in the Date line, move it there and enter the date in
the format MM/DD/YYYY. To specify July 1, 2021, enter either 07012021
or 7/1/21. Don't put the date as today if you're entering this charge two or
three days after it occurred; instead, indicate the day the charge was made.
When you receive your monthly statement, using that date makes it simpler
to reconcile your records with the records of your credit card company.
6. Fill out the Amount box with the charge's amount.
Insert the total charge amount by moving the pointer to the Amount line.
Note: To indicate the decimal place, type the period instead of the dollar sign.
7. (Optional) (Optional) In the Memo text box, type a memo description.
Put the cursor in the Memo text box and enter a detailed justification for
billing the item. You may type "Attorney/CPA Lunch" or anything similar in
this situation.
TIP: Wait. What do you know? Now, let's become more serious. Please hold
the humor for a moment. If you are documenting a travel, dining, or
entertainment business credit card transaction, this Memo box is an ideal spot
to record the business purpose for the charge, which is a tax law requirement.
8. Complete the tab for expenses.
You enter business spending under the Expenses tab.
Go to the Expenses tab's Account column, click the down arrow, and select
an expense account from the list (most likely Travel & Ent:Meals for a
business lunch). In this case, if you type in a name that QuickBooks does not
already recognize, it will prompt you to create an expenditure account.
When you input an amount in the Amount field, QuickBooks automatically
fills out the Amount column. If you choose, enter a note in the Memo box
and designate this charge to a Customer:Job and Class. If you want to
attribute the expense to a class, you must enable class tracking.
9. Finish the Items tab.
This charge does not require itemization because it is for a restaurant meal.
On the other hand, you would fill out the Items page if you were charging
inventory items like lumber, office supplies, and so forth.
QuickBooks notifies you if the vendor you listed in the Purchased From line
has a copy of a purchase order (PO) on file. Your unpaid POs with the vendor
will be listed when you click the Select PO button.
10. Enter the charge by selecting the Save & New or Save & Close button.
In the register for credit cards, the charge is noted. As you submit a few
charges, this figure displays what the Credit Card register looks like.
You can rebuild your file if the verify data identifies a problem. For further
information on how to verify and rebuild data in QBDT, please click on this
link.
If you upgraded QBDT and are still unable to see the LM information, you
can look up the remedies in this article: After upgrading QBDT, Loan
Manager is no longer present. Additionally, you can learn about and evaluate
the various loan choices using the What If Scenarios tool. To get started, you
might refer to Step 3 in this article: What If tool for QuickBooks Loan
Manager.
CHAPTER FIVE
PAYING EMPLOYEES
WHAT YOU NEED TO DO FOR QUICKBOOKS
PAYROLL
Before you even begin using the software, acquire the required documents
and information to make the QuickBooks payroll setup procedure as quick
and simple as possible. Everything you need to set up and handle payroll will
be covered. We'll walk you through the procedure step-by-step later on in this
post so you'll know precisely when to use these files and details.
W-4s: For tax purposes, each employee must have a completed and signed
W-4.
Pay Rates: How much money does each employee make at your business?
Are they commission-only, hourly, or both?
Pay Schedule: On what schedule do you pay your staff—weekly, biweekly,
monthly, or any other frequency?
Employee Basic Information: For each employee, you will require their
legal name, residence, birthdate, hire date, and termination date (if
applicable).
If your employees are entitled to any deductions, you should be aware of
their nature and scope. Garnishments, employee payments to retirement
funds, and health insurance premiums are a few examples of regular
paycheck deductions.
What are the policies of your company regarding sick time and vacation
time? You should be aware of this policy and have proof of the current
balances for each employee before setting up payroll.
Reimbursement & Additions: You'll need specifics regarding each
employee's pay and paycheck additions in order to set up payroll. Mileage
reimbursements, trip reimbursements, cash advances, and flexible spending
accounts are a some of the most popular.
Direct-deposit details for each employee who chooses direct deposit versus
receiving a paper check, you will need their routing and account numbers if
you provide direct deposit. To ensure accuracy and convenience, ask each
employee to complete a direct deposit authorization form and provide a
voided check.
Information on your business bank account is also necessary if you plan to
use direct deposit so that funds can be taken out of your account and
distributed to your employees.
Information on taxes It goes without saying that you must file taxes and pay
them. Make sure you have information on available, such your state ID
numbers and Federal Employer Identification Number, to make the payroll
tax procedure simpler (FEIN).
Previous Payroll Data: Have your previous payroll data on hand if you've
been paying your employees so that payroll taxes can be computed correctly.
QuickBooks Payroll Subscription: Regrettably, a monthly subscription fee
is required for QuickBooks Payroll. Make certain that you have chosen the
plan that is best for your company. You can either do this online at the
QuickBooks Payroll website or directly through the program.
QuickBooks Desktop can become a little perplexing at times.
Fortunately, Intuit has made the payroll process incredibly simple with a
step-by-step payroll setup application that guides you through the procedure.
Let's walk through this procedure together so that your payroll can be
operational in no time.
You may always practice with an example company file, like the one I'm
using for this lesson, if you're still unsure before you get started. In order to
gain a handle on the system before processing your own paycheck, you can
practice and test payroll in this manner. Use these steps to get started whether
you're using a sample or your own company file.
STEP 1: OPEN QUICKBOOKS PAYROLL SETUP
Once you have obtained all of your necessary paperwork, you can begin
setting up your payroll. Open the QuickBooks Payroll Setup tool first. You
can do this by clicking "Employees" in the menu bar at the top of your
screen, then choosing "Payroll Center" from the list. Once the Payroll Center
has loaded, choose "Payroll Setup" from the menu to begin.
The first thing to do after opening the Payroll Setup tool is to enter and/or
confirm the details of the benefits and compensation offered by your
company.
Your firm has a variety of alternatives for paying compensation. These
consist of:
Hourly employees who work overtime are paid an overtime rate.
Regular Pay: Employees are paid hourly.
Wage: Applied to workers who are paid a salary.
Bonus: Used to pay out any bonuses.
If you pay employees for mileage, you use mileage reimbursement.
There are three choices on this menu. Any form of compensation that isn't
used by your business might be deleted. Any additional remuneration that
isn't already on your list can also be added. Editing list items is another
option. You can alter the way that compensation is displayed on paychecks,
make a payroll item active or inactive, set the account type, and alter the
account name if you decide to update entries.
After you have verified these entries, click Continue to go to the following
step, Employee Benefits.
STEP 3: SET UP EMPLOYEE BENEFITS
Here, you may change or add the employee benefits your company offers.
Pay increases and deductions like cash advances and mileage reimbursements
should also be included (such as wage garnishments.) There are a few
possibilities:
Insurance Benefits: Workman's compensation retirement benefits include
401(k), Simple IRA, 403(b), 408(k)(6)SEP, and 457 plans (b)
Paid Holidays: Hourly Sick, Hourly Vacation, Salary Vacation, and Salary
Sick
Miscellaneous: Health Insurance and ACH Payments
It's time to enter the figures for each employee once you've included your
wages, benefits, additions, and deductions.
STEP 4: SET UP EMPLOYEES
Do you still have the W-4s and pay scales from earlier? We're going to set up
your employees, so it's time to remove those.
Personal Information
Start by choosing "Add New" to create a new employee. You must include
the following details in this section:
Ø Legal name
Ø Contact information
Ø Employee type
Ø Social Security Number
Ø Hire date
Ø Release date
Ø Birthdate
Ø Gender
Ø Pay Rates & Schedules
You must enter the employee's pay rate and schedule after inputting this data.
Additionally, you can choose overtime pay rates, add a bonus, and add
expenses for health insurance and mileage reimbursement.
You will then enter the sick pay calculation method. You must input details
such as the number of sick pay hours each employee receives, when these
hours start (often at the start of each year), what happens to unused sick time,
and current balances. After entering this data, repeat the process to enter the
vacation pay information.
Direct Deposit
The following step is to include this information if your employees receive
their salary via direct deposit.
For a maximum of two accounts per employee, direct deposits can be set up.
Additionally, you have the choice of giving your workers prepaid cards that
they can use to access their direct deposits. Through the setup tool, cards can
be requested. You have the option of paying your staff with a paper check if
you choose not to use direct deposit.
You will respond to some tax-related inquiries regarding the employee after
putting up the direct deposit details. These consist of:
State susceptible to deductions
Tax on unemployment in the state
Did the employee reside there or work there?
Unsure of how to complete this form? Fortunately, QuickBooks has
assistance options available at all times throughout setup, making it simpler
for you to verify that your payroll is configured properly.
Federal & State Tax Information
Take out the employee's W-4 for this area. Enter the employee's filing status,
the number of allowances, additional withholding amounts, and other
withholdings and credits using the information on the form.
You will provide the same data for the state after clicking "Next."
You can save the employee's data once you've finished this part. The
Employee List should now display the employee's name, social security
number, and a summary.
The Employee List will show the problem if there is any missing data or a
mistake. Check each entry for any errors and make the appropriate
corrections. You won't need to waste time trying to figure out what caused
the problem because the summary section in the Employee List will make it
clear.
You'll see that QuickBooks has already set up a number of taxes when you
access the Federal Taxes area. This covers social security and Medicare for
both the employer and the employee, as well as federal withholding and
unemployment benefits.
You don't need to bother about figuring out rates for these taxes because they
have already been determined. You may, however, adjust each sort of tax by
altering the way it appears on paychecks, amending the cost account, or
editing the liability account. Most of the time, you won't need to make any
significant changes to this part.
STEP 6: ENTER YEAR-TO-DATE PAYROLLS
You can skip this part if you're paying staff for the first time. To ensure that
tax payments and paychecks are accurate, you must enter year-to-date
payrolls if you have employees who have been paid during the current year.
The payroll tax payments that have previously been made must then be
entered.
Your remaining balance will be displayed after QuickBooks determines how
much you still owe and compares it to the sum you've previously paid.
Finally, you'll enter non-tax payments like health insurance and workers'
compensation. Once more, QuickBooks will figure out how much is owed
and use the amount you've already paid to show any outstanding balance.
STEP 7: FINISH UP & PREPARE TO RUN YOUR FIRST PAYROLL
Keep keep mind that any reports that contain the transaction will also alter if
you invalidate or delete a check.
PAYING PAYROLL LIABILITIES
Payroll liabilities: What are they?
A liability in accounting is the duty to make a payment. Your business has
two different sorts of payroll obligations when you manage payroll:
Payroll liabilities are the total gross wages owing to workers and independent
contractors.
Retained sums: Employee income tax withholdings must be sent to the IRS
and state departments of revenue. Payroll obligations are sums that have been
withheld but not yet sent. However, keep in mind that money withheld from
an employee by a company is not considered a payroll expense.
Payroll costs: Some payroll obligations are not deducted from employees'
salaries. For instance, when payroll is completed, the employer's portion of
Social Security and Medicare taxes becomes a liability.
The liability is moved from a liability account to an expenditure account once
the payments are made.
You deliver reports that describe the payments' purpose along with payments
when you submit them (employee name, amounts withheld, etc.). Numerous
balance-sheet account numbers may be present in your company's payroll-
liabilities chart of accounts.
Payroll liabilities types
Payroll liabilities are produced by employee remuneration, taxes, and
voluntarily made deductions. Employers also have payroll obligations for
FICA (Federal Insurance Contribution Act) tax and additional costs.
1.Employee compensation
Payroll liabilities are the sum of the gross wages owing to employees and
independent contractors. Liability can be determined in a number of ways for
a particular pay period:
Salaried workers: Employees who are paid a salary: The portion of annual
salary due for the pay period, plus bonuses and other incentive payments.
Hourly workers: This liability is equal to the total number of hours worked
multiplied by the hourly wage, including overtime. Employees paid by the
hour may also receive incentive pay.
lone workers (independent contractors): Amounts due determined by a flat
fee or according to an agreement on an hourly rate.
Taxes are not deducted from the compensation given to independent
contractors. However, you are required to deduct taxes from an employee's
compensation in accordance with the data they give on Form W-4.
2.Payroll taxes and insurance
Payroll taxes are deducted in order to cover the costs of Medicare, Social
Security, and income taxes. Some of these levies cost employers’ money.
Withholdings from federal income taxes: The employee's yearly income and
filing status are used to calculate the amounts withheld (married, single, etc.).
FICA fees the taxes gathered to pay for Medicare and Social Security.
Employers and employees both paid a 7.65% FICA tax rate on the worker's
gross wages for the tax year 2020, and the worker's taxes were deducted from
gross pay. A self-employed person must file a personal tax return and deduct
half of the self-employment taxes in addition to paying the employer and
worker portions (15.3%).
State income taxes: Varying states have different withholding and payment
rules, and other states don't have any state income taxes at all.
Both the Federal Unemployment Tax Act (FUTA) and the State
Unemployment Tax Act (SUTA) were passed in order to give workers who
lose their jobs—typically when the employee is not at fault—temporary
income. Through a cooperative federal-state arrangement, businesses pay
unemployment insurance payments; only employers are responsible for
paying FUTA taxes.
Workers' compensation insurance: Depending on state regulations, businesses
may be required to obtain workers' compensation insurance. When a worker
is hurt at work, the insurance plan covers medical expenses and missed
wages. Employers are responsible for paying workers' compensation
premiums, and the price depends on the sector and the number of employees.
Garnishments on wages: A garnishment is a court-ordered necessity to
deduct money from an employee's pay and send it to a third party.
As your company expands, you might provide benefit plans to entice staff.
Employees have the option to voluntarily deduct money from their paychecks
to pay for benefit plans.
How to pay your payroll liabilities
The most typical payroll liabilities and how they are paid are listed below:
Ø Employees receive their gross wages via cheque or direct deposit.
Ø Federal income taxes: Businesses report and submit their federal tax
withholdings using Form 941.
Ø FICA (Medicare and Social Security taxes): Companies report and
submit these tax payments using Form 941.
Ø These payments are reported and submitted using Form 940, the
employer's yearly federal unemployment (FUTA) tax return.
To settle all payroll obligations, take the following actions:
Ø Gather employee information for Form W-4 (for employees).
Ø Utilize a worker's contract, hourly data, or a salary to determine gross
pay.
Ø Calculate the necessary deductions, if any.
Ø Compensation each employee's net pay after deductions are made.
Ø Payroll liabilities for sums that will be spent on business expenses
should be recorded. For instance, the employer's portion of FICA
taxes.
Ø Use the appropriate reporting form to submit the appropriate amounts
to each third party.
Ø Payroll liability balances should be reclassified as payroll cost
accounts.
