There are many things that entrepreneurs need to learn about the information on their income statement says Edmonton bookkeeping. Helping entrepreneurs understand this information will not only help them enter the information correctly, ensuring that the information is kept accurate, but also so that entrepreneurs can understand it to make informed financial decisions in their business
One of the first things that entrepreneurs should understand about reading their income statement, is that it should not be the first financial statement that they read and understand. Even though it is one half of an important set of financial statements, entrepreneurs should get into the habit of reading and understanding their balance sheet first. Not only can this help an entrepreneur gain valuable insight as to the health of their business financially, but entrepreneurs can also catch errors using the balance sheet first. Once they do this, then entrepreneurs can then move onto their income statements, to gain an understanding of what that month in their business looks like.
When entrepreneurs have finished reviewing their balance sheet, and they are ready to move onto their income statement, they should understand the information in those statements. They should expect to see the revenue of their business, followed by the cost of goods sold and finally the expenses that the bottom of the list. Edmonton bookkeeping says that entrepreneurs need to understand each of those categories to completely understand the information on their income statement.
One of the first things an entrepreneur should understand the cost of goods sold section of their income statement, is that not all businesses are going to have this section. If the business is more service-based, such as accountants, lawyers or bookkeepers, they may not have a section here. If it is a service-based business that has other people that do that same service such as a bookkeeping company that has several bookkeepers, then they might have a cost of goods sold with labor as the cost. However, it is not uncommon for service entrepreneurs not have anything in this category. Therefore, entrepreneurs should understand which types of businesses are more likely to have a cost of goods sold section. Retail merchants like stores will have a cost of goods sold, if they’re selling clothing or gifts or food, what they purchase to resell to their clients are going to make up their cost of goods sold section. If they are a lot more material-oriented businesses such as manufacturing companies or trades like plumbers, construction workers, and electricians, then they will have a cost of goods sold section.
Helping entrepreneurs understand their income statement can ensure that they can use it to help them make informed financial decisions in their business that can positively impact their organization. Learning how to enter the information, and how to use it alongside their balance sheet can help entrepreneurs gain important insight and how they can make financial decisions in their business that will negatively impact them.
One of the most important reasons that entrepreneurs need to understand their income statement says Edmonton bookkeeping, is so that they can use the report alongside their balance sheet to make informed financial decisions in their business. One of the most important reasons why entrepreneurs should understand this income statement is so that they can minimize expenses. It is going to have a list of the cost of goods sold as well as their expenses, and by minimizing expenses, they can increase cash flow and increase the profits of their business.
When entrepreneurs are looking at the expenses section of their income statement says Edmonton bookkeeping, they should note that the expenses are broken down into categories. Anything that entrepreneurs need by way of operating their business should be included in expense categories. As opposed to the cost of goods, which are the costs incurred while preparing to sell products to their clients, the expenses are all of the costs that are associated with operating their business and would exist whether or not an entrepreneur sold their product or service or not. Examples of expenses would be rent, administrative staff labor, gas, and office supplies.
There are many different expense categories, as many as there are expenses. Understanding how to categorize the expenses in the section can help entrepreneurs understand what their spending money on, and how they can minimize those expenses in their business. Edmonton bookkeeping says entrepreneurs should understand that many of these expense categories will have several parts to them. For example, their payroll expenses should be organized by type of payroll expense. There are the source deductions, including employer CPP, employees CPP, EI as well as income tax. Then there is also a separate section for their employees to have their health benefits deducted from their check.
Many entrepreneurs are not sure what should be posted in their professional fees and think that that is where their income goes. However, Edmonton bookkeeping says that this is a section for professionals, who need to pay to be a part of the association to continue to operate their business. Such as lawyers, doctors and dentists, and accountants. Most entrepreneurs will not need to put anything into this category.
Meals and entertainment are another expense category that entrepreneurs are often confused about say Edmonton bookkeeping. To claim expenses here, an entrepreneur needs to factor in why they encourage those expenses. Entrepreneurs think that they can go out to eat for dinner and lunch every day and count them, but this is not the case. They may be able to claim a couple of meals a week if an entrepreneur works over time, but this section should mostly be for advertising purposes.
By understanding how to enter in information into the income statement, and how to read and review it can help entrepreneurs make informed financial decisions in their business that they can grow a successful and strong business.