It is extremely important for entrepreneurs to be able to understand all of the various sections of their income statement says Edmonton bookkeeping. The reason for this is so that entrepreneurs can keep a good record of all of the various expenses in their business, and so that they can minimize those expenses wherever possible. The expenses of a business are the costs that entrepreneurs incur that are not included in reducing their goods or services. Therefore, keeping track of them is extremely important. All of the expenses and the income statement are going to be broken down into various categories. Not only do entrepreneurs need to keep track of their expenses, but they need to put them in the right categories so that they understand white types of things they are spending money on in running their business.
There are several different expense categories for entrepreneurs to understand. Some of them are very straightforward and some of them are not. When entrepreneurs do not understand them, they check their expenses less efficiently. For example say Edmonton bookkeeping, the meals, and entertainment expense category is often used incorrectly. Many entrepreneurs believe that all of the meals that they consume in restaurants can be put into this category. However, this is not accurate, and CRA is not a fan of this method of expense tracking. An entrepreneur may be able to claim a meal or to a week as an overtime meal if they worked long hours in their business. But entrepreneurs should be considering why they need to eat those meals. For example, if an entrepreneur’s traveling for business, they have no choice but to eat meals in the restaurant because they cannot go home to eat.
Entrepreneurs need to understand that the meals and entertainment expense account exists primarily for advertising purposes. This is for business owners to be able to take their clients out as a part of their sales. It is also for trying to land prospective clients. So these expenses need to be business-related. For example, taking clients out to dinner would count. Also, things that can fit in this category would be if an entrepreneur takes their business contacts to a hockey game, this expense could fit into this category. However, business owners need to be very aware that the Canada revenue agency has some very specific ideas on if golf fits in this category. No golf dues or golf memberships are allowed, however, if an entrepreneur takes a client to have a meal at a golf course that meal could be expensed. Therefore, if an entrepreneur would like to take their client golfing, they should ensure that they have a meal in the clubhouse so that they can charge some of the days to their expense account.
By understanding how the expense categories on their income statements work, Edmonton bookkeeping says that entrepreneurs can ensure that there keeping a meticulous records of all of the different expenses they incur in their business. This can help them understand what their spending money on, and if they need to minimize expenses, they have a better idea of how they can do it.
The expenses in a business are the costs an entrepreneur incurs just by doing business says Edmonton bookkeeping. Because these costs are not attached to generating their products or services, they need to be kept track of separately from their cost of goods sold. Understanding how to keep track of expenses properly can help entrepreneurs ensure that they are understanding where the money in their business is being spent in case they need to cut expenses or change how they are spending their money.
Some of the common expense accounts are misunderstood, and business owners should be able to understand them to categories their expenses properly. For example, many entrepreneurs do not know what should be put into the professional fees expense category says Edmonton bookkeeping. And they put all sorts of expenses there like chamber memberships and networking group membership. However, the expense account here is specifically only for entrepreneurs in professions where they need to belong to a professional organization to be able to keep their designation. Doctors, lawyers, and accountants are examples of such professions. They need to pay professional fees to keep their CPA, MD or Ph.D. designations. Most entrepreneurs do not need to worry about putting anything into this category.
Another important category for entrepreneurs to understand are payroll expenses. While these payroll expenses are not something that entrepreneurs are going to be able to minimize because they are a requirement from the Canada revenue agency. However, entrepreneurs must keep track of these expenses very meticulously. The reason for this is because since entrepreneurs need to take off the correct amount of taxes from their employee’s checks, and then send them to CRA, keeping track of this account can help entrepreneurs understand what taxes need to be sent off to the government. If a business owner does not send the right amount of taxes or sends them to late they can face stiff interest charges and penalties. An entrepreneur should ensure that they are taking off the right amount of CPP including the employer contribution, EI and income tax. Also in this category, the health benefits can be included.
The other expenses category is for anything that does not fit into the other accounts. A common expense that entrepreneurs put here is there own salary. Entrepreneurs should be keeping their salary separate from that of their employees. One important reason for this says Edmonton bookkeeping is so that entrepreneurs can ensure that they are paying their staff first, and see if there is any leftover money that they can pay themselves. Calling them management fees in this category is a good use of this account.
When entrepreneurs can categorize their expenses properly, they can see where their money is going, and make plans to minimize those expenses. By learning to understand this one-half of their interim financial statements, entrepreneurs can make more informed financial decisions in their business.