Your payroll estimates could change from one pay period to the next due to
the following factors, which would likewise alter payroll liabilities and costs:
Ø Modifications to tax legislation
Ø Personnel who have been hired, elevated, or discharged
Ø Employees who alter their tax and benefit withholdings in response to
changes in their salaries or families
Ø Businesses must also abide by the rules on payroll record keeping.
How to adjust payroll liabilities
Accountants enter adjustments for several payroll-related transactions,
including:
You change the payroll records by reducing a payroll obligation
account and by reducing cash when amounts withheld are sent to a
third party.
Similar to how firms cut cash when workers receive their due wages,
they too reduce wages payable.
ACCOUNTING CHORES
CHAPTER ONE
FOR ACCOUNTANTS ONLY
Who Are Accountants?
An accountant is a professional who performs accounting responsibilities
including financial statement analysis, audits, or account analysis.
Accountants are employed by accounting companies or by internal
accounting departments of large corporations. They are free to develop their
own, distinctive procedures. After meeting the educational and testing
requirements established by their individual states, national professional
organizations certify these professions.
KEY LESSONS
Ø An accountant is a professional who carries out accounting tasks
including financial statement analysis, audits, or account analysis.
Ø Accountants can establish their own practices or work for an
accounting firm or a big business with an internal accounting
department.
Ø The CPA designation is regarded as the pinnacle of the accounting
profession, which is why many accountants decide to pursue it.
Background/History of Accountants
The American Association of Public Accountants, the first organization for
accountants, was established in 1887, and CPAs were first permitted to
practice in 1896. Throughout the industrial revolution, accounting became a
more significant profession. This was largely caused by the fact that
businesses became more complex and that investors in bonds and shares, who
weren't necessarily a part of the firm but had financial stakes in it, sought to
learn more about the financial health of the enterprises in which they had
stakes. All publicly traded firms were compelled to release reports written by
certified accountants after the Great Depression and the establishment of the
Securities and Exchange Commission (SEC). The necessity for corporate
accountants was further exacerbated by this move. Accountants are still a
common and essential component of every business today.
Recognizing accountants
Accountants are certified financial professionals that oversee several different accounts, both public and
private. These accounts may be owned by an individual or a business. As a result, they might land a job
with a small or large firm, with the government, with another organization like a non-profit, or they
might start their own private practice and take on clients who hire them.
They do a range of accounting duties that vary based on where they work. Accountants undertake
account analyses, assess financial operations, perform routine and annual audits, check the accuracy of
financial statements, other documents, and reports, prepare tax returns, and provide advice on areas that
could benefit from additional cost- and efficiency-saving measures. They also undertake risk analysis
and forecasting.
2.Calculate the price of the products or services you sold: Add up all the
expenses related to the products or services you sold, including labor,
supplies, and any overhead costs incurred during production. In a retail
setting, the cost of products is often limited to the price of the inventory
items.
Labor and supplies needed to provide the service you offer would be included
in the costs in the service sector.
5.From your gross profit, deduct your costs: Add up all of the costs you
listed, then put the total beneath the list of costs with the heading "total
expenses." To make this paragraph stand out from the list of expenses, you
might wish to make it bold. Change the hue to red if you're creating a full-
color income statement. After that, deduct that sum from your gross profit.
Your net profit for the time period covered by the income statement is the
outcome of this equation. To make it stand out from the other items, give it a
name and make the wording bold. If you're creating a full-color income
statement, you should change the amount's color to green for positive
numbers and red for negative ones.
Drafting a Statement of Retained Earnings
1.Find the balance of the current retained earnings: The money the
business has made but hasn't given to equity partners or shareholders is
referred to as retained earnings. This sum builds up beginning on the day the
organization is founded. The current retained earnings balance appears on the
first line of your Statement of Retained Earnings.
Look at the organization's most recent financial statement to determine this
amount. If this is the first financial statement for your company, the retained
earnings will probably be zero.
The retained earnings balance will be zero if your company distributes all
profits to its stockholders or equity partners. This balance could be negative if
the company has a deficit or is "in the red."
2.List your income statement's net income: Include the net income you
determined on your income statement for the same period underneath the
current retained profits balance on your statement. If your company didn't
make a net profit, this sum can be negative.
Normally, you would modify the font color on a full-color Statement of
Retained Earnings so that positive sums are green and negative amounts are
red. If you're not writing a statement in full color, you should include the
number in parenthesis to indicate that it is negative.
4.Determine the revised retained earnings amount: Add the leftover net
income for the period to the total balance of retained earnings after deducting
the income allocated to equity partners or shareholders. On the last line of
your Statement of Retained Earnings, enter this sum.
As an illustration, if your business had $300,000 in retained earnings and you
kept $10,000 of the net income made during the reporting period, your
business would now have $310,000 in retained earnings.
Creating a Balance Sheet
2.In the left column, list your assets: An asset is something that belongs to
your business. Current assets, fixed assets, and investments are the three main
categories of assets. An “other asset” or intangible asset category, such as
intellectual property rights, may also appear on a balance sheet. [13]
Cash, receivables from customers, stock in hand, and supplies are examples
of current assets. On the other hand, fixed assets are items like property,
machinery, and anything else that can be used for more than a year.
The worth of current assets is frequently pretty simple to ascertain. You
might need to look up the value of fixed assets in the organization's most
recent tax return. With depreciation, fixed assets lose value annually.
3.The right column should contain liabilities and equity: Similar to assets,
liabilities can be split into current and fixed categories. Also included in this
column is the ownership stake the owners have in the business.
For example, accounts payable, short-term loans, or commercial credit
accounts are examples of current liabilities. Fixed liabilities, such as
mortgages, long-term loans, or employee pension plans, are obligations that
cannot be satisfied within a year.
You must know how much the owners have invested in capital, including the
total value of any stock they may possess in the business, as well as how
much of the company's profits have been kept, in order to determine their
ownership stake. The Income Statement and Statement of Retained Earnings
are the best places to look for this information.
4.Balance the books by adding all assets and liabilities: The entire worth
of the company's assets and liabilities should match up when you've finished
your balance sheets. If the two don't add up, check your values again to see
where you made a mistake.
Review the owner's equity figures you utilized in particular. Always divide
the total value of the company's assets by the total value of its liabilities to
determine the owner's equity. If all of your other values are accurate but your
totals don't add up, you might need to alter the owner's equity until they do.
Writing a Statement of Cash Flows
3.Assign three categories to your financial flows: All of the cash flows that
are recorded on your statement often fall into one of three major categories:
operating activities, investing activities, or financing activities. Direct cash
flows can then be listed under each of those headings from that point on. The
majority of businesses, however, track changes more subtly by modifying net
income in accordance with modifications to the accounts that each category
represents.
Asset depreciation, payables, and receivables are all examples of operating
activities.
Purchase and sale of capital goods, the creation of businesses or websites,
and the acquisition of marketable securities are all examples of investing
activity.
Offering and redeeming debt, issuing and retiring shares, paying dividends on
stock, and distributing profits to equity partners are all examples of financing
activities.
5.For investment and financing activities, follow the same steps: Your
cash balance is reduced when you make purchases, and increased when you
make sales. To calculate your net cash given by financing activities and your
net cash provided by investment activities, list each of these items separately
and add them together.
Put the amount in parentheses or make the typeface red to indicate a loss or
deficit for the time period covered by your financial report (for full-color
reports).
Instead of writing "given by," put "used for" if your net cash balance is
negative or negative. For instance, you would refer to this sum as "net cash
utilized for financing activities" if your net cash from financing activities
results in a $2,400 loss.
6.Calculate the period's ending cash balance: Add or deduct the net cash
amounts for each of the three categories from the organization's starting cash
balance for the reporting period. The outcome of this calculation is the
updated cash balance for your company.
Your income statement and statement of cash flows should be compared.
You may wish to investigate the cause if there is a sizable discrepancy
between the profits reported and the net cash flow produced. For instance, if
your business is young and needs significant capital investments, those
expenditures won't show up all at once on your income statement.
CHAPTER THREE
CREATING A BUDGET
One of the best ways to manage your company's money is to create a budget.
Using QuickBooks, you may create a yearly budget for your business.
Although choosing the specifics of your budget can take some time, in
QuickBooks Pro there are only six steps needed to create one.
This article will demonstrate how to make a budget, choose the best options
for budgeting, and produce budgeting reports.
SET UP A BUDGET
Go to Company > Planning & Budgeting > Set Up Budgets to get started.
STEP 1: SELECT BUDGET YEAR
Choose the year for which you wish to make this budget using the arrows.
Click the blue "Next" button at the bottom of the screen once you've made
your choice.
STEP 4: CHOOSE BUDGET CREATION PREFERENCES
Select between "make budget from scratch" or "build budget using data from
the prior year."
When making a budget, it can be beneficial and insightful to use data from
prior years. However, because our sample company is a new one, we will
pick the first one.
STEP 5: ENTER YOUR BUDGET
Now, add your monthly and account-specific budget goals. This requires
some time and consideration.
I advise using QuickBooks reports to help shed some light on your
purchasing and spending habits.
NOTE: Make your spending plan realistic. Don't just enter $5,000 in sales
per month into QuickBooks if you want to have $5,000 in sales per month.
Divide your objective into achievable, practical actions. Consider useful
marketing and advertising strategies that could assist you in achieving this
objective.
STEP 6: SAVE
When your spending begins to resemble this, it's time to save your artwork.
At this point, you can browse particular clients and then get a more detailed
breakdown of each job the client is currently working on or has already
finished.
For instance, you might have completed some exterior repairs for a retailer
and are currently working on a project to expand the client's display area.
Using QuickBooks Online View work costing information by choosing the
"Projects" option from the Business Overview menu.
Desktop QB: Pick the "Jobs" label.
Step 2: Produce goods and services
Applying job expenses to each individual project is your next duty after
finishing the customer setup.
Create a list of goods and services
By creating a list of goods or services in QuickBooks, you can accomplish
this. As a result, you can precisely tailor the job expense categories to your
needs. For example, the external trim phase can develop categories for siding,
exterior wall treatments, stucco, brick veneer, etc.
Products & Services can be found in the "Get paid & pay" menu on the left or
in the Lists menu in the upper-right corner under the "Gear" icon.
You can build a project estimate after setting up your items, which should
include the billable labor cost per employee deployed on the assignment.
Step 3: Prepare a job estimate
From any QuickBooks screen, choose the QuickCreate option. It could show
up as a plus sign in the upper left or as "+ New" in the top center of the page.
Once you click on the plus sign, a dropdown menu will appear with the
option to produce invoices, checks, costs, and estimations. From the
selection, choose "Estimate."
Give the job an estimate.
From the Customer list on the estimate screen, choose the appropriate job.
Even while you can generate individual estimates for each job, most
contractors find it simpler to create a single estimate for the entire project,
even if they don't intend to invoice for the whole thing at once. We'll
demonstrate how to slice and dice the estimate once we get to the billing
stage in order to invoice for segments of the job for progress billing.
Add goods and services to the estimate.
You can enter materials and labor expenses on each line of the estimate by
including the service date, the type of good or service, a description, the
quantity, the rate, and the dollar amount, which can be marked as taxable.
You can specify in the detail box for a certain good or service if outside
vendors are used for the job done or the materials procured.
Save the estimate once you've entered all the data. This will give you the
option to select it during the billing process. At this stage, you can email the
consumer for their consent if you need it.
Now, each customer will receive all relevant information about expenses and
future income. Additionally, you can see expenditures and income by task or
project. (In some versions of QuickBooks, "sub-customer category" is used in
place of projects.)
Step 4: Produce invoices while working
With QuickBooks, you can instantly turn an estimate into a single invoice or
progress bills or build invoices from scratch. You can save a ton of work later
on by making a parent estimate for each project in this situation.
Turn an estimate into an invoice
The "+ New" menu's "Invoice" option will open a brand-new, blank invoice.
the Project from the "Customer" drop-down box following that. When you
construct this invoice, QuickBooks will automatically ask you if you want to
include the estimate you previously created. Select "Add."
You can track earnings and costs for a specific job using this report in
snapshot mode. For instance, you may complete the project in a month by
repeating the procedure and carrying it out all the way to completion, when
the job's ultimate profit margin is produced.
Remember that the report will vary based on the accounting system that your
organization employs. When compared to accrual basis, cash basis simply
records income when it is received.
Also take aware that QuickBooks does not mention the customer or the job
on the report itself, even if you pick that job. Add the job name to each
report's Notes section if you're producing a dozen job costing reports on
individual projects.
FINANCIAL MANAGEMENT
CHAPTER ONE
RATIO ANALYSIS
Ratio Analysis Definition
You have a wall of figures in your financial statements that you must sort through. By applying ratio
analysis, the data can be more clearly understood. This approach, which makes use of ratios, can be
used to analyse standard financial documents like balance sheets, cash flow statements, and income
statements. Ratios can be used to monitor a variety of factors, including:
The sum of a company's debts and commitments that are due within a year is
known as current liabilities:
Short-term debt
Accounts payables
= $10,000 / $5,000
Ratio of Inventory Turnover = 2.
Twice in one fiscal year, the available stock was sold out. In other words, it
takes Binge Inc. six months to sell all of its stock. A business should not have
excessive amounts of cash on hand. In order to raise the inventory turnover
ratio, one must therefore take the essential steps.
#2 – Total Assets Turnover Ratio
The net sales in relation to total assets are calculated using the total assets
turnover ratio. In other words, it shows how well a company can make
money. It aids investors in comprehending how well businesses use their
assets to generate money.
Overall Assets Sales / Average Total Assets is the turnover ratio.
As an illustration, PQR Inc. ended its fiscal year with $8 billion in revenue.
The total assets were $1 billion at the beginning of the year and $2 billion at
the conclusion.
($1 billion + $2 billion) / 2 equals average total assets. $1.50 billion
Total Assets Turnover Ratio is calculated as below:
= $8,000,000,000 / $1,500,000,000
Ratio of Total Asset Turnover = 5.33
A greater total asset turnover ratio reflects the company's effective operation.
#3 - Turnover Ratio for Fixed Assets
The fixed assets turnover ratio assesses how effectively a company uses its
fixed assets. It demonstrates how the business generates revenue using fixed
assets. The fixed assets turnover ratio only considers the company's fixed
assets, as opposed to the total assets turnover ratio, which also considers all
assets. Therefore, overinvestment in any fixed assets, such as a plant or
equipment, to mention a few, is the cause of a declining fixed assets turnover
ratio.
Static Assets Sales / Average Fixed Assets is the turnover ratio.
