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Accounting Outsourcing | Should Owners Salary be Listed on Income Statements


Many business owners have to learn important aspects of their business finances while learning to be a business owner says accounting Outsourcing. As a result, they often lack important business financial literacy, that could put their business at risk if they don’t learn quickly enough. In fact, Intuit, the makers of QuickBooks to the survey of small business owners to test their business financial literacy. Respondents were asked questions about what a balance sheet is, how to increase cash flow, and how to read financial statements. An overwhelming majority of all respondents, 82% scored less than 70% on the test. That’s 30% or more is a lot of information that business owners need to run a successful business.

One of the most common mistakes that business owners make when it comes to their income statements is putting their own salary in the expenses of the Core Business. Accounting Outsourcing says this is such a common mistake, that many entrepreneurs don’t know why this is wrong. And I also don’t understand how it’s going to affect their income statement negatively when they do that. Ultimately, the decision of how an entrepreneur gets paid is a tax decision between them and their accountant. Business owners will likely take a mixture of salary and dividends, so the exact amount of salary that a business owner takes should not be listed as an expense of the business.

However, business owners need to understand that their salary should go on the income statement so that it is accurately represented. But an owner’s salary should not make the profitability of the business diminished. This is why it should go in the other expenses category of the income statement. This is listed at the very bottom of the income statement along with all the other expenses that a corporation might have, that are not specifically related to the Core Business. Other expenses can include taxes, losses from Investments, and expenses related to their rental property, such as property taxes, special assessments, and utilities.

When business owners understand exactly what should go in there other income and expenses category, they can either ensure that they are doing their bookkeeping accurately, or they can ensure that they are telling their accounting Outsourcing company that they should go in the other income and expenses. They’re accountants or bookkeepers might not know exactly where everything should be unless a business owner makes it very clear. When entrepreneurs understand that corporate income and expenses should be listed on the income statement in a very specific place, that can help ensure that they are doing it accurately.

The accuracy of a business owner’s income statements can help them make informed financial decisions says accounting Outsourcing. It can also help them create a business plan every year that they are going to use to help them grow their business, it’s also going to help them obtain financing and ultimately sell their business when the timing is right.

Accounting Outsourcing | Should Owners Salary be Listed on Income Statements

Many entrepreneurs lack a basic knowledge of business finances when they first open up their business says accounting Outsourcing. This can lead to inaccurate income statements that don’t allow business owners to be able to understand the profitability of their business, and leaving them wondering how best to grow their business. Business owners should understand that they should not commingle other income and expenses from the corporation with income and expenses of the Core Business. While all of these things legitimately belong to the income statement, they need to be categorized very specifically in order to get an understanding of the profitability of their business.

Business owners should ensure that their income does not get put as the expense of the Core Business. If a business owner sold the business, they would not be putting hours into the business, and they would not be generating a salary. In fact, the salary of a business owner is related more to the best tax decision for the business owner then it relates to the business. If a business owner makes this mistake and puts their own salary in the expenses of the business, this can create huge problems when they are trying to obtain financing. Whether this financing is needed to purchase a building for the business to operate out of, whether it’s to purchase assets to help businesses grow and be more profitable, or whether it’s financing that a business owner needs in order to make leaseholder improvements so that they can continue to be a competitive business.

If a bank or a financing company looks at the income statement and the business owner has their salary in the expenses, it’s going to greatly affect the profitability of the business, and make it look like a business owner will have a more difficult time paying back the finance payments. Therefore, business owners need to remove their salary from the business expenses, and move it to the other expenses of the business, so that’s business owners and their financiers are going to be able to much more easily see what’s the profits of the business is.

Send a business owner also often takes payment from the business in the form of salary as well as dividends, this is another reason why the salary should not be included in the expenses of the business. Since Dividends are paid out of the profits of the corporation, and the reason why an accountant might how’s the business owner claims them as salary is in order to get tax benefits. Therefore, there might be dividends that are the business owner should have had, which means the business profited that amount. But they took it as a salary. And it’s for this reason that business owners should not claim their salary as an expense.

The Sooner business owners are going to be able to minimize errors on their income statement, the better they’re going to be able to use those income statements to make financial decisions and their business whether it’s running payroll, hiring or laying off staff, or buying an asshat, or whether it’s in order to obtain financing or successfully sell their business. The sooner they do this, the more accurate records they’re going to have for longer which is going to be extremely beneficial says accounting Outsourcing.