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Helping entrepreneurs learn how to enter information accurately into their income statement and thereby helping them read it can help them make important informed financial decisions in their business says Edmonton bookkeeping. If entrepreneurs are making financial decisions without looking at what the finances of their business are currently at, they can end up making poor decisions in their business.

Understanding the information on their income statement can help entrepreneurs enter information into the statements properly, and end up with accurate records so that they can use them in their business. The first thing that an entrepreneur should understand, is that income accounts exist on the income statement to show all of the different categories or products an entrepreneur offers. Edmonton bookkeeping says typically, an entrepreneur will have one main product or service that is categories into up to three different categories.

Whether or not an entrepreneur needs to have a cost of goods sold account on their income statement is very dependent on the type of business that they run. Service-based businesses like accountants or bookkeepers probably will not have the cost of goods sold in the account. If they have another professional that works in their business with them, they may end up having labored as a cost of goods, but most small businesses are solo printers, and therefore do not end up having labored as a cost of their business. However, merchants that sell products like clothing, gifts or groceries or manufacturers or trades like plumbers, construction workers or electricians are going to have a cost of goods sold the account.

The next thing that an entrepreneur should know to fully understand the income statement is the difference between the cost of goods sold and expenses. The cost of goods should correlate directly to the various income accounts of the business. If there are three income accounts, there should be three costs of goods accounts. This is going to help an entrepreneur keep track of all the materials that went into the various products that were sold. They should directly relate to the income of the business. Meanwhile, expenses are the costs that an entrepreneur is going to incur just by running their business. Even if they do not sell a single product that month, they are going to have these expenses. Entrepreneurs may wonder what expenses should be included in their income statement. And the answer is anything needed for an entrepreneur to run their business. Edmonton bookkeeping says these expenses are typically rent, utilities, phones, and Internet, advertising and office supplies.

Once an entrepreneur understands what accounts are in their income statement, and what they are used for, then they cannot only enter items into their income statement correctly but also be better informed on how to create their income statement to be able to make more informed financial decisions in their business. Doing this, entrepreneurs can avoid running into the problems that many entrepreneurs who fail have encountered.

The reason it is so important for entrepreneurs to know how to enter in expenses into their income statement says Edmonton bookkeeping, is so that they can ensure the accuracy of the information on it. They need to be able to read this statement to help them make informed financial business decisions. By having an understanding of the information, entrepreneurs can more accurately into the information in and end up with a great tool to use in their business.

When they are looking at their income statement, they are going to have a bunch of different sections for all of the expenses of their business. There are payroll expenses that an entrepreneur has, and Edmonton bookkeeping says that they should ensure that there keeping track of their various payroll expenses. Those include all of the various source deductions that entrepreneurs must be taking off of the checks of their employees, as well as the health benefits that they are also deducting from employee checks. The source deductions that need to be categorized on the income statement are the employee year and employee contribution to CPP, the EI as well as the income tax. The health benefits are also going to be in the payroll expenses on a separate category.

Many entrepreneurs wonder what should be posted to the professional’s fees section of their income statement. The expenses that go here are for professionals who are part of a professional organization that is required for them to continue to be a part of that profession. For example, accountants for their CPA, engineers for their P end, dentists for their DDS. Are all examples of professions that will have a professional fee for their income statement. Essentially, doctors, lawyers, accountants are some examples.

Entrepreneurs often wonder what should go under the other expenses category. Edmonton bookkeeping says that this is for expenses that do not necessarily fit into any other category. Most often, business owners are going to put their owner’s fees into this category and call it management fees. Entrepreneurs must keep their salary separate from their employees. That way, an entrepreneur can pay their staff and then see what is left over for them. Owners need to keep themselves separately because they are not regular employees. Other examples of expenses that can go into the other category are rental income. Entrepreneurs must keep any type of revenue that they do not earn in that business separate from their traditional business expenses. It does not necessarily fit any other place, but entrepreneurs want to ensure their claiming that information.

The last thing for entrepreneurs to keep in mind about their income statement says Edmonton bookkeeping, is that they should not be reading the income statement alone, and not even as their first report to review. Entrepreneurs should always review their balance sheets first, catch errors and gain an overview of the business before moving on to their income statement and reviewing their balance sheet and income statement at the same time gain valuable information.