For instance, Sync Inc.'s net sales for the fiscal year were $73,500. The net
fixed assets at the start of the year were $22,500. Furthermore, the fixed
assets cost $24,000 at the end of the fiscal year after depreciation and the
addition of new assets to the company.
($22,500 + $24,000) / 2 Average Fixed Assets
Fixed Assets on Average = $23,250.
One must calculate the fixed assets turnover ratio as below:
= $73,500 / $23,250
Turnover Ratio for Fixed Assets = 3.16
#4 - Turnover of Accounts Receivable
The accounts receivables turnover ratio demonstrates how effectively a
company extends credit to its clients and collects debts. When calculating the
accounts receivables turnover ratio, only credit sales—not cash sales—are
taken into account. A greater percentage shows that consumers are paying on
time, which supports the maintenance of cash flow and the payment of the
company's debts, staff salaries, etc. Since the debts are paid off rather than
written off, a greater accounts receivable turnover ratio is a positive indicator.
It demonstrates a sound company strategy.
Net Credit Sales / Average Accounts Receivables = Account Receivables
Turnover Ratio
An illustration is Roots Inc., a distributor of replacement parts for heavy
equipment. Major manufacturers serve as all of its clients, and credit is used
in every transaction. For the fiscal year that just concluded, Roots Inc. had a
net credit sale of $1 million and average receivables of $250,000 annually.
Following are the formulas for calculating the accounts receivable turnover
ratio: -
= $1,000,000 / $250,000
Account Receivables Turnover Ratio: 4
Roots Inc. can collect its typical receivables four times each year. In other
words, the average receivables recover on a quarterly basis.
Benefits of Activity Ratios
Activity ratios are useful for comparing companies in the same
industry.
Using the appropriate activity ratios, one can identify the problem. It
can make the necessary adjustments to the way the firm runs.
provides financial data in an easy-to-understand format, which
simplifies analysis and ultimately aids in decision-making.
Investors can rely on activity ratio information because it is precise
and based on data.
CHAPTER TWO
ECONOMIC VALUE-ADDED ANALYSIS
EVA is a statistic used to assess how well organizations are performing
financially. It is based on residual wealth, which is calculated by deducting a
company's cost of capital from its operational profit and then cash-basis tax-
adjusting the results. EVA is also frequently referred to as economic profit
because it tries to determine a company's true economic profit. This measure
was developed by Stern Value Management, which was first incorporated as
Stern Stewart & Co.
KEY LESSONS
EVA, commonly referred to as economic profit, tries to determine a
company's actual economic profit.
EVA is a metric used to assess the value a business creates from
capital invested in it.
EVA, on the other hand, is strongly reliant on invested capital and is
best suited for organizations with a lot of physical assets; enterprises
with intangible assets, such those in the technology industry, might not
be excellent choices.
Understanding Economic Value Added (EVA)
The incremental difference between a company's rate of return (RoR) and its
cost of capital is called EVA. It basically serves as a gauge for the value that
investments in a firm produce. An organization is not making money from
the capital invested in the firm if its EVA is negative. A positive EVA, on the
other hand, demonstrates that a business is making money off of the capital
put in it.
The formula for calculating EVA is:
EVA = NOPAT - (Invested Capital * WACC)
NOPAT = Net operating profit after taxes
Invested capital = Debt + capital leases + shareholders' equity
WACC = Weighted average cost of capital
Advantages and Disadvantages of EVA
EVA evaluates a firm's management based on the premise that a
company can only be profitable when it generates wealth and returns
for its shareholders, which necessitates performance above its cost of
capital.
EVA is a very helpful performance indicator. The inclusion of balance
sheet components in the computation reveals how and where a
corporation generated value. As a result, managers are compelled to
consider assets and costs while making managerial decisions.
However, the EVA calculation is most effective for stable or mature
organizations with a lot of assets because it strongly depends on the
quantity of capital spent. Businesses with intangible assets, such those
in the technology industry, might not make suitable candidates for an
EVA assessment.
Ways to create value added:
Ø Value addition encourages people to buy products and boosts a
business's bottom line. There are numerous ways for businesses to
gain a competitive edge and increase the perceived value of their
products, including:
Ø Including elements or extras that distinguish the product from
competing offerings
Ø Putting a popular brand name on an unknown or generic product
Ø Creating a new product in a novel or imaginative manner
Ø Providing perks like free warranties or technical help with the
purchase
Ø Using catchy language like "sound experience" rather than just
"wireless speakers"
Ø Attractive packaging and branding
Value-added types and their formulas
Depending on what a corporation is attempting to calculate, there are more
sophisticated methods of calculating value added that companies use. The
most typical value-added kinds and their accompanying formulas are shown
below:
Gross value added
The economic contributions of goods or services generated in a region,
industry, or sector are measured by the term "gross value added" (GVA). The
cost of the raw materials used in manufacturing is deducted from the GVA,
which places a monetary value on the quantity of goods or services produced
in that region. Taxes and subsidies have an effect on GDP's gross domestic
product (GVA), so they are taken into account as well.
The GVA formula is:
GVA = GDP + SP - TP
Where the variables are:
SP = Subsidies on products
TP = Taxes on products
Economic value added
The incremental difference between a company's cost of capital and rate of
return is used to calculate its economic value added (EVA), which is a
measure of its financial success. EVA is a tool used by experts to assess the
value a firm creates from the capital put in it. Since it determines a company's
actual economic profit, businesses frequently refer to it as economic profit.
Companies having a lot of assets and businesses with intangible assets do
better using this approach. A negative EVA indicates that the company is not
making money from its investments, whereas a positive EVA indicates that
the company is making money from its investments.
The formula for EVA is:
EVA = NOPAT − (CE ∗ WACC)
Where the variables are:
NOPAT = Net operating profit after taxes
CE = Capital employed or cash invested
WACC = Weighted average cost of capital
Market value added
The difference between the capital invested by all investors, including
shareholders and debt holders, and the company's market value is known as
market value added (MVA). MVA can demonstrate a business' capacity to
grow shareholder value over time.
A low MVA indicates that management's investments and activities have
decreased the value of investors' capital, while a high MVA demonstrates that
management has raised investors' capital with potent operational capabilities.
A negative MVA demonstrates management's reversal of the capital value of
investors. The market value of all debt, equity, and capital claims is
determined using the MVA formula.
The formula for MVA is:
MVA = V − K
Where the variables are:
V = the market value including equity and debt
K = total amount of capital invested
Cash value added
The amount of cash that a business can earn via its activities above and
beyond its cost of capital is measured as cash value added (CVA). Investors
can see a company's ability to generate cash flow and earn liquid profits by
looking at its CVA. The CVA formula is typically used by professionals who
have a specialized interest in and knowledge of CVA. CVA can be calculated
directly or indirectly.
This is the CVA direct formula:
CVA = Gross cash flow − economic depreciation − capital charge
Where the variables are:
Gross cash flow = adjusted profit + interest expense + depreciation
Economic depreciation = Weighted average cost of capital (WACC
Capital charge = cost of capital ∗ gross investment
The CVA indirect formula is:
CVA = (CFROI − cost of capital) ∗ gross investment
Where the variables are:
CFROI = cash flow return on investment as (gross cash flow − economic
depreciation) ÷ gross investment
Gross investment = net current assets + historical initial cost
How to calculate value added
Which formula you employ and the data you are working with will determine
the precise steps you take to calculate value added. However, all of the
algorithms use the same general methodology to determine value added.
1. Select the appropriate formula.
Think about the information you need to know, decide which formula will
give it to you, then collect information on the variables. For instance, you
would need to gather the total amount of capital invested and the market
value of your company, including stock and debt, in order to determine the
MVA for your business.
2. Adhere to the formula
Replace the data in the formula with the data you have using the formula you
choose. If MVA is calculated using the formula MVA = V K, for instance,
you would change V to your market value, which includes equity and debt,
and K to the entire amount of capital invested. Your equation would resemble
this: MVA = $12 million minus $8 million.
3. Determine the formula.
Do the mathematical operations specified in the formula after entering your
own values into it. When MVA is equal to $12 million minus $8 million, you
must deduct $12 million from $8 million to account for the $4 million
difference. Your MVA, or market value added, is $4 million as a result.
Example of value-added calculation
You can use the steps below to determine your company's economic value
added:
1. Compile information
Examine the EVA formula and compile the data for NOPAT, CE, and
WACC for your business. To figure out a total value for each of these things,
you might need to conduct some of your own math. In this illustration, your
company's NOPAT is $70,00, your CE is $30,000, and your WACC is
8.53%.
It goes like this:
EVA = NOPAT − (CE ∗ WACC)
Where:
NOPAT = Net operating profit after taxes
CE = Capital employed or cash invested
WACC = Weighted average cost of capital
2. Replacement
Now that you have all the data about your business to put in the calculation,
replace the values there with those of your business. For instance:
As opposed to EVA = NOPAT (CE WACC), EVA becomes EVA = $70,000
($30,000 8.53%).
3. Do the maths
Calculate the calculation to arrive at a total using the details of your business.
To begin, use the formula:
EVA = $70,000 − ($30,000 ∗ 8.53%
Add the values in parenthesis together:
EVA = $70,000 − ($2,559)
The remaining values are subtracted:
EVA = $67,441
An EVA with Debt
Here is a QuickBooks example of a modified EVA technique. Let's say that
you, the company owner, visit the bank and obtain a second $100,000 loan.
Now imagine that the company distributes this sum as a dividend to the
company's owner (you). You would receive this income statement and
balance sheet if the transaction had taken place at the beginning of the year.
A Simple Income Statement:
Ø Sales revenue =$150,000
Ø Less: Cost of goods sold=30,000
Ø Gross margin=$120,000
Operating expenses
Ø Rent=5,000
Ø Wages =50,000
Ø Supplies=5,000
Ø Total operating expenses=60,000
Ø Operating income=60,000
Ø Interest expense=(20,000)
Ø Net income=$40,000This table reflects the additional loan.
A Simple Balance Sheet
Cash=$25,000
Inventory=25,000
Current assets=$50,000
Fixed assets (net)=270,000
Total assets=$320,000
Liabilities
Accounts payable=$20,000
Loan payable=200,000
Owner’s equity
S. Nelson, capital=100,000
Total liabilities and owner’s equity=$320,000
That is to say, the only differences between the business's description in
Tables 2-1 and 2-2 and its description in these two tables are that the firm has
$100,000 more in debt and $100,000 less in owner's equity, and the
additional $100,000 in debt results in an additional $10,000 in interest costs
annually. That sounds fairly simple, don't you think?
The capital charge for this newer, more heavily indebted corporation is
estimated in the table below. Examine the capital charge's components once
more. There is no capital charge for the trade vendors' contribution to the
company's capital structure, which amounts to $20,000 in trade credit in the
form of accounts payable.
The bank loan fee has significantly increased in the new, more heavily
leveraged corporation. The company is now bearing a $200,000 loan. The
capital fee on the loan increases to $20,000 each year at 10% interest.
Estimating the New Capital Charge:
Trade vendors ($20,000 @ 0 percent)=$0
Bank loan ($200,000 @ 10 percent) =20,000
Owner’s equity ($100,000 @ 20 percent) =20,000
Adjusted capital charge =$40,000
The equity capital charge for the ultimate owner also alters: It decreases. The
20% capital fee drops to $20,000 per year when owner's equity is reduced to
just $100,000.
A $40k adjusted capital charge is the result of adding up all the small items.
Please keep in mind that this capital charge represents the cost of the new,
highly leveraged enterprise.
The EVA alters for this new, more heavily indebted business. The business's
adjusted income, which is determined by adding the $20,000 in interest
expenses to the $40,000 in net income, is $60,000. By deducting the $40,000
capital expense from the $60,000 in adjusted income, you can determine the
EVA. EVA totals $20,000 as a consequence.
Naturally, as the business's level of leverage increases, the EVA doubles.
The more difficult EVA formula can be helpful, as seen by this example. The
example recognizes more clearly how EVA happens when a company
generates profits above capital expenses.
CHAPTER THREE
NUTSHELL GUIDE TO CAPITAL
BUDGETING
Every business faces challenges when allocating capital or funds. You frequently have an endless
supply of ideas and opportunities despite your limited resources.
To put it briefly, capital budgeting enables you to sort through all of these options. Utilizing capital
budgeting, you can respond to inquiries like the following: Should I invest in a brand-new delivery
vehicle or upgrade that crucial piece of machinery that the factory depends on? Should we invest in the
structure where our offices are situated? Or should we purchase the rival company's assets simply
because they are for sale?
1.Idea Generation
The creation of sound investment ideas is the process's most crucial phase in
capital budgeting. These investment suggestions may originate from senior
management, any division or functional area, staff members, or sources
outside the organization.
2.Analyzing Individual Proposals
Because the choice to accept or reject a capital investment is dependent on
such an investment's predicted cash flows, a management must gather
information to forecast cash flows for each project in order to establish its
expected profitability.
3.Planning Capital Budget
Following the timing of a project's cash flows, the availability of corporate
resources, and a company's overall strategies, an entity must give priority to
profitable ventures. Individually promising projects might not be beneficial
strategically. Scheduling and prioritizing projects is crucial due to challenges
with finances and other resources.
4.Monitoring and Conducting a Post Audit
All capital budgeting choices need to be followed up on or tracked by a
manager. Managers should make a comparison between actual and projected
results and give explanations for any discrepancies. A thorough post-audit is
therefore necessary to identify systematic forecasting inaccuracies and should
improve business operations.
BUSINESS PLANS
CHAPTER ONE
ASSESSMENT OF PROFIT-VOLUME-COST
The three pieces of data needed to conduct profit-volume-cost analysis are sales revenue, gross margin
percentage, and fixed expenses, as was previously stated. Finding these pieces of information is
typically not difficult if you've been using QuickBooks. The line items that appear in a QuickBooks
revenue statement do not, however, completely match the information provided.
1.Sales revenue
You wish to test different sales revenue levels, thus utilize the formula's sales
revenue levels as a starting point. They most likely reflect potential or even
likely levels of sales revenue for your company. As a result, QuickBooks is
not where the sales revenue numbers actually originate. You might wish to
look at previous income statements to figure out what levels of sales revenue
are reasonable or likely. The formula's inputs don't actually come from a
QuickBooks income statement; they are most likely merely educated guesses.
2. Gross margin percentage
As previously explained, the gross margin % is computed by deducting your
variable costs from your sales revenue, dividing the result (which is the gross
margin), and multiplying the result by the sales revenue. The costs of the
goods you sell, such as inventory, commissions, shipping, and comparable
expenses, are included in the variable costs.
