Extremely important for entrepreneurs to learn early on in their business how to read their financial statements says Edmonton bookkeeping. The balance sheet, as well as the income statement, are very important tools that can help an entrepreneur significantly make informed business decisions. Since 15% of all entrepreneurs in Canada fail in the first year, 30% fail by year two and 50% have failed by year five, helping entrepreneurs as early as possible in their business make informed business decisions can increase the odds of success for entrepreneurs, and ensure that not only can they avoid financial problems with they can actually grow their business.
They should understand the information that is on those income statements, so that they can gain a deeper understanding of how-to information into their income statement and will I says Edmonton bookkeeping. The first section is the revenue section where an entrepreneur will have several different income accounts that show the different revenue streams for their business. Entrepreneurs may only have one product or service in their business, but it may be able to be categorized into different areas that make sense. For example, a bakery might have wedding cakes, sweet baking, and savory baking. Or a hairdresser might have haircuts, hair colors, and up dues. By ensuring that their income accounts are categorized, can help business owners understand where the revenue in their business is coming from, and what the cost of generating that revenue is.
The next thing entrepreneurs will see on their income statement says Edmonton bookkeeping is the cost of goods sold accounts. The only exception to this rule is when a business is in a service industry and they do not generate any costs by way of providing their service. Accountants and lawyers are great examples of businesses that do not incur additional costs typically. All other businesses should ensure that they have the cost of goods sold accounts that relate directly back to the income accounts that they have. If they have three income accounts, they should have three costs of goods sold accounts.
One of the most commonly misunderstood things about the income statement says Edmonton bookkeeping is entrepreneurs who do not understand the difference between the cost of goods sold and expenses. The cost of goods sold is the costs that a business has related specifically to producing that product or service. Typically these expenses are labor and materials. If an entrepreneur sells no products they will not have a cost of goods sold account. The expenses, on the other hand, are all of the costs that a business owner generates whether or not they sell anything. These costs are often rent, advertising and utility bills.
By understanding all of the various areas on the income statement, Edmonton bookkeeping says that entrepreneurs can start to understand all of the information on that income statement as well as how to use that information in order to make better financial decisions in their business.
Bookkeeping | Reviewing Income Statements
Learning how to review and income statements is extremely important says Edmonton bookkeeping. It can help entrepreneurs understand what revenue they are generating in their business, what the cost of generating that revenue is, and what additional costs they have in their business. Whether they want to increase their profits, minimize their expenses, Raven sees if there is a certain product or service that they no longer need to offer because it is not generating enough income for them, can all be determined by looking at their income statement critically.
One of the most misunderstood sections in the income statement says Edmonton bookkeeping is the expenses section. This is where entrepreneurs need to put all of the expenses that their business incurred that are not related to generating their product or service. The reason why this is often misunderstood is that business owners are not always certain of what expense accounts should have what expenses in them. A great example of this is meals and entertainment. Often, business owners think that every time they eat out in a restaurant they should be able to claim the meals to this expense category. However, that is not the intent of this category. This is supposed to be used for advertising purposes. For helping clients entertain or attract clients. Because of that, if they have taken clients out for meals, or have taken them to sporting events or other entertainment events, these can be posted in this account.
Another expense account that is often misunderstood is the payroll expenses. Entrepreneurs should be keeping meticulous track of all of the different source deductions they take off of their employee’s paychecks says Edmonton bookkeeping. The reason for this, is because business owners need to ensure their sending the correct amount of taxes to the Canada revenue agency. If they send to a little or send it to late, entrepreneurs may face high-interest rates and other penalties. This can significantly negatively impact the business, so ensuring that they are organized to take the correct source deductions off and send them in on time is important.
Another expense section that is misunderstood says Edmonton bookkeeping are the professional fees section. This should be reserved only for business owners that belong to professional organizations or have professional designations that they need to pay to continue to be a part of. Lawyers, accountants, and doctors are examples of this. This is not the area where business owners should be putting things like the Chamber of Commerce memberships.
By understanding all of the various expenses, not only that they should be putting them in their income statement but where can help entrepreneurs ensure that their keeping a good track of all the of the expenses in their business. This is going to help significantly if an entrepreneur needs to learn how to minimize their expenses in their business later on. Once an entrepreneur has learned how to actually enter in their expenses into their income statement, they will be able to use the statement as a whole to make business decisions and also together with the balance sheet they receive from their bookkeeper in order to positively impact their business.