If entrepreneurs do not learn how to read their interim financial statements says Edmonton bookkeeping. The financial decisions they make, might negatively impact their business. And they may not even know it.
When entrepreneurs are starting out, they may believe that they can look at their bank account balance. In order to understand how much money they have in their business to use. However, that creates a bunch of other problems in their business.
The first thing that business owners need to keep in mind. Is that the amount of money that they have in their bank account at that time. Does not necessarily reflect how much money they actually have to use.
They may have sent out several checks that are still waiting to clear their bank account. And they also may have several different electronic fund transfers. That are also waiting to clear.
But in addition to that, assuming that a business owner is just looking at their finances in order to make business decisions. Discounts how much money they owe their current suppliers.
And while they might have twenty thousand dollars in their bank account that they can spend. If they owe twenty thousand dollars.
The money that they have is money that they should spend on debt repayment. Instead of buying assets, or paying themselves yet.
Because of how important it is to avoid spending more money than they have. Business owners should learn how to read their interim financial statements. As well as learn how to review those reports and look for errors.
Interim financial statements are more likely to have errors on them. When the entrepreneur pulls the report themselves. Or even if they get the report from their Edmonton bookkeeping company. Because it has not been verified by an accountant.
Since there is a higher chance that there will be errors on these reports. Edmonton bookkeeping recommends entrepreneurs learn how to scan these reports for mistakes.
So that when they do use these reports to make financial decisions. They will not cause an entrepreneurs to make decisions that could negatively impact their business.
One of the first things that Edmonton bookkeeping recommends entrepreneurs do when they are reviewing their accounts payable aging summary. Is look at any amounts over ninety days past due.
Because unless an entrepreneur is experiencing financial difficulties. And they cannot pay their suppliers regularly. There should not be any legitimate expenses in this category.
What it usually indicates instead. Is that an entrepreneur has accidentally entered an invoice twice. Either because they did not know they entered it once. Or if an instance happens where their supplier gives them a paper copy. Then also sends them an electronic copy as well.
When they apply the payment, the payment will go onto one of the invoices. But the second one will look as though it has been unpaid. And start hanging on the accounts payable aging summary. Showing that an entrepreneur owes more money to that supplier than they actually do.
By learning how to read their accounts payable aging summary. As well as fix errors. Entrepreneurs can use that information to make more informed financial decisions in their business.
Why is Edmonton Bookkeeping so important?
One of the most important things that business owners can start to do when they are brand-new in business says Edmonton bookkeeping. Is learn how to read and understand their various interim financial statements.
These include their income statement, balance sheet, as well as accounts payable aging summary. The accounts payable aging summary reflects all of the money that they owe suppliers.
It is very important that not only are they using this report compared to their income statement. So that they can see how much money they have brought into their business versus how much it has cost them to generate that business.
This is going to help them understand if they are covering their expenses. Or if they need to adjust their pricing. Or increase the number of transactions they have in their business to make more money.
However, they will not be able to make that determination says Edmonton bookkeeping. If there are many mistakes on their accounts payable aging summary.
One of the most common mistakes that entrepreneurs will see, is that there is a negative number on the report. While this does not necessarily indicate an error.
What it typically suggests, is that an entrepreneurs has entered a deposit. Because it reflects payment made in absence of an invoice.
And unless business owners are often paying suppliers even though they have given them an invoice. This is generally not the case.
While paying a deposit is often one explanation for why a business owner will see a negative number on their accounts payable aging summary.
A more common explanation, is that an entrepreneurs has entered the payment for an invoice. However has forgotten to enter the invoice itself. And it is sitting in the accounts payable aging summary creating problems.
However, Edmonton bookkeeping says that if the negative number is followed by a positive number in the same amount. And is under the same supplier.
What this means, is that an entrepreneurs has entered the invoice. And entered the payment, However has failed to apply the payment against the invoice.
This is a quick fix by going back into their accounting software, applying the payment against the invoice. Noticing that that number no longer is visible on their accounts payable aging summary.
Another quick way to troubleshoot their accounts payable aging summary. To quickly fix mistakes. Is seeing if there are any round numbers on the report. Round numbers typically are estimates. That entrepreneurs put in as a placeholder.
However, once all of the variables are entered into the actual amount and sales tax is added. Most invoices do not equal perfectly round number.
Indicating that this is where business owners should check, to ensure the invoice amount that they entered is accurate.
Learning how to read and fix their accounts payable aging summary. Can help entrepreneurs understand their business finances on a more deeper level. As well as help them make more informed financial decisions that can help them grow their business.