1.Here are a few examples to review because figuring out the gross
margin percentage can be a little perplexing the first few times you do it:
For example, if you sell $100,000 boats and your material, labor, and
commission costs come to $40,000 per boat, you can use the calculation
($100,000 - $40,000) $100,000 to determine your gross margin %.
The result of the equation is 0.6, or 60%, which is the gross margin
percentage of the boat-building industry.
2.Tax return service: Assume that you run a personal service company
where you make a career by preparing tax returns. Assume further that the
only variable cost is the $40 fee you must pay to the tax software provider for
the return, which you charge $200 for each small-business tax return. In this
instance, you use the formula to determine the gross margin percentage.
($200 – $40) ÷ $200
The result of this formula is 0.8, or 80%. The gross profit percentage in this
instance for your tax return preparation company is 80%.
The main idea is that variable expenses fluctuate according on sales income.
If there is a sale, the costs are varied. Variable costs are not incurred if no
sales are made.
What does this mean, then? The cost of goods sold (COGS) figure that
appears on your QuickBooks income statement is usually equal to the
variable costs. If you run a firm where you resell merchandise, this COGS
number likely includes the inventory products you sell in addition to other
costs like freight and sales fees.
As a result, you can get the majority or all of the variable cost data directly
from the QuickBooks income statement.
Note: The COGS number listed in the QuickBooks revenue statement might
need some adjustment. The costs you've included in the COGS portion of
your income statement may not all be variable costs, so keep in mind that
variable costs are those that change with sales. In reality, some of the
expenses shown in the section of your income statement devoted to ordinary
operating expenses are changeable.
As a result, you might wish to consider the expenses listed in your income
statement's COGS and operational expenses sections. Make some tweaks if
you find that the COGS value isn't a reliable indicator of variable costs.
Naturally, a fixed cost that is part of the COGS number needs to be deducted.
The COGS figure may also need to include a variable cost that is included
with the other operating expenses.
3.Fixed costs
All of your other nonvariable costs are included in fixed costs. Simply put,
fixed costs are considered fixed because they are unaffected by sales volume.
Paying rent on a building or factory, paying permanent employees' salary,
incurring overhead charges for insurance, and other similar expenses are
examples of fixed costs.
Returning to the examples of the boat building firm and the tax return
preparation service, we can see how fixed costs operate and are calculated:
1.The company's overhead in the boat-building industry is more than
$160,000. This sum may comprise $80,000 for the business where you
construct your boats and $80,000 for the salaries of two artisans whom you
retain the services of whether or not you are building boats. In this instance,
your $160,000 in fixed costs consists of these overhead expenses. These fixed
costs are not affected by variations in sales volume.
2.Your only fixed costs for the tax return service are $700 per month for rent
on a tiny office and $100 per month for Yellow Pages marketing. So in this
scenario, your fixed costs come to $800 per month. Again, variations in sales
volume have no effect on these fixed expenditures.
What Is the Break-Even Point (BEP)?
By comparing an asset's market price to its initial cost, the break-even point
(break-even price) for a transaction or investment can be identified. The
break-even point is attained when the two prices are equal.
In corporate accounting, the break-even point formula is calculated by
dividing the entire fixed costs related to manufacturing by the revenue per
unit less the variable costs per unit. In this context, fixed costs are defined as
expenses that are constant regardless of the quantity of units sold. The
production level at which total revenues for a product equal total expense is
known as the break-even point.
POINTS TO NOTE
The break-even point in accounting is determined by dividing the
fixed production costs by the price per unit less the variable
production costs.
The production level at which a product's revenues and manufacturing
expenses balance one another is known as the break-even point.
When an asset's market price equals its original cost, it is considered
to have reached the break-even point in investing.
How to calculate your break-even point
You may figure out your company's break-even point using a few
straightforward formulae. The first is based on the quantity of product sold,
while the second is based on points in sales dollars. How to calculate the
break-even point is as follows:
A break-even point based on units can be calculated as follows: Subtract the
unit's variable cost from the revenue to arrive at the fixed cost. Whatever the
number of units sold, the fixed costs remain constant. The sales price less the
variable costs, such as labor and materials, is your revenue.
Broken-Even Point (Units) = Fixed Costs Units of (Revenue per Unit -
Variable Cost per Unit)
When calculating a break-even threshold using sales dollars: Subtract the
contribution margin from the fixed costs. The contribution margin is
calculated by deducting the variable costs from the product's price. The fixed
costs are then covered with this sum.
Break-Even Point (in sales dollars) = Fixed Costs – Contribution Margin
Contribution Margin is equal to the product's price minus variable costs.
Let's take a closer look at the formula's component parts to better understand
what it all implies.
1. Fixed costs: As previously said, fixed expenses, such as rent for
storefronts or production facilities, computers, and software, are unaffected
by the volume of goods sold. Additionally, fees paid for services like graphic
design, advertising, and public relations are included in fixed costs.
2.Contribution margin: To determine the contribution margin, deduct the
variable costs associated with an item from the selling price. Therefore, the
contribution margin is $60 if you sell a product for $100 and your cost of
materials and labor is $40. If any money remains after paying the fixed costs
out of this $60, it is your net profit.
3. Contribution margin ratio: You can compute this number, which is
typically stated as a percentage, by deducting your fixed expenses from your
contribution margin. Then you may work out what has to be done to break
even, such as reducing production costs or raising prices.
4.You reach break-even when your revenues are equal to your fixed and
variable costs. At this moment, your business will declare a net profit or loss
of zero. Any sales made after that go toward your net profit.
Break-even analysis examples
Break-even analyses are helpful for more than simply startup planning. Here
are several applications for firms to consider in their everyday operations and
planning.
Prices: You may wish to increase the item's cost if your analysis reveals that
your present pricing is too low to allow you to break even within the
timeframe you've set. However, be cautious to research comparable product
prices to avoid pricing yourself out of the market.
Materials: Are labor and material costs unsustainable? Look at ways to
reduce costs while maintaining the desired level of quality.
New products: Before you introduce a new product, consider the fixed
expenses, such as design and promotion fees, as well as the new variable
costs.
Planning: Setting longer-term goals is simpler when you are aware of the
precise amount you must earn. You can calculate how much more you need
to sell in order to meet increased fixed expenditures, for instance, if you wish
to grow your company and relocate to a larger premises with a higher rent.
Goals: Knowing the quantity of units you must sell or the amount of revenue
required to break even can be a great motivator for you and your team.
RECOGNIZING THE DOWNSIDE OF THE PROFIT-VOLUME-
COST MODEL
Cost-volume-profit analysis has a straightforward premise. It is calculated by
dividing the ratio of revenue to total cost by the ratio of units sold to total
cost.
The unit of profit is the resulting fraction, given as a percentage. It is either
the profit-to-revenue or the profit-to-cost ratio.
According to this definition, "cost" includes both direct and indirect expenses
that are incurred in order to earn income. All payments for which there are
corresponding assets are included in revenue. No matter how much money
was given to the seller, the number of sold units represents the total number
of units manufactured and sold.
According to this definition, the whole cost includes the sum of all expenses
incurred during the unit's production, processing, delivery, and sale. These
consist of both direct and indirect costs.
Cost-volume-profit analysis (CVPA) and cost-volume-profit planning are
occasionally used interchangeably in business. The process of determining
the quantity of units necessary to satisfy demand and then determining those
production expenses (such as labor and raw materials) that can be decreased.
This is frequently used to find places where cost reduction opportunities
exist. The CVPA procedure compares the value of the sales generated with
the cost of sales after determining the number of units needed to satisfy
demand. Planning for profits is done with it.
The Benefits of Cost-Volume-Profit (CVP) Analysis
The following are CVPA's primary benefits:
Decision-making is aided by CVP analysis, which is its principal
benefit. It assists businesses in deciding whether to produce a product
in-house or purchase it from a third party, how many units of their
product should be produced, and how to manage limited resources to
maximize profit.
All sizes of organizations, even those that are very small, can use this
strategy.
It enables managers to manage expenses in order to generate a desired
level of profit.
It enables managers to choose the best-selling price to establish in
order to generate the desired level of profit.
A break-even analysis, for instance, might assist you in figuring out how
many cellphone cases you need to sell to cover your storage expenses or how
many service hours you'll need to charge to cover the cost of your office
space. Anything you sell after reaching break-even will increase your profit.
You should be aware of your fixed and variable costs in order to completely
comprehend break-even analysis for your company.
Fixed costs are expenses that don't change regardless of how much you sell.
Costs that change according to the volume of production or sales are known
as variable costs.
A break-even analysis's advantages
A large number of small and medium-sized enterprises never do any
significant financial analysis. They are unsure of the quantity of units they
will need to sell in order to realize a profit.
TIP: A business can determine the minimum sales volume necessary to avoid
losses by using break-even analysis.
A break-even point analysis is an effective tool for planning and decision-
making that can be used to emphasize important data such as costs, sales
volumes, prices, and much more.
1.Smarter pricing
You'll be able to properly price your products by determining your break-
even point. Effective pricing involves a lot of psychology, but it's also critical
to understand how it will impact your gross profit margins. You must confirm
that you can afford to pay your payments.
2.Include fixed costs
The majority of people focus on variable cost, or how much it costs to
produce a thing, when considering pricing. But you must also pay your set
expenses, such as insurance premiums or web development fees, in addition
to your variable expenses. You can accomplish that by conducting a break-
even analysis.
3.Recognize lost expenses
When you're working through a small business idea, it's simple to overlook
expenses. To determine your break-even point while performing a break-even
analysis, you must list all of your financial commitments. This will reduce
the number of unexpected events in the future.
4.Set goals for sales revenue.
You will know exactly how many sales you need to earn to break even after
performing a break-even study. You can use this to help you and your team
come up with more specific sales targets. It will be much simpler to follow
through if you have a certain number in mind.
5.Make better choices.
Entrepreneurs frequently rely on emotion to guide their business decisions.
They pursue new endeavors if they are confident about them. Although it's
crucial, how you're feeling is insufficient. Facts are the basis on which
successful businesspeople make decisions. When you put in the effort and
have useful information in front of you, making judgments will be much
simpler.
6.Reduce financial strain
By indicating when to reject a company plan, a break-even analysis can help
you reduce risk. It will assist you in avoiding failures and reducing the
financial impact that poor choices may have on your company. Instead, you
can consider the possible results realistically.
7.Finance your enterprise
Any business plan should include a break-even analysis. If you want to
recruit investors or borrow money to fund your firm, it's typically a
prerequisite. You need to demonstrate the viability of your proposal.
Furthermore, if the study comes out well, you will feel more at ease taking on
the responsibility of funding.
The highlighted cell in the sample above has references, as you can see. I
increased the annual total by adding the sums from the spreadsheets for May,
June, and July. Excel will display the exact reference in the fx bar (where the
red arrow points). There are two techniques you can employ. Either put the
formula directly into the required cell, or use a few clicks to instruct Excel to
generate the reference for you. This Excel tutorial will demonstrate how to
manually create references:
Manually Referencing Formulas
You must understand how Excel interprets these commands in order to
manually enter the formula for the cells you wish to use as references. You
must first navigate to the cell you wish to reference in order for us to explain
it to you in the exact order that you will enter it into Excel.
An equals sign (=) will always appear as the first letter of a sentence.
Whatever information you add after here will be told by Excel to total it.
You must wrap the name of your worksheet in single quotation marks if it
has two or more words with spaces between them, like ='WORKSHEET
NAME.
You must type an exclamation mark after adding your equal sign and
worksheet name. Therefore, the equation will now be =WORKSHEET!
Cell Address
You have told Excel to equal the spreadsheet up to this point. This is not
sufficient; you must additionally type the name of the cell that contains the
information. The column letter at the top of your spreadsheet is used to name
cells first, followed by the row number on the left. Your formula now has to
be =WORKSHEET! CELL
Hit Enter.
You now have a single formula for reference. When you hit Enter on your
keyboard, Excel will locate the data and bring it into your spreadsheet. Using
AutoSum, you can combine many single reference formulas. You can write
numerous reference formulas in a single cell for a clean worksheet, and Excel
will use them to calculate the value.
FORECASTING INPUTS
What is a forecast?
By taking into account both past and present occurrences, forecasting is the
process of predicting what will happen in the future. In essence, it is a
decision-making tool that, by looking at historical data and trends, aids firms
in adjusting to the effects of future uncertainty. It is a method for planning
that enables organizations to map out their upcoming actions and develop
budgets that, ideally, will cover any potential risks.
Forecasting Techniques
When attempting to forecast what might occur in the future, businesses might
choose between qualitative and quantitative methodologies.
1. Qualitative approach
Qualitative forecasting, also referred to as the judging technique, provides
subjective outcomes because it relies on the expert or forecaster's own
judgements. Forecasts are frequently skewed because they are non-
mathematical processes that rely more on the knowledge, experience, and
intuition of the expert than on evidence.
One instance is when someone predicts the result of an NBA finals game,
which is obviously based more on personal interest and motivation. Such a
method's flaw is that it might not be accurate.
2.Quantitative approach
Being a mathematical process, the quantitative method of predicting is
consistent and unbiased. Instead of relying on subjective judgment and gut
instinct, it makes extensive use of analyzed data and numbers.
Forecasting characteristics
Here are some characteristics of forecasting:
1. relates to upcoming events
Forecasts are crucial for planning since they aim to forecast the future.
2. Considering recent and historical events
Forecasts are based on facts, figures, and other pertinent data in addition to
views, intuition, and educated guesses. Every aspect that goes into making a
projection, to some extent, reflects what has happened in the business in the
past and what is anticipated to happen in the future.
3. makes use of forecasting methods
The quantitative approach is used by the majority of firms, especially when
planning and budgeting.
BALANCE SHEET
A Balance Sheet is what?
A financial statement that lists a company's assets, liabilities, and shareholder
equity at a certain point in time is referred to as a balance sheet. The
foundation for calculating investor return rates and assessing the capital
structure of a company is provided by balance sheets.
The balance sheet is a financial statement that gives a quick overview of the
assets and liabilities of a firm as well as the amount of shareholder
investment. When doing basic analysis or calculating financial ratios, balance
sheets can be utilized in conjunction with other crucial financial data.
KEY LESSONS
An organization's assets, liabilities, and shareholder equity are listed
on a balance sheet, which is a financial statement.
One of the three primary financial statements used to assess a
company is the balance sheet.
It offers a snapshot of the assets and liabilities of a corporation as of
the publication date.
