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E-Myth – “Why most small businesses don’t work & what to do about it”

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Accounting Outsourcing | Why Corporate Income Should Be at the Bottom of Income Statements

If entrepreneurs make the mistake of believing that the income generated by their corporation should be included in the revenue at the top of their income statement, they might be making large Financial mistakes is accounting Outsourcing. However, many entrepreneurs, especially when they are new in business Lac business financial literacy. In fact, Intuit who is the company that makes QuickBooks desktop and QuickBooks online programs did a survey in order to test the financial literacy of small business owners and entrepreneurs. 82% of the respondents who took the quiz scored less than 70%. Among the questions that were asked, these entrepreneurs were asked about what a balance sheet was, what’s an accrual is, and how to increase the cash flow in their business. This illustrates that many business owners lack a lot of important knowledge, that’s if they understood a few things, could help them make more informed financial decisions in their business.

Business owners might have income from their corporation, and if they don’t know that they shouldn’t be including it in the revenue of their Core Business, that’s where they might be putting it, or directing their accountant to put it there. If the accountant works out of their own office, they might not know that it is corporate income, and shouldn’t be put in the revenue at the top of the income statement. Different sources of revenue in the corporation might be rent from a rental property that the corporation owns, profits from investments, and the sale of large assets. When business owners understand where they should be putting things, then they are going to end up with more accurate financial statements that are going to help them make informed decisions.

Other things that business owners should be aware of, is they also should not be putting expenses of their corporation into the expenses of their business, not only because the only expenses that should be on the business side are the direct cost of sale or the overhead expenses. Expenses of the corporation don’t fit into either of these categories says accounting Outsourcing, which is why they should be in the other income and expenses categories. Examples of What expenses should be included here are the expenses incurred from the rental property that a corporation might own, the losses associated with an Investments, as well as the entrepreneur’s salary itself.

And business owners are able to separate these items out, they will end up having their Core Business information at the top of the income statement, and the income and other expenses from their corporation at the bottom. They will very easily be able to see what’s going on in their Core Business as well as what’s going on in their corporation so that they can make decisions accordingly. The sooner business owners can do this, the sooner they’re going to end up with accurate income statements that are going to help them make financial decisions in their business.

Accounting Outsourcing | Why Corporate Income Should Be at the Bottom of Income Statements

Business owners should understand how their income statement is organized so that they can end up putting the income and expenses of their Core Business and their corporation in the right places says accounting Outsourcing. In fact, many business owners don’t know how to read their income statement, let alone organize it correctly, with the corporate information at the bottom and The Core Business information at the top. Therefore, if business owners understand how their income statement is arranged, they’ll be able to understand why the corporate information should be at the bottom, and how to read it more accurately to end up with correct decisions about their business.

the first thing that business owners need to understand is that the revenue of their Core Business should be at the top, and do not include information such as any Revenue generated by the corporation itself. The only information that should be here says accounting Outsourcing is the revenue generated by the sale of the product or service that the company sells.

Underneath the revenue, a business owner will find the direct cost of sales, which is only the expenses that are going to be incurred by creating or delivering the product or service that the business sells. This includes materials and supplies, as well as labor whether or not to the labor is through employees or by hiring independent contractors. I found, which is simply the revenue with the direct cost of sales subtracted from it. After that, business owners will have all of the overhead expenses listed. These are all of the expenses that a business owner incurs whether or not they sell any products or services in their business. Common overhead expenses include administrative wages, rent of the office space, utility bills, office supplies, and Bank charges to name a few.

Underneath the overhead expenses are going to be the net income from operations says accounting Outsourcing. This is one of the most important numbers on the income statement because it’s going to be all of the profits that are leftover from the business once all expenses are removed from the revenue of the Core Business. If a business owner has been accidentally putting corporate expenses or corporate income into the Core Business sections, they might look like they have increased profitability, decrease profitability, or very out-of-control expenses.

Underneath beware the other income and other expenses category is going to be. All income and expenses for the corporation will be listed here says accounting Outsourcing. By understanding that there is a section in the income statement for the corporate expenses and income can help a business owner understand how to separate it out oh so that they will be able to read the income statements and understands what is going on in the business so that they can make more informed financial decisions. The center business owners can understand this, the sooner they’re going to be able to make Better Business decisions.