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It is extremely good practice for entrepreneurs to learn how to read their income statement says Edmonton bookkeeping. Not only is it one-half of the interim financial statements that help entrepreneurs make better financial decisions in their business, but it can help business owners also understand where they are making money, how much it is costing them to make money, and if they need to minimize the expenses in their business, or increase their prices to increase their profit. By learning how to read their income statement, entrepreneurs can gain insight into their business that can help them be successful.

There are three sections of their income statement that they should be able to understand. The first section is their income account that tracks all of the revenue in their business. Business owners should have around three different income accounts. These are for the various products or services that an entrepreneur offers. Often, Edmonton bookkeeping says that business owners will only have one main product or service, however, if this is the case business owners may still be able to break that one product or service into a few different categories. The reason why business owners should keep this to around three as bookkeepers recommend is so that it does not become difficult to manage, and so that business owners can maintain the consistency of where they are putting their different income.

The next thing for entrepreneurs to take note of is that they will have a cost of goods sold the account. Edmonton bookkeeping says that the number of income accounts they have in their revenue section will be how many costs of goods sold accounts they have. By keeping track of all of the different costs associated with each of the different streams of income an entrepreneur has, can help them understand how much it is costing them to produce each of those streams of revenue.

Entrepreneurs may look at their income statements and see that they do not have a cost of goods sold account section on their income statement. The reason this might happen is because the particular business that they are in does not generate any additional cost associated with their product or service. For example, businesses like bookkeepers or lawyers typically will not have any additional costs associated with their service. If that is the case, there will be nothing in this section. However, if there are multiple professionals in their practice that provide the services, they might see labor as they are the cost of goods sold.

The last category on a business owner’s income statement says Edmonton bookkeeping is the expenses. Entrepreneurs might not understand the difference between expenses and the cost of goods sold. The expenses are all of the other costs associated with the business that does not correlate directly back to generating their income. Examples of this would be rent and utilities, office supplies and advertising.

By learning how to read their income statements, entrepreneurs can gain an insight as to the revenue that their business generates, and the cost that they incur to produce those products and services. This can help entrepreneurs stay competitive, minimize expenses and increase their profit wherever possible.

When entrepreneurs learn how to read their interim financial statements, they will end up with a great tool that can help them make informed financial decisions in their business says Edmonton bookkeeping. Intuit’s, who are the makers of the accounting software QuickBooks did a survey of business owners to test their business financial literacy and discovered that 82% of the entrepreneurs that responded scored less than 70% on basic business financial questions like what is a balance sheet, and how to increase cash flow. Because of the importance that understanding the financial statements of the business can be, and entrepreneurs learn this, they can also increase their ability to succeed in business.

When it comes to reading their financial statements, the balance sheet is one of the reports that make up these statements, and the income statement is the other. Once an entrepreneur has learned how to read and understand the balance sheet, they should then understand how to read and understand their income statement. The income statement will show the revenue of the business, the costs of generating that revenue, and all of the other expenses in the business that are not incurred from the revenue of the business.

When it comes to expenses, if they are not associated with generating the revenue of the business, business owners need to stay very organized on what they spent and why. They will notice that there are several different expense categories on their income statement, and understanding what expenses should go into them is important says Edmonton bookkeeping.

For example, entrepreneurs need to ensure they are keeping track of all of their payroll expenses in this account. Because source deductions must come off, and being organized with exactly what source deductions business owner has withheld from their employee’s checks, is important to ensure their paying Canada revenue agency properly. They should have a section for income tax, EI and the employer contribution of CPP and the employee contribution of CPP. Also, the health benefits that an entrepreneur deducts from their employee’s checks will be noted here as well.

Another expense account that might be misunderstood is the meals and entertainment account. Business owners should be using this account for entertaining prospective clients and existing. This is considered advertising purposes, and when an entrepreneur takes their clients out, whether it is to a restaurant, a sporting event, or something similar, it is considered advertising and fits in this category. Entrepreneurs cannot just claim all of the meals that they eat in a restaurant in this category. Edmonton bookkeeping says that perhaps once in a while if an entrepreneur works over time they can claimant here, and if an entrepreneur is traveling they can claim those meals in this category because they have no choice except to eat out at a restaurant because they’re traveling for their business.

By understanding the expenses on their income statement, cannot only help entrepreneurs categorize those expenses properly but understand completely what their spending their money on and why. This can significantly help to minimize those expenses if they ever need to.