The assets on the balance sheet are equal to the total of the liabilities
plus the shareholders' equity.
Financial ratios are computed using balance sheets by fundamental
analysts.
Balance Sheet Function
A summary of a company's financial situation at a specific point in time is
provided by the balance sheet. It cannot, by itself, convey an understanding
of the trends developing over a longer time frame. This calls for a
comparison of the balance sheet to those from earlier periods.
The debt-to-equity ratio, the acid-test ratio, and many other ratios that can be
generated from a balance sheet can be used by investors to gauge a
company's financial health. Additionally helpful context for evaluating a
company's financial health can be found in the income statement, statement
of cash flows, and any comments or addenda in an earnings report that may
make a reference to the balance sheet.
The balance sheet follows the accounting formula below, where assets are on
one side and liabilities + shareholder equity are on the other:
Assets=Liabilities+Shareholders’ Equity
This formula makes sense. This is so that a business may pay for all it
possesses (assets) by either borrowing money from other people (taking on
liabilities) or raising money from investors (issuing shareholder equity).
If a business borrows $4,000 over five years from a bank, its assets
(particularly, the cash account) will rise by $4,000 as a result. In order to
balance the two sides of the equation, its liabilities (more particularly, the
long-term debt account) will rise by $4,000 as well. The company's assets
and shareholder equity will both rise by $8,000 if it raises $8,000 from
investors. Any profits the business makes that are more than its costs will be
deposited in the shareholder equity account.
The assets side of the ledger will reflect a balance of these revenues in the
form of cash, investments, inventories, or other assets.
NOTE: Since different industries employ various methods of financing,
balance sheets from companies in the same industry should also be
compared.
Importance of a Balance Sheet
Regardless of a company's size or the sector in which it competes, a balance
sheet has various advantages, including
Using balance sheets, assess risk. This financial statement covers all assets
and liabilities for a corporation. A business will be able to determine in a
timely manner whether it has taken on too much debt, whether the liquidity
of its assets is inadequate, or whether it has enough cash on hand to cover
immediate needs.
Balance sheets can also be used to raise money. For a company to be
approved for a business loan, a lender often need a balance sheet. A balance
sheet is typically required when a business seeks private equity investment
from investors. In both situations, the outside party seeks to determine a
company's financial stability, creditworthiness, and ability to pay off short-
term loans.
Financial ratios are a tool that managers can use to assess a company's
liquidity, profitability, solvency, and cadence (turnover). Some financial
ratios call for data from the balance sheet. Managers can better understand
how to improve a company's financial health when data is evaluated over
time or compared to similar organizations.
Finally, balance sheets can help recruit and keep talent. Employees typically
prefer to know that their jobs are secure and that their employer is doing well.
Employees have the opportunity to review how much cash the company has
on hand, whether the company is managing debt wisely, and whether they
believe the company's financial health is in line with what they expect from
their employer thanks to the requirement that public companies that must
disclose their balance sheet.
Limitations of a Balance Sheet
There are several limitations to the balance sheet, despite the fact that it is a
crucial piece of information for analysts and investors. Since the balance
sheet is static, many financial ratios rely on information from the more
dynamic income statement and statement of cash flows as well to provide a
more complete picture of the status of a company's operations. Because of
this, a balance may not accurately depict a company's financial situation.
A balance sheet has limitations because of its constrained timing. The
financial position of a corporation is only depicted in the financial statement
as of one particular day. It could be tough to determine whether a company is
functioning effectively from just one balance sheet. Consider a scenario in
which a business reports having $1,000,000 in cash on hand at the end of the
month. Knowing how much cash a company has on hand has minimal
relevance without context, a reference point, knowledge of its historical cash
balance, and comprehension of industry operating requirements.
The numbers reported on a balance sheet will also vary depending on the
accounting software used and how depreciation and inventories are handled.
Managers can therefore manipulate the figures to make them appear more
favorable. Pay close attention to the footnotes to the balance sheet to
ascertain the systems being used in their accounting and to spot any warning
signs.
Last but not least, a balance sheet is vulnerable to a variety of expert
judgment calls that could significantly affect the report. For instance,
receivables need to be continuously checked for impairment and amended to
account for any uncollectible debt. Unable to predict which receivables it will
really receive, a corporation must estimate and include its best guess on the
balance sheet.
Example of a Balance Sheet
An example of Apple, Inc.'s comparative balance sheet is shown in the image
below. This balance sheet contrasts the company's financial standing as of
September 2020 with that of the same month a year earlier.
In this illustration, Apple's $323.8 billion in total assets are shown separately
toward the top of the report. Each of the two categories in this asset section—
current assets and non-current assets—is further subdivided into a variety of
accounts. A quick examination of Apple's assets reveals that while their non-
current assets rose, their cash on hand shrank.
Liabilities and equity for Apple are also reported in this balance sheet, with
each item receiving its own section in the lower half of the document. Similar
to the assets part, the liabilities section is divided into current liabilities and
non-current obligations, with each category showing balances per account.
The common stock valuation, retained earnings, and accumulated other
comprehensive income are all disclosed in the section on total shareholder
equity. Apple's total liabilities increased, its total equity declined, and when
the two are added together, the total assets of the business are equal.
INCOME STATEMENT
What is the Income Statement?
One of a company's fundamental financial statements, the income statement
displays its profit and loss over a specific time period. After deducting all
costs associated with both operating and non-operating operations from all
revenues, the profit or loss is calculated.
One of the three statements used in corporate finance, including financial
modeling, and accounting is the income statement. The statement logically
and coherently presents the company's revenue, costs, gross profit, selling
and administrative expenses, other expenses and income, taxes paid, and net
profit.
The statement is split up into time segments that sequentially relate to how
the business operates. Although some businesses might employ a thirteen-
period cycle, the most typical periodic division is monthly (for internal
reporting). Total values for the quarterly and annual performance are derived
from these periodic statements.
This statement requires the least amount of data from the balance sheet and
cash flow statement, making it an excellent place to start a financial model.
The revenue statement is therefore the first core statement in terms of
information before the other two.
This CFS shows that the 2017 fiscal year's net cash flow was $1,522,000.
Investors should be encouraged by the fact that cash generated from
operations accounts for the majority of the positive cash flow. It indicates that
core operations are bringing in revenue and that there is sufficient cash on
hand to purchase fresh merchandise.
The company's ability to invest in itself is evidenced by the purchase of new
machinery. Finally, the company has plenty of cash on hand to repay the
future loan expense, which should assuage investors' concerns about the notes
payable.
FINANCIAL RATIOS
Financial Ratios: What Are They?
Financial ratios are calculated using numbers collected from financial records
in order to gather insightful data about a company. Quantitative analysis is
used to determine a company's liquidity, leverage, growth, margins,
profitability, rates of return, valuation, and other metrics from its balance
sheet, income statement, and cash flow statement.
Profitability Ratios
Profitability ratios gauge a company's capacity to make money in relation to
sales, assets on the balance sheet, operational expenses, and equity. the
following are typical profitability financial ratios:
To determine how much profit a firm gets after paying its cost of goods sold,
the gross margin ratio compares the gross profit of a company to its net sales:
Gross profit divided by net sales is the gross margin ratio.
To assess operating effectiveness, the operating margin ratio compares a
company's operating income to its net sales:
Operating income divided by net sales is the operating margin ratio.
The return on assets ratio gauges how effectively a business uses its resources
to make money:
Net income divided by total assets is the return on assets. The return on
equity ratio assesses how effectively a business turns equity into profits:
Net income divided by shareholder equity is the return on equity ratio.
Ratios of Market Value
The share price of a company's stock is assessed using market value ratios.
The following are examples of common market value ratios:
Based on the equity that shareholders have access to, a company's book value
per share ratio determines its per-share worth:
Book value per share is calculated as (Shareholder's equity minus Preferred
equity) / the number of outstanding Common Shares.
In relation to the market price per share, the dividend yield ratio calculates
the amount of dividends paid to shareholders
Dividend yield ratio = Dividend per share / Share Price
The net income earned for each outstanding share is expressed as an earnings
per share ratio.
Earnings per share is calculated as Net Income divided by Outstanding
Shares.
The price-earnings ratio contrasts the share price of a firm with its earnings
per share:
Share price divided by earnings per share equals the price-earnings ratio.
CALCULATING TAXES FOR A CURRENT NET LOSS
BEFORE TAXES
What Exactly Is Net Income (NI)?
Sales less cost of goods sold, selling, general and administrative costs,
operating costs, depreciation, interest, taxes, and other expenses are used to
compute net income (NI), also known as net earnings. For investors to gauge
how much a company's revenue outpaces its costs, this figure is helpful. This
figure, which is a measure of a company's profitability, can be seen on the
income statement of a business.
KEY LESSONS
v Revenues less costs, taxes, and interest equal net income (NI).
v NI is used to compute earnings per share.
v Because costs can be concealed via accounting techniques or
revenues can be artificially overstated, investors should carefully
examine the data used to calculate NI.
v In addition, after deducting taxes and deductions from gross income,
NI is a person's total income or pre-tax income.
v A person's income after taxes and deductions is referred to as their
net income.
NI Calculation for Business
Start by determining the overall revenue of the company before calculating
its net income. The business's earnings before taxes are determined by
deducting operational and spending costs from this amount. To calculate the
NI, subtract tax from this sum.
NI, like other accounting measurements, can be tricked by aggressive
revenue recognition or by concealing expenses, for example. Investors should
check the accuracy of the statistics used to calculate the taxable income and
NI before making an investment decision based on them.
NI vs. Personal Gross Income
Gross income is a person's total income or pre-tax income, and NI is the
difference after deducting taxes and deductions from gross income.
Taxpayers deduct expenses from their gross income to arrive at their taxable
income, which is the amount utilized by the Internal Revenue Service to
calculate income tax. An individual's NI is the difference between taxable
income and income tax.
For instance, if a person's gross income is $60,000, they are eligible for
$10,000 in deductions. With a taxable income of $50,000 and an effective tax
rate of 13.88%, that person would owe $6,939.50 in income tax and
$43,060.50 in NI.
Tax Returns and NI
Individual taxpayers in the US file a Form 1040 with the IRS to record their
yearly income. There isn't a line for net income on this form. Instead, it
provides spaces for taxable income, adjusted gross income (AGI), and gross
income to be entered.
Taxpayers deduct some income sources like Social Security benefits and
permissible deductions like student loan interest after calculating their gross
income. Their AGI makes a difference. Although they are occasionally used
synonymously, net income and AGI are two distinct concepts. The taxpayer
next calculates their taxable income by deducting standard or itemized
deductions from their AGI. The individual's NI, as previously indicated,
represents the difference between taxable income and income tax;
nevertheless, this figure is not shown on individual tax forms.
CHAPTER THREE
WRITING A BUSINESS PLAN
What is a business plan?
An extensive written document that outlines a company's goals and objectives is called a business plan.
A business plan explains a strategy that has been put in writing for the operations, financing, and
marketing of the organization. Both new and established businesses employ business plans.
A business plan is an important document that should be read by both internal and external audiences.
For instance, a business plan is used to attract funding before a company has established a proven track
record. Getting money from financial institutions could be advantageous as well.
The executive team of a company might benefit from a business plan by staying aligned on important
action items and on schedule to meet goals. Every company requires a business plan, but smaller
startups especially could gain a lot from having one. Idealistically, the plan should be evaluated and
updated frequently to account for objectives that have changed or been reached. An established
business that has made the decision to change its direction occasionally needs a new business plan.
POINTS TO NOTE
v A business plan is a written document that outlines the main
operations of a company and how it intends to accomplish its
objectives.
v Startup businesses employ business plans to gain traction and draw
in outside investors.
v A business plan can also be used internally to direct an executive
team in focusing on and achieving short- and long-term goals.
v Lean startup business plans are often shorter than traditional business
plans, which are typically longer.
v A good business plan should have an executive summary as well as
sections on the company's goods and services, marketing strategy and
analysis, financial planning, and a budget.
COST STRATEGIES
Cost strategy is based on simplicity. Cost leadership aims to reduce costs as
much as possible in order to offer customers lower pricing and so increase
their savings. High technical aptitude and money availability are typically
required for a corporation to invest in technology and ensure economies of
scale.
Most of the time, first-movers' cost-cutting strategies result in a considerable
rise in market share and capacity utilization, which further reduces costs.
A corporation must accomplish the following before developing a cost-
cutting strategy:
Extremely productive
High-capacity usage
Utilizing leverage to obtain the most affordable pricing for production
components
Methods of lean production (e.g., JIT)
Efficient production methods
Efficient distribution methods
Leading cost leadership brands have achieved significant success by
establishing cutting-edge business models that are based only on the lowest
pricing for a certain perceived value.
A NEW- VENTURE PLAN
The goal of business planning is to create a logical sequence of actions that
will assist your company in growing or a blueprint for creating a venture that
has the highest chance of being successful in a cutthroat industry. These
actions will cost money, and they will generate revenue, according to
estimates. To assess the company's progress toward its goals and to rectify
revenue shortfalls through a change in strategies and tactics, these forecast
statistics are periodically compared to actual results.
The Role List tab of the Users and Roles dialog box
6. Examine your user permissions (optional).
After creating a user, you should carefully go over the rights you granted the
user. To do this, select the user by clicking on the User List tab of the Users
and Roles dialog box, and then click the View Permissions button. Select the
user and then click the Display button to open the View Permissions window,
which shows a very thorough description of everything the user can and
cannot do, when QuickBooks displays the View Permissions dialog box (not
shown).
View Permissions window
7. Examine your role modifications (optional).
You should most likely review any modifications you make to a role's
permissions. To do that, pick the role in the Users and Roles dialog box by
clicking the Role List tab, and then click the View Permissions button. The
roles that you and QuickBooks have established are listed in a different
version of the View Permissions box that QuickBooks displays. Click the
View Permissions option after choosing the role you wish to look at. A
different version of the View Permissions box with a thorough list of
everything a role holder may and cannot do is displayed by QuickBooks.
8. When you have finished checking user and role permissions, click Close to
close any active windows and then click Cancel or Close to close any active
dialog boxes.
The new user may now begin using QuickBooks with the rights that you have
provided for him or her.
TIP: Depending on your employee turnover and bookkeeping procedures, it
can be crucial to audit the permissions every few months or years. It goes
without saying that former employees or bookkeepers shouldn't have access
to your file anymore. They definitely shouldn't even have roles, to be honest!
You can view this data online in QuickBooks' View Permissions window,
and all you have to do to print a copy of the permissions data is click the
window's Print button.
