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Accounting Outsourcing | Why Entrepreneurs Should Understand Income Statements


If business owners mix their corporate income and expenses with their Core Business income and expenses, they may not have an accurate picture of the Financial State of their business says accounting Outsourcing. And while many business owners think that all income and expenses and their corporation on the revenue and expenses portion of their income statement, this is not true. By learning where to put their corporate income and expenses can help ensure that the income statement that business owners are looking at will be able to reflect more accurately the financial position of their business so that they can make more informed financial decisions.

One of the most common problems that business owners have is when they earn income in their corporation, they put it under the revenue of their Core Business on their income statement. The reason why this is wrong is in order for business owners to make more informed financial decisions about their Core Business, they can’t have any additional income or expenses from other sources. While corporate income and expenses do belong on the income statement. They belong on a specific place on the income statement so that business owners can clearly see the financial state of their Core Business. As well as see the financial state of their corporation itself. When they understand this, accounting Outsourcing says they will be able to use their income statements more accurately.

if a business owner has investments, then they might have income associated with those Investments as well as expenses says accounting Outsourcing. If they put this income in their revenue when they look at their income statement, they may think that’s their business is doing much better than it actually is. This will end up causing business owners to spend more money than they actually have, or even make decisions like buying a new building, that they actually cannot afford. This is why it’s extremely important to put corporate income and expenses on the other income and expenses section of their income statement.

Another example of this is if a business owner ends up having a rental property that is owned by their corporation, they might have a condo that gets a special assessment for $20,000. If they are putting their corporate expenses on their income statement, this might make it look like the business has had a significant loss. This might cause a business to lay stuff off unnecessarily. Not only will this affect the staff. But it might also stall at the business, or cause it to lose Revenue instead of growing. This is why it’s extremely important to keep corporate expenses separate.

Some business owners are able to understand how to organize their income statement, whether they are doing the work themselves, or if they’re getting an accounting Outsourcing company to do it for them. They will be able to either do the bookkeeping more accurately or communicate with their accountant and tell them where information needs to be. But doing this, business owners will have more accurate income statements that they can use to make more informed business decisions and increase my birth name of their business.

Accounting Outsourcing | Why Entrepreneurs Should Understand Income Statements

Many entrepreneurs actually do not understand how to read their income statement says accounting Outsourcing. Into it, who is the company that makes QuickBooks desktop and QuickBooks Online did a survey in order to understand what entrepreneurs and small-business owners understood about their business finances? Respondents to the survey were asked questions such as what is a balance sheet, how to increase cash flow in a business, and what is an accrual. They discovered that 82% of all respondents scored less than 70% on this test. This shows them, that a significant amount of business owners have large gaps of knowledge when it comes to business finances. By helping business owners understand what they need to know about their business finances can help them make better decisions in their business that can help them not only avoid making the wrong decision. But use that information to grow their revenue as well.

What are the first things that can help business owners is understanding how their income statement is organized? When they understand this, they will understand where to put everything when they are doing their own bookkeeping. Or if they are employing an accounting Outsourcing company, they will be able to communicate more accurately where everything should be put on the income statement to ensure its accuracy.

The first thing that people will notice about their income statement is the revenue of their business is at the top. Accounting Outsourcing says business owners need to ensure that only be the revenue of the business is included here. Corporate Revenue has a different place to be organized. Therefore whether a business owner has Investments or rental property That does not impact the revenue of the Core Business. This can help ensure that business owners understand what’s their business is doing revenue-wise, but that’s they can also look at the other section of their income statements and understand how much money there Corporation is generating as well.

Underneath the revenue, business owners will see the direct cost of sales, which is only for all of the costs associated with generating their product or service. This includes purchasing materials needed to make the product, and the labor included. Weather at this labor is Staff or independent contractors that have been hired, they both get listed here. Below that section, is the gross margins, which is what a business owner will house once they subtracted a direct cost of sales from the revenue. Underneath the gross margins, are all of the overhead expenses. These are all of the expenses that a business owner will incur just by having their business open. It includes administrative staff wages, rent of their office space, utility bills, phone and internet, they charges and office supplies. Business owners should ensure that they do not put their corporate expenses here, because it could negatively affect but it looks like their business is profiting.

When business owners understand exactly how their income statement is organized, accounting Outsourcing says it can help them organize it correctly, or communicate with their accountant on what is a business expense or revenue, and what is a corporate expense or Revenue. This way, they will be able to have accurate income statements that they can use to grow their business.