There are several things that entrepreneurs should understand is on their income statement says Edmonton bookkeeping, so that they can understand them well enough to be able to make informed financial decisions based on the information in them. When entrepreneurs can make better financial decisions, they can increase their chances of succeeding in business. Industry Canada says that half of all entrepreneurs fail by year five in their business, and this can help small businesses increase the odds.
When a business owner looks at their income statement, they should see three categories, revenue, cost of goods sold, and expenses. In the first section, revenue should show an entrepreneur all of the different streams of income they have in their business. Edmonton bookkeeping says that this is all of the different products or services that a business owner produces in their business, or if they only have one main product or service, it can be broken into a few different categories. A good rule to go by is to have no more than three categories because it can become time-consuming and confusing to categorize.
The next section is the cost of goods sold, and entrepreneurs should ensure that there is a cost of goods category for every income account they have. If they have three income accounts, Edmonton bookkeeping says they should have three costs of goods accounts. However, some entrepreneurs might not have any cost of goods accounts, because they do not generate any expenses through their business. An example of this is when it is a service-based business, such as bookkeepers, lawyers or accountants. Once their business is set up, the services that they provide do not require additional expenditures. However, most other businesses like retail stores, trades or manufacturers have a large amount of cost of goods sold.
The next section is the expenses. Edmonton bookkeeping says that many entrepreneurs are unsure of the difference between the cost of goods sold and expenses. The cost of goods should correlate directly to the income accounts and is when an entrepreneur spends to generate that income. Expenses, on the other hand, are all of the other costs of running a business that an entrepreneur would pay whether they sold any products or services in their business or not. Typical expenses include rent, administrative employees, utilities and office supplies. The cost of goods, on the other hand, would be the cost of the labor to produce those goods and direct materials. If it is a retail location, it would be the products that they purchase to resell, and if it is a manufacturing facility, it is the materials they would purchase to make their products.
When entrepreneurs can understand each of the categories on their income statement, they can ensure that there putting the right information in the right places, and then completely understanding how to read their income statement. Understanding their income accounts, cost of goods sold and expenses can help entrepreneurs minimize expenses and increase their profit margin.
The reason why entrepreneurs should understand what an income statement says Edmonton bookkeeping is because it is half of what was called the interim financial statements of the business. Entrepreneurs should get into the habit of reviewing these interim financial statements before they make any financial decisions. The information can help guide them to make the right choice so that they can not only avoid making poor financial decisions but so that they can proactively grow their business. An example of this would be an entrepreneur who reviews their interim financial statements to determine if they have money in their business to buy an asset. If they do not, they may create a plan on how they can save up enough money and generate more income to do that. If they do not check their interim financial statements, entrepreneurs may make that asset purchase, and end up running out of money in their business.
One of the most significant aspects of the income statements that entrepreneurs should be looking at regularly are the expenses. Expense minimize Asian is important in a business, to keep the costs down and increase the profit margin says Edmonton bookkeeping. There are various accounts for each of the different types of expenses that a business can incur. By categorizing these expenses this way, entrepreneurs can keep track of them, and make plans to minimize them.
When entrepreneurs are looking at their expense categories, they may not understand all of them, and what should go in each one to stay organized. For example, Edmonton bookkeeping says that entrepreneurs often do not understand what payroll expenses need to be entered into this category. Not only do entrepreneurs need to be taking the source deductions off their employee’s paychecks, but they need to stay extremely organized on what payroll expenses they incur. Entrepreneurs need to be sending to Canada revenue agency the payroll taxes that they deduct off of their employee’s checks and if they do not send the right amount, they could face stiff penalties. Therefore, entrepreneurs should ensure that they are keeping good track of all of the various payroll expenses in this account. An entrepreneur should have the CPP accounted for both the employer and the employee portion, employment insurance and income tax. By keeping track of all of these expenses separately, entrepreneurs can ensure that their spending the right payroll tax off to the government. They also should be keeping track of the health benefits that they deduct from their employee’s checks in this account as well.
When entrepreneurs can understand all of the different expenses and expense accounts in their income statement, they will be more prepared to be able to minimize those expenses wherever necessary, so that they can run an efficient business, and increase the profits in their business wherever it is possible for them to do so.