Adding users in QuickBooks Pro and Premier
In QuickBooks Pro and QuickBooks Premier, take the following actions to
add more users:
1. Select Company, then click Set Up Users and Passwords.
The Users and Roles List dialog box, which lists any users for whom
QuickBooks access has been configured and who are presently logged in to
the system, is displayed by QuickBooks.
2. By clicking the Add User option, you can inform QuickBooks that you
wish to add a user.
The first Set Up User Password and Access dialog box is shown by
QuickBooks (not shown).
3. Provide a password and the user's identification.
Create a username for each user for whom you're creating a password by
typing a brief name in the User Name field, such as the user's first name. The
user's password is entered after the user has been verified in both the
Password and Confirm Password text boxes.
4. Select if you want to restrict access for the new user by clicking Next
and then Next again.
If you want to restrict a user's access and rights, choose that option when
QuickBooks displays the second Set Up User Password and Access dialog
box (not shown). Selected Areas of QuickBooks should be selected if you do
wish to restrict access and rights (rights are essentially what a person is
allowed to do). Select the All Areas of QuickBooks radio button if you want
the user to have full control over everything. You can skip the subsequent
stages after setting up the user password if you specify that the new user
should have access to every part of QuickBooks.
5. To continue, click Next, and then describe how to obtain information
and perform tasks related to sales and accounts receivable.
The third Set Up User Password and Access dialog box (not shown) that
QuickBooks shows is the first in a series of dialog boxes that guides you
through an interview by asking specific questions about the level of access
that each user should have to a specific location. QuickBooks inquiries about
access to transactions, for instance, in relation to sales activities (such as
invoices, credit memos, and accounts receivable information). By selecting
the No Access radio button, you can say that the user shouldn't have any
access. Selecting the Full Access radio button will indicate that the user
should have unrestricted access. Selecting the radio button for "Selective
Access" and then choosing one of the sub-buttons for "Create Transactions
Only," "Create and Print Transactions," or "Create Transactions and Create
Reports" will grant the user only limited access.
6. After describing the purchases and accounts payable privileges, click
Next.
To control this new user's access to the purchases and payables sections,
QuickBooks shows the fourth Set Up User Password and Access dialog box
(not shown). The No Access radio button can be chosen. The Full Access
radio button can be chosen. Alternately, you can choose a compromise by
clicking the Selective Access radio button and a supplementary button. The
sales and accounts receivable section is subject to the same rights-setting and
access-control procedures as the purchases and accounts payable area.
7. After describing the remaining user permissions and access, click
Next.
QuickBooks shows a number of different dialog boxes that it uses to inquire
about your user rights and access when you click the Next button at the
bottom of each iteration of the Set-Up User Password and Access dialog box.
QuickBooks will inquire about the checking and credit card area after you
have specified the user's rights for, say, purchases and accounts payable. The
inventory area is the next question. It then asks questions concerning payroll
and then general, sensitive accounting processes. Finally, QuickBooks
queries whether financial reporting features are accessible.
Similar to how you limit rights in the sales and accounts receivable and
purchases and accounts payable categories, you also limit rights in each of
these other areas. I won't go into detail on how to repeatedly choose the No
Access option button, the Full Access option button, or the Selective Access
button. Just be considerate as you navigate the screens to limit the user's
rights. Users shouldn't be granted any more rights than they require since you
want them to be able to perform their tasks.
8. Define if the user has the ability to modify or remove transactions.
QuickBooks displays the Changing or Deleting Transactions page of the Set-
Up User Password and Access dialog box after you have navigated through
around half a dozen variations of the dialog box that ask about particular
areas of accounting (not shown). You can specify whether a user can amend
transactions that were made before the closure date on the Changing or
Deleting Transactions page. The capacity of a user to modify or delete
transactions should generally be constrained.
9. Select Next, then go over your rights choices.
The final version of the Set-Up User Password and Access dialog box (not
shown), which lists the user permissions you granted or allocated, is
displayed by QuickBooks. This dialog box can be used to check someone's
rights. If you discover that you misassigned rights, click the Back button to
cycle through the dialog boxes and return to the offending one. Change the
privileges assignment, then select Next to return to the Set-Up User Password
and Access dialog box's final window.
10. Click Finish when you have finished reviewing user rights and access.
The new user will be able to use QuickBooks as of this moment, but only
with the permissions you granted.
CHAPTER TWO
PROTECTING YOUR DATA
BACKING UP THE QUICKBOOKS DATA FILE
A backup of the QuickBooks data file is a crucial activity that needs to be
done by either you or a team member. The QuickBooks data file is one of the
few files on your computer's hard drive that demands as much attention as it
does. The QuickBooks data file is a literal description of your company's
financial situation.
The data file must not be lost under any circumstances. If you lose the data
file, you might not be able to conveniently or accurately prepare your yearly
tax returns since you won't know how much money you have, whether you're
making or losing money, and how much money you have.
Backing-up basics
Fortunately, it's rather simple to back-up the QuickBooks data file. There are
only nine steps you must follow:
Step 1: Choose the FileCreate Copy command
The initial Save Copy or Backup dialog box, which offers three options—to
save a backup copy of your QuickBooks file, to generate a portable company
file, and to produce an accountant's copy—is displayed by QuickBooks (see
the following picture).
The first Save Copy or Backup dialog box
2. After selecting the Backup Copy option button and clicking Next to
proceed, you wish to save a backup copy.
NOTE: When you duplicate the QuickBooks file, you can either make a
complete backup file or a portable company file. A portable corporate file is
easier to transfer about because it is smaller than a backup file. A portable
business file, for instance, is simpler to email. The problem with portable
company files is that QuickBooks has to work very hard to compress it down
to a minimal size. When you wish to work with the file later, QuickBooks
also needs to put in extra effort to uncrunch it.
The second Save Copy or Backup dialog box displays when you click Next.
When you want to backup, you are prompted by the Save Copy or Backup
dialog box.
8. Be clear about when you want to go back.
In most cases, when you select the Save Copy or Backup option, you wish to
make a backup. Click the Save It Now radio button when QuickBooks shows
the Save Copy or Backup dialog box and prompts you with the "when"
question in this situation. Alternatively, when QuickBooks asks "when," you
may tell it to schedule backups of the QuickBooks data file on a regular basis
by selecting either the Save It Now and Schedule Future Backups radio
button or the Only Schedule Future Backups radio button. If you inform
QuickBooks that you want to schedule backups, it will show you a few dialog
boxes where you may name the schedule, specify the days and times when
backups should be scheduled, and more.
9. To close the dialog box titled Save Copy or Backup, click Finish.
After defining the backup operation's parameters, click Finish. The current
QuickBooks company file is backed up (or copied) and kept in the backup
location by QuickBooks
CHAPTER THREE
TROUBLESHOOTING
BROWSING INTUIT PRODUCT-SUPPORT
WEBSITE
The following notice displays when accessing Intuit websites:
v There are some troubles with our systems. Try one more later,
please.
v You can take a few simple troubleshooting actions to fix browser
difficulties on Intuit websites.
Use a different browser before continuing with the instructions below to see
if the problem is browser-specific.
Typical fixes for browser troubles:
Refresh your web browser
Clear the cache on your browser.
Add Intuit to your trusted sites list
Activate Active Scripting (only for Internet Explorer)
Put the browser's settings back to default
Resolving download problems or locating downloaded files
Pressing Ctrl + J in any browser will typically allow you to find a
downloaded file. Change the default location for the downloaded files if this
doesn't work.For instructions on altering the default location of the files,
choose the appropriate browser from the list below:
Google Chrome
v Select Settings from the menu by clicking the three dots on the
Google Chrome toolbar.
v Click the arrow next to "Advanced" when you've scrolled all the way
to the bottom of the page.
v Find the Downloads section.
v To choose a default location to store downloaded files, click the
Change button next to Location.
v If you wish to be asked to select a specific location for each
download, move the slider labeled Ask where to save each file before
downloading.
Firefox
v Choose Options from the Tools menu.
v On the General tab, click.
v Search for the Downloads section.
v If you want to alter the default location for the downloaded files,
click Browse.
v Select If you want to be requested to select a specific location for
each download, always ask me where to save files.
Internet Explorer
v Choose View Downloads from the Tools menu.
v In the dialog box on the lower left, choose Options.
v By clicking Browse, you can specify a different default download
location.
v When finished, click OK.
Safari
v Preferences can be selected from the Safari menu.
v Select the General tab.
v Select Other from the File download location dropdown menu.
v If you wish to be prompted to select a specific place for each
download, select Ask for each download.
v Click Select after choosing a new location.
APPENDIXES
CHAPTER 1
A CRASH COURSE IN EXCEL
Starting Excel
The Start menu or a desktop shortcut can be used to launch Excel. Excel's
File tab, Close button, or keyboard shortcuts can all be used to close the
program.
Using the Start menu to launch Excel 2010
v Select StartAll ProgramsMicrosoft OfficeMicrosoft Excel 2010 to
launch Excel 2010 from the Windows Start menu. You see a brand-
new workbook that is empty and prepared for data entry.
To determine the sale value, we must now perform the calculation. Apply the
formula as B*C2 after adding the additional (and) symbol.
Now that the formula and our text values are complete, we must press the
"Enter" key.
The incorrect formatting of the sales statistics in this formula is one issue.
That would have made the numbers look right, but they don't have a thousand
separator.
There is no need to be concerned; using the TEXT function in the Excel
formula, we can format the numbers.
Make formula changes.
The computation stage formats the numbers using the Excel TEXT function,
as illustrated below.
We now have the numbers in the correct format, along with the sales figures.
The Excel formula's TEXT function formats the calculation (B2*C2) as ###,
###.
Use the TIME Format to Include Meaningful Words in Formula
Calculations
We have learned how to include text values in our calculations to give
readers or users a clear message. We're going to add text values to a different
calculation right now that also incorporates time calculations.
Data on flight arrival and departure times is available. The length of each
flight must be determined.
The flight number already present in cell A2 is the next value that has to be
added. Add the "&" sign and choose cell A2.
The "Total Duration" of the text has to be updated next. This text needs to be
enclosed in double-quotes, and we must add one more "&" sign.
The formula's crucial final component is now. Following the symbol "&" in
the formula, we must determine the total duration as C2 - B2.
Now is the essential last step in the formula. The total duration must be
calculated after the symbol "&" in the formula as C2 - B2.
The total duration that we obtained was 0.433398, which is not the correct
format. Therefore, we must format the calculation to TIME using the TEXT
function.
Use Date Format to Add Meaningful Words to Formula Calculations
When adding text data to obtain the proper numerical format, the TEXT
function can handle the formatting work. We shall now view it in date
format.
The daily sales table, which we regularly update with new figures, is shown
below.
As the data is added, the heading needs to be automated, therefore the last
date needs to be changed to match the last day of the table.
Step 1: We must first open the "Consolidated Sales Data from" formula in
the A1 cell.
Step 2: Add the "&" symbol to the Excel formula and use the TEXT
function. Inside the TEXT function, use the MIN function to retrieve the
least-valued date from this list. add the format "dd-mmm-yyyy."
Step 4: We must use the MAX formula to extract the most recent date from
the table and then format it as a date using the TEXT function in the Excel
formula.
The headline will be updated automatically when we make changes to the
table.
The Edit menu also offers options for the Cut, Copy, and Paste actions.
Shortcut keys can also be used to carry out the operations of Cut, Copy, and
Paste.
Cut= Ctrl+X
Copy= Ctrl+C
Paste= Ctrl+V
To relocate the data to its new location, let go of the mouse button.
FORMATTING CELL CONTENTS
When you format text or numbers, they will appear more noticeable,
especially on a large worksheet. A cell's text alignment, font color, style, size,
and formatting effects are all examples of modifying default formats. This
article demonstrates how to apply various formats as well as how to reverse
them.
v Select the cell, then choose the desired format from the Home tab to
make text or numbers in that cell bold, italic, or with a single or
double underline:
Click Font Color and choose a new color to alter the font's color.
Click Fill Color next to Font Color to add a background color.
To format text using strikethrough, superscript, or subscript, click the Dialog
Box Launcher and choose an effect from the Effects menu.
v formatted clearly
v If you change your mind after applying any formatting, you may
undo it by selecting the text and choosing Clear > Clear Formats from
the Home tab.
NOTE: Click OneDrive and register to save to your OneDrive location (or
sign in).
v Click Add a place to add your own cloud locations, such as a
Microsoft 365SharePoint or OneDrive location.
3.The desired place in your Documents folder can be found by clicking
Browse.
v Click Desktop, then select the precise area where you wish to save
the workbook on your computer, to choose a different location.
4.Give your new workbook a name in the File name box. If you're making a
duplicate of a workbook that already exists, provide a different name.
v Choose the desired file format from the Save as type option (located
beneath the File name box) to save your workbook in a different file
format, such as.xls or.txt.
v Press "Save" your preferred save location
Note: You can "pin" the location where you saved your workbook once
you're done. By doing this, the place is kept accessible for future usage when
saving more workbooks. This might be a huge time saver if you frequently
save stuff to the same folder or place! You are free to pin as many places as
you like.
v Select "File" > "Save As."
v Choose the location where you most recently stored your workbook
under Save As.
v Click Computer if you wish to bookmark the location where you last
saved your workbook, which is likely the Documents folder on your
computer.
v Point to the area you wish to pin in the Recent folders section on the
right. Push-pin illustration There is a push pin button to the right.
To bookmark that folder, click the image. The picture now appears pinned.
Push pin symbol pinned. This location will always be listed under Recent
folders at the top of the list each time you save a workbook.
Tip: Simply click the pinned push pin picture to unpin a location. Push pin
icon pinned once more
Activate AutoRecovery
While you are working on a workbook, Excel automatically saves it in case
something happens, like the power turning out. It's known as AutoRecovery.
Don't be tempted to rely on AutoRecovery; this isn't the same as storing your
workbook. Frequently save your workbook. But having a backup, just in
case, is a smart idea with Autorecovery.
Ensure that AutoRecovery is activated:
v Press File > Options.
v Click Save in the Excel Options dialog box.
v Make sure Save AutoRecover information every minute is selected
under Save workbooks.
v Click OK after setting the minutes for how frequently you want
Excel to back-up your work.
Opening a workbook
Any workbook that has been previously saved and given a name can be
opened.
To access a previously saved Excel XP workbook:
v From the menu bar, select FileOpen.
v If any data has been entered between the last save and the time the
file is closed, Excel XP will ask you to save it.
PRINTING EXCEL WORKBOOK
To access the Print pane:
v Go to the File tab. It will show a backstage view.
Choose Print. A print pane will show up.
To find out more about using the Print pane, click the icons in the interactive
below.
To print a workbook:
Select the selected printer by going to the Print pane.
Enter the quantity of prints you want to make.
If more settings are required, choose them (see above interactive).
Press Print.
To print a selection:
v We'll use a few pieces of content about forthcoming softball games
in July as our example.
v The cells you want to print should be selected.
You can also choose to select the print area in advance so that you can see
which cells will be printed when using Excel. All you have to do is choose
the cells you wish to print, click the Page Layout tab, choose the Print Area
command, and then click Set Print Area.
CHAPTER 2
GOVERNMENT WEB RESOURCES FOR
BUSINESS
BUREAU FOR ECONOMIC ANALYSIS
The Bureau of Economic Analysis (BEA): What Is It?
The Bureau of Economic Analysis (BEA), a branch of the Department of
Commerce of the U.S. federal government, is in charge of analyzing and
publishing economic data that is used to verify and forecast economic
patterns and business cycles.
KEY LESSONS
v The U.S. Department of Commerce's Bureau of Economic Analysis
(BEA) is in charge of compiling and reporting economic data.
v These reports have a significant impact on public and commercial
sector decisions, influencing things like taxation, interest rates, hiring,
and expenditure, among other things.
v Reports are published by the Bureau at four different levels:
international, national, regional, and industrial.
BEA's statistical analysis
The BEA's analysis and reporting of gross domestic product (GDP) data and
the U.S. balance of trade figures are among the most significant statistics
(BOT).
Gross Domestic Product (GDP)
One of the most important products of the BEA is the GDP report. It provides
us with the total dollar worth of all finished products and services created
inside a nation's borders during a certain time frame.
The size of an economy is indicated by GDP for the general population.
Additionally, by comparing current data to earlier times, we may determine if
the economy is growing (creating more products and services) or collapsing
(registering declining output). The movement of GDP assists central banks in
deciding whether or not to act with monetary policy.
Policymakers may think about implementing an expansionary policy to boost
the economy if the growth rate is slowing. On the other side, if the economy
is booming, it can be decided to control inflation and stifle expenditure.
Although GDP is typically computed on an annual basis, it can also be
estimated on a quarterly basis. In the United States, for instance, the
government publishes an annualized GDP estimate for both the current
quarter and the previous year.
GDP is regarded as the Department of Commerce's biggest accomplishment
of the 20th century and is one of the three metrics that have the greatest
influence on U.S. financial markets.
Balance of Trade (BOT)
The value of a country's imports and exports for a specific time period is
shown by the balance of trade (BOT), which tracks economic transactions
between a country and its trading partners.
The BEA provides information on the flow of commodities and services into
and out of the United States (BOP). This data is used by economists to
determine the relative strength of a nation's economy. When exports outpace
imports, the GDP often increases. It results in a trade deficit in the alternative
scenario.
Typically, a trade imbalance indicates that a nation is not producing enough
commodities for its citizens, forcing them to import them. Deficits might also
indicate that a nation's consumers are well off enough to buy more items than
the nation produces.
FINDING INFORMATIONS AT THE BEA WEBSITE
Generally speaking, using our website is possible without revealing personal
information. It may be necessary to handle personal data if you utilize any
particular services provided by our business via our website or if you want to
get in touch with us. The data subject must typically give their consent for us
to process their data if it is essential to do so and there is no prior legal basis
for doing so.
The processing of personal data, including names, addresses, phone numbers,
and emails, is always done so in compliance with German data protection
laws as well as the EU's General Data Protection Regulation (GDPR).
The public is meant to be made aware of the nature, extent, and use of the
personal data we process by this privacy policy. Additionally, this privacy
statement informs data subjects of their rights and disclosure requirements
under Articles 13, 14, and 15 of the GDPR.
1. Contact details of the data controller
According to GDPR and national data protection laws,
BeA GmbH Business Leader:
v Dr. Jörg Dalhöfer is the data controller.
v Simon Kreft
v WEEE-Reg.-Nr
v DE 94007702 HR
v Lübeck HRB 21320HL St-Nr
v 30/293 80 781 VAT-ID
v DE 342/809/873
2. Contact details of the data protection officer
v S-consit GmbH is the data protection officer of BeA.
v Schützenstr. 25a 23843 Bad Oldesloe
v Germany Daniel Nyhof LL.M., LL.B.
v Daniel.nyhof(at)s-consit.de
If you have any inquiries or comments about our data protection procedures
or this privacy statement, you may get in touch with our data protection
officer directly at any time.
B
Bad debt A credit customer (debtor) is recognized for being unable to make
their monthly payments.
Balances sheet: An account reflecting the assets, liabilities, and ownership
interest of a business.
Balance sheet A financial status statement that lists an entity's assets,
liabilities, and ownership stake.
Bank facility a deal with a bank to borrow money as needed up to a set limit.
Bond the label applied to loan money occasionally (more commonly in the
USA).
Broker (stockbroker) A stock exchange member who coordinates share
purchases and sales may also offer information services that include
buy/sell/hold advice.
Broker's report a bulletin containing analysis and recommendations on
potential investment targets was created by a stockbroking business for
distribution to its clients.
Business fusion a deal where one corporation buys ownership of another.
Business cycles: The period (often 12 months) during which a company's
activity peaks and troughs reoccur in a predictable way.
C
Cash flow statement Provides information about changes in financial
position.
Corporate governance: The system by which companies are directed and
controlled. Boards of directors are responsible for the governance of their
companies.
Corporate recovery department Part of an accountancy firm which specializes
in assisting companies to recover from financial problems.
Corporate social responsibility Companies integrate social and environmental
concerns in their business operations and in their interactions with
stakeholders.
Contingent obligations that depend on a future event occurring but are not
recognized in the balance sheet.
Control the authority to control an entity's financial and operational policies
in order to profit from its operations.
Convertible debt A business that later converts its loan financing into share
capital.
Corporate tax Depending on the taxable profits for the time period,
enterprises must pay tax.
Cost of a non-current asset is the price of preparing it for use, while cost of
finished goods is the price of bringing them to their current state and location.
Cost of goods sold Materials, labor, and other costs directly associated with
the delivered goods or services
Cost of sales See cost of goods sold.
Coupon Rate of interest that will be charged on a loan.
Credit (terms of business) The provider consents to allowing the client to
make payment after the delivery of the goods or services. The typical trade
credit terms range from 30 to 60 days, although each deal is unique.
D
Debenture A company's acceptance of loan financing is known as a written
admission of a debt.
Debtor 1 individual or group that owes money to the entity.
Default failure to make payments when they are due on obligations.
Delayed taxation Tax law postpones (defers) the requirement to pay tax past
the usual due date.
Depreciable sum Cost of a non-current (fixed) asset less residual value
Depreciation the methodical distribution of an asset's depreciable amount
over the course of its useful life. Cost less residual value is the depreciable
amount.
Derecognition deleting a financial statement item because it no longer meets
the criteria for recognition
Different approaches to consolidation Difference between the fair value of
the payment made for a subsidiary and the fair value of the net assets
purchased, also known as goodwill.
Direct approach (of operating cash flow) displays the cash coming in and
going out.
Directive a declaration made by the European Union requiring all Members
to modify their domestic legislation to comply with the Directive.
Directors are those chosen by the company's shareholders to oversee its
operations.
Disclosed, disclosure It is referred to as being disclosed but not recognized
when an item is mentioned in the notes to the accounts.
E
Earnings for common shareholders Profit after deducting interest fees, taxes,
and preferential dividends (but before deducting extraordinary items).
Earnings per share are computed as earnings for common shareholders
divided by the total number of shares issued by the company.
Effective interest rates: The rate at which forecasted future cash receipts or
payments are precisely discounted over the course of the financial
instrument's anticipated life.
Efficient markets theory Stock market share prices respond instantly to the
release of fresh information.
Endorsed International financial reporting standards that were formally
endorsed and given the go-ahead to be used in Member States of the
European Union.
Endorsement Observe endorsed.
Enterprise, a commercial undertaking or business activity.
Entities, anything that exists independently of its owner, such as a firm.
Exit value: A method of valuing assets and liabilities based on selling prices,
as an alternative to historical cost.
Entrance fee the cost of buying an asset or liability, typically the replacement
cost.
Equity analyst a person who conducts research and compiles reports on
common share investments in corporations (usually for the benefit of
investors in shares).
Equity a term used to describe an entity's common stock.
Equity accounting the parent firm's or group's investment in the share capital
and reserves of a related company is disclosed in the balance sheet.
Equity stake See ownership interest.
F
Fair value: The price at which an asset or obligation could be transferred in a
fair and reasonable deal between a willing buyer and a willing seller.
Faithful presentation Information that possesses this quality represents what it
claims to represent.
Financial accounting a label typically used to describe financial reporting that
is presented externally by a corporation.
Financial flexibility the business's capacity to react to unforeseen
requirements or possibilities.
Format a list of possible elements for a financial statement that specifies their
potential order of appearance.
Forward-exchange agreement a deal to purchase foreign money at a specified
future time and price.
Fully paid shares are those for which the corporation has received complete
payment of the share capital.
Fund manager a person who oversees a group (portfolio) of investments,
typically on behalf of an insurance company, a pension fund, or a
professional fund management firm that makes investments on clients' behalf.
G
Gearing (financial) the proportion of loan capital to ownership claim.
General-purpose financial statements documents containing accounting
information that should be of interest to many different user groups. A
balance sheet, a profit and loss account, a statement of recognized profits and
losses, and a cash flow statement are all required for a limited liability
corporation.
Going-concern basis the belief that the company will remain open for some
time to come.
Goodwill: The fair value of the money paid for an investment in a subsidiary
and the fair value of the net assets acquired make up the difference between
goodwill on acquisition.
Gross before deducting.
Gross profit Sales less cost of sales before deducting selling and
administrative costs (another name for gross profit). typically used when
referring to a specific industry.
Gross margin Sales as a percentage of gross profit.
Gross income Sales less cost of sales before deducting selling and
administrative costs (see also gross margin).
Group A business structure made up of a parent company and one or more
subsidiaries.
H
Highlights statement a page at the beginning of the annual report outlining
the important performance metrics for the reporting period.
Historical price method of evaluating assets and liabilities based on their
original cost without accounting for inflation.
HM Revenue and Customs (HMRC) The agency in charge of collecting taxes
for the UK government (previously called the Inland Revenue).
I
Impairment checking for signs of any impairment on assets.
Impairment test Determine if the company must use it or sell it in order to
recoup the intangible asset's carrying value.
Impairment analysis examining resources for signs of any deterioration.
Income declaration Revenues, costs, and profit are presented on the financial
statement. also known as a profit and loss statement.
Improvement a modification or addition to a non-current (fixed) asset that
lengthens its useful life or raises the anticipated benefit in the future.
Compare this to repair, which extends the current usable life or the current
predicted future benefit.
Insider information gained by someone inside, or close to, a listed
institutional shareholder an organization or institution whose normal business
involves investing in stock of corporations; examples include insurance
companies, pension funds, charities, investment trusts, unit trusts, and
merchant banks.
Intangible Cannot be touched since it lacks form or shape.
Interest (on loans) (on loans) The percentage return on capital that the lender
requires (usually expressed as a percentage per annum).
Interim summaries financial statements are published on a semi-annual or
quarterly basis between annual reports.
Internal reporting providing detailed financial information to internal users at
different management levels.
Inventory Stocks of items kept for production or selling.
Investing activities, the purchase and sale of long-term assets and other
investments that are not cash equivalents.
Investors are people or organizations that have given money to a business in
exchange for a stake in the company.
J
Joint and several liability (in a partnership) Each partner is liable for the
entire partnership even though the responsibilities are divided.
K
Key performance indicators Quantified measures of factors that help to
measure the performance of the business effectively.
L
Leasing obtaining access to an asset through a rental contract.
Lawful form representation of a transaction in accordance with its legal
standing, which may differ from its economic shape.
Leverage A other word for gearing that is frequently used in the USA.
Liabilities Economic gains that an entity is required to transfer as a result of
previous transactions or occurrences.
Little liability a way of saying that persons who are liable for a debt may be
able to employ a mutually agreed-upon cap on their liability.
Limited liability corporation a business where an owner's liability is only up
to the amount of capital they have agreed to invest.
Liquidity the extent to which a business has access to cash or items that can
be easily swapped for cash.
Listed firm a business whose shares are listed on the Stock Exchange and can
be purchased and sold there in accordance with the Exchange's policies.
Listing demands Regulations that the Stock Exchange imposes on businesses
whose shares are listed for purchase and sale.
Listing Rules are regulations for businesses that are listed on the UK Stock
Exchange that are issued by the UK Listing Authority of the Financial
Services Authority. include regulations for accounting data in yearly reports.
Loan covenants Agreement formed between a corporation and a long-term
finance lender to protect the loan by placing restrictions on the company's
ability to borrow more money.
Loan agreements a way to borrow money from commercial organizations like
banks.
Loan stock Loan financing was traded on a stock exchange.
M
Management is the collective term for the people in charge of managing a
company on a daily basis.
Management accounting reporting financial data for management solely
within a company
Market value (of a share) The cost at which a share might be exchanged
between a willing buyer and a willing seller.
Marking for the market valuation at the current market value of a marketable
asset.
Margin Profit is the difference between income and outgoing costs.
Matching In the period in which they are incurred, expenses are compared to
revenues (see also accruals basis).
Materiality See material.
Materiality Information is considered material if it could affect the economic
decisions users make based on the financial statements due to omission or
misstatement.
Maturity the day that a debt is due for payback.
Memorandum (for a company) (for a company) document outlining the
company's primary objectives and its authority to take action.
Merger In a circumstance where neither organization can be viewed as
having acquired the other, the two organizations decide to collaborate.
Minority viewpoint the ownership stake in a business that is owned by parties
other than the parent firm and its affiliated businesses. Known as a non-
controlling interest as well.
N
Net after subtractions.
Net assets Liabilities less assets (equals ownership interest).
Net Book Value Cost of the non-current (fixed) asset less cumulative
depreciation
Net profit Sales less all selling and administrative expenses.
Net Realizable Value the amount received after deducting the item's selling
expenses from the revenues.
Nominal value (of a share) the sum listed as the designated value of a share
on the certificate's front at the time it was issued.
Non-controlling stake See minority interest.
Non-current assets any asset that does not fall under the conventional asset
definition. also known as fixed assets.
Non-current obligations any debt that does not fall under the conventional
debt definition. sometimes known as long-term obligations.
Notes to the accounts Information in financial statements that provides
greater specifics regarding things in the financial statements.
O
Off-balance sheet financing a plan to keep corresponding assets and liabilities
off the entity's balance sheet.
Offer to buy: The public is given a general offer of shares by a firm.
Operational actions the main source of income for the firm and any other
activities not related to investing or financing.
Operational and financial analysis Many companies' annual reports include a
section that highlights the key aspects of the financial statements.
Operating margin Operating profit is a proportion of revenue.
Operational risk exists in situations where there are elements that could lead
to fluctuations in earnings due to changes in the operational environment,
such as a large percentage of fixed operating costs.
Ordinary shares of a firm that entitle the bearer to a portion of the dividend
declared and a portion of the net assets upon the company's closure.
Ownership stakes the remaining sum obtained after subtracting all liabilities
from assets. (Also known as equity interest.)
P
Par value See nominal value.
Parent organization company that holds control over a group's one or more
subsidiaries.
Partnership Two or more people operating a business together with the
intention of turning a profit.
Partnership agreement A document that outlines the partners' agreement on
how the partnership will be run (including the arrangements for sharing
profits and losses).
Preferential shares of a corporation that grant the owner a preference (but not
an automatic right) to receive dividends before any ordinary share dividends
are issued.
Portfolio (of investment) (of investment) a selection of investments.
Preliminary statement the initial disclosure of a listed company's profit for the
most recent financial period. before the release of the full annual report. To
ensure that all investors are informed at the same time, the announcement is
made to the entire stock market.
Premium a sum paid above and above or extra.
Prepayment a sum paid upfront for a benefit to the company, such as rent or
insurance payments. Initially recognized as an asset, the benefit is then
converted to an expense during the time of enjoyment. (Also known as a
prepaid expense.)
Present fairly A requirement of the IASB system, comparable to accurate and
fair view in the UK ASB system.
Q
Qualified audit opinion an audit opinion stating that either the accounts do
not present a true and fair view or the accounts do present a true and fair
picture except for certain concerns
Quality of income Investors' thoughts on the dependability of earnings
(profit) as the foundation for their projections.
Quoted company Described in section 262 of the Companies Act 1985 as a
business that has been admitted to trading on either the New York Stock
Exchange or the Nasdaq exchange, or that has been officially listed in an
EEA state in accordance with the provisions of Part VI of the Financial
Services and Markets Act 2000.
R
Realizing a profit, realizing a profit that results from income that the entity
has earned and for which there is a good chance that money will be collected
soon.
Recognized When an item appears in the main financial statements of an
entity with words and a value, it is recognized.
Recognition See acknowledged.
Relevance Influencing consumers' financial decisions is a qualitative trait.
Reliability Being free from substantive bias and inaccuracy while accurately
representing is a quality.
Replacement expense a method of measuring current value that calculates the
cost of replacing an asset or liability as of the balance sheet date. Justified
with relation to the value to the company.
Reserves The claim that owners have on a company's assets because the
business has helped them accumulate money over time.
Residual benefit: The projected profit an entity would now make from selling
the asset, less the estimated cost of selling, if it were already old and in bad
shape, as predicted at the end of its useful life.
S
Sales Examine income and turnover.
Sales statement Message sent to customers confirming a credit sale and
seeking payment
Secured loan Loans in which the lender has a unique claim on certain
company assets or revenue.
Share capital is the term used to refer to the entire cash infusion made by the
shareholders to the business.
Shares of stock a statement demonstrating share ownership.
Share price a claim that shareholders have on a company's assets since they
paid more than the share's nominal worth to buy the company's shares.
Shareholder money Term used to refer to the sum of reserves and share
capital on a balance statement.
Shares The number of shares that a shareholder owns in the company's total
capital is used to calculate their shareholdings.
T
Tangible fixed assets a tangible fixed asset, often known as a non-current
asset.
Timeliness Qualitative trait that could be at odds with its relevance.
Total assets used Sales as a percentage of total assets.
Trade creditors are people that provide goods or services to a business
normally and grant a grace period before payment is due.
Trade debtors are customers who purchase goods or services from a company
normally and are given a grace period before making a payment is required.
Trade payables: The term "accounts payable" refers to money owed to
suppliers (trade creditors).
Trade debtors Accounts receivable is another name for money owed by
clients (trade debtors).
True and impartial viewpoint UK company legislation is necessary for UK
businesses that don't use the IASB system.
Turnover is the amount of money a company makes via sales or other
commercial activities.
U
UK ASB program: The business law and accounting principles that apply to
corporate reporting by UK companies that do not report in accordance with
the IASB method.
Understandability a qualitative attribute that users can understand about
financial statements.
Unlisted (company) Limited liability company with no stock market listings
for its shares.
Unrealized Gains and losses corresponding to adjustments to the values of
liabilities and assets that are not realized through sale or usage.
Unsecured debtors Those who, in the event of a company's dissolution, have
no claim on any specific assets but must wait their turn for any remaining
shares.
V
VALUE: to the company an idea considered when choosing a current value
measurement.
Variance a cost's variance from its anticipated, budgeted, or conventional
equivalent. When the actual cost exceeds the expected cost, an adverse
Variance occurs: When the actual cost is lower than the expected cost, there
is a favorable variance.
W
Working capital Finance given to sustain the company's short-term assets
(stocks and debtors), to the extent that these are not already covered by short-
term creditors. It is computed as current obligations minus current assets.
Working capital cycle total of the time taken to hold the stock plus the time
taken for customers to pay less the time taken for suppliers to pay.
Work-in-progress Cost of partially finished items or services that were
intended for completion and documented as an asset.
INDEX
ABC, 79, 81, 182, 339, 341
accountants, 76, 206, 220, 297, 301, 501
Accountants, 237, 295, 297
accounting equation, 113
accrual, 349
Acctivate, 125
acquisition, 109, 272, 324, 374, 506
Address, 402
administrative, 363, 410, 412, 414, 421, 432, 495, 496, 506, 510
administrator, 235, 436
advantageous, 119, 174, 217
advantages, 175, 179, 390, 407, 430, 432
advertising, 329, 386, 412, 489, 491
aforementioned, 276, 414
allowance, 87, 89, 90, 97
amortization, 313, 412
analysis, 3, 86, 134, 182, 297, 351, 361, 381, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 406, 415, 417, 418, 424, 426, 484,
487, 489, 495, 502, 507, 510
arrangement, 102, 213, 294
Assets, 23, 50, 109, 113, 256, 353, 359, 360, 363, 407, 418, 419
attachments, 305, 312
authorization, 278
authorized, 490
automatic, 93, 95, 96, 107, 180, 181, 231, 237, 343, 511
automatically, 95, 96, 107, 163, 165, 166, 170, 187, 199, 200, 215, 231, 233, 238, 273, 343, 348, 463, 467, 475, 489
automobile, 358
average, 174, 183, 358, 359, 361, 362, 366, 368, 369, 370, 376, 377, 392, 395, 414, 418, 420, 426, 432
BACKING UP, 445
backup, 217, 275, 303, 307, 445, 446, 447, 448, 449, 475, 476
Bad debts, 88
Balance Sheet, 28, 320, 321, 327, 328, 334, 371, 406, 407, 408, 409
balance sheets, 26, 321, 322, 334, 406, 407, 408
BANK, 254, 262, 264, 274
barcode, 175, 181
BEA, 484, 485
Bill, 229, 231
bookkeeping, 51, 134, 177, 264, 307, 441
borrow, 94, 117, 119, 391, 395, 502, 509
break-even point, 385, 386, 390, 391, 392, 393, 394, 395, 396
Budgets, 327, 333, 334, 335, 336
Bureau, 176, 484, 492, 493
Business Entity Assumption, 43
Business Plan, 397, 399, 425
businessperson, 429
calculating, 193, 317, 360, 361, 365, 366, 381, 386, 392, 406, 416, 422, 423
calendar, 168, 197, 239, 240, 258, 259
cash flow, 9, 62, 76, 77, 178, 225, 326, 360, 368, 369, 375, 379, 410, 414, 415, 416, 417, 419, 427, 504, 506
categorized, 113, 166, 182
Chart, 183, 237, 255, 258, 259, 260, 261, 262, 268, 269, 270, 301, 302
check, 92, 93, 94, 163, 164, 165, 168, 169, 170, 171, 172, 193, 196, 197, 199, 200, 225, 227, 229, 230, 235, 236, 243, 247, 264,
271, 277, 284, 287, 290, 291, 292, 309, 311, 314, 322, 340, 358, 422, 444, 448
checkmark, 196, 222
chronological, 213, 302
closing entries, 123
code, 194, 221, 488
columns, 204, 214, 221, 321, 336
combination, 167
command, 228, 245, 252, 253, 268, 270, 301, 302, 303, 306, 435, 436, 445, 446, 482
commencement, 259
commercial, 117, 322, 398, 484, 497, 498, 504, 509, 514
commitments, 197, 352, 357, 358, 391, 394, 419
communication, 429, 430
Comparability, 2
compensation, 103, 193, 201, 280, 288, 293, 294, 413, 430
compilation, 134
Completeness, 2, 3
comprehensive income, 410
computations, 380, 392
configuration, 185
conjunction, 406
consignments, 75
Consistency, 5
contemporary, 77, 428
contingent, 114
Contribution, 293, 386, 387
corporation, 67, 189, 327, 352, 353, 355, 356, 358, 363, 366, 372, 376, 378, 406, 407, 408, 409, 418, 425, 428, 431, 496, 502,
505, 506, 508, 509, 511
corporations, 76, 201, 494, 505, 507
Cost, 2, 3, 5, 41, 80, 98, 99, 180, 204, 256, 358, 371, 380, 386, 387, 388, 411, 412, 431, 503, 510, 515
Cost-benefit, 2
credit card, 88, 92, 93, 118, 173, 174, 189, 190, 201, 227, 258, 259, 261, 264, 265, 268, 269, 270, 271, 272, 273, 301, 332, 443ard,
229, 254, 255
9, 371, 420, 507
e, 356, 358
liquidator, 104
liquidity, 352, 353, 354, 355, 356, 357, 358, 407, 408, 415, 417, 418, 427, 499
LOAN MANAGER COMMAND, 275
logo, 206, 210, 218
Machinery, 108
mailing, 94, 195, 232
managerial, 366
matching, 87
Matching, 6, 509
Materiality, 6, 509
measurement, 48, 514
Medicare, 193, 194, 286, 292, 293, 294
Memo, 236, 273, 291
merchandise, 100, 177, 179, 253, 384, 417
Microsoft, 309, 435, 453, 454, 455, 456, 474
Misclassification, 76
Misspellings, 194
modifications, 76, 96, 175, 232, 301, 324, 401, 441, 455
Monetary, 497
Money Measurement Assumption, 45
mortgage, 317
mortgages, 117, 322
Navigating, 197
net income, 315, 319, 320, 324, 325, 363, 372, 377, 378, 413, 414, 416, 421, 422, 423, 427
Neutrality, 2, 3
nonemployee, 201
obligations, 115, 174, 265, 292, 293, 294, 321, 322, 353, 354, 355, 356, 357, 377, 378, 410, 418, 419, 427, 503, 510, 515
obsolete, 77, 97, 98, 99, 100, 103, 106, 178
online, 93, 95, 191, 218, 229, 265, 267, 278, 308, 309, 441, 473, 488, 494
orders, 106, 125, 175, 179, 180, 181, 198, 200, 212, 213, 232, 233, 236, 252
organizational, 177, 430, 433, 491
overarching, 175, 427
parameters, 227, 448, 449
parenthesis, 198, 319, 320, 370
payable, 62, 85, 86, 179, 295, 313, 322, 325, 371, 372, 377, 417, 443, 501, 513
payroll, 191, 192, 193, 194, 195, 221, 277, 278, 279, 280, 284, 286, 288, 289, 290, 292, 293, 294, 295, 307, 325, 443
percentage, 87, 100, 174, 206, 337, 360, 379, 380, 383, 384, 387, 388, 506, 507, 511, 513
Percentage, 89
Preferences, 163, 164, 166, 167, 168, 171, 172, 195, 196, 197, 198, 199, 200, 204, 235, 253, 451
PREFERENCES, 164, 167, 168, 198, 328
Prices, 387
principles, 76, 113, 514
Print, 196, 204, 205, 206, 207, 208, 223, 224, 227, 236, 314, 441, 442, 477, 478, 479, 480, 481, 482
processors, 189
professional, 198, 206, 214, 220, 297, 501, 505
profitability, 339, 341, 348, 362, 363, 374, 375, 376, 379, 392, 395, 408, 417, 420, 421, 432
purchase, 80, 93, 94, 101, 109, 175, 179, 187, 189, 190, 198, 200, 204, 212, 213, 215, 216, 219, 232, 233, 234, 236, 274, 366, 374,
381, 388, 400, 417, 426, 505, 507, 508, 513
purchases, 92, 102, 107, 189, 268, 325, 443, 502
QuickBooks, 128, 163, 164, 165, 166, 168, 171, 172, 173, 192, 195, 196, 197, 199, 200, 204, 206, 207, 208, 212, 213, 214, 220,
221, 222, 223, 225, 226, 227, 228, 229, 233, 235, 236, 237, 238, 245, 246, 247, 248, 251, 252, 253, 254, 257, 259, 261, 262,
264, 265, 268,269, 270, 271, 273, 274, 275, 276, 277, 278, 279, 284, 286, 287, 288, 289, 290, 299, 300, 302, 303, 304, 305,
306, 307, 308, 309, 329, 333, 335, 336, 337, 338, 339, 342, 343, 345, 346, 347, 348, 349, 371, 383, 384, 435, 436, 437, 438,
439, 440, 441, 442, 443, 444, 445, 446, 447, 448, 449
reclassifications, 307
reconciled, 259, 261, 267
Reconciling, 264
RECORDING COST OF GOODS SOLD, 59
registration, 191, 494, 495, 496
Relevance, 2, 512
Reliability, 2, 6, 512
remittance, 207
reporting, 89, 113, 134, 295, 302, 313, 314, 315, 316, 320, 323, 326, 410, 443, 484, 504, 505, 506, 507, 509, 514
responsibilities, 430, 439, 494, 497, 498, 508
Revenue, 6, 75, 123, 191, 200, 205, 386, 411, 412, 422, 506
Safari, 451
schedules, 289, 290
screen, 170, 171, 172, 173, 196, 198, 226, 234, 254, 268, 270, 274, 275, 279, 328, 342, 346, 347