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Edmonton Accounting Firm | 6 – 2019.02.02 #BeatTheOdds Boot Camp – Accounting

6 – 2019.02.02 #BeatTheOdds Boot Camp – Accounting | Edmonton Accounting Firm

Okay, bye. It’s two nine two nine three. Let me see. Section

number six. We’re going to go quickly through this one. So we get done rate at, uh, we can get a full break at 45. The last one was the sexually probably go three hours. I’m not sexy, but this one is just as important. So this one is your rock star, the defense section two, Edmonton Accounting Firm, I’m going to have Matt, he’s just financial again, help you through with this one. It doesn’t matter how many leads you get, you don’t make any money off of them. It doesn’t, not going to make an ounce a bit. So how can you review your financial statements if you don’t really like numbers? That’s not why you got into this. You know, what do you need to do? What are the basics? The bare bones that you have to do, the very first report we need to look at is your balance sheet.

Now here’s the biggest mistake that business owners are going to be. They’re going to pull up their profit and loss or income statement or profit walking. They don’t get confused by that. So profit and loss and I’m saying that it needs the same thing. Do not look at your profit loss statement so you’ve looked the couch. I’ll say that again. Do not look at your profit and loss or income statement until you reviewed the analogy because if there’s a mistake on the balance sheet, your income statement is going to be wrong and you could potentially make the catastrophic choice based on an inaccurate income stated. It can make it look like you’re making a ton of money and you’re not, or we’re going to make it look like you have a big loss and you don’t. So the order, what’s your, your financial statements is balance.

She first in the second year financial statements, balance sheet, first name, state, the sec what you want, and this is not dependent on what software you’re using, whether you’re using quickbooks or simply accounting or zero or whatever. The act community doesn’t really matter. What matters is you want to compare to it. Don’t look at one month, don’t look at two months. We recommend six months. This is what you need to look at. It’s a comparative monthly balance sheet for six months. That’s report that she walked around. Who’s ever helping you with the reports just as a, as a jumping off point. So your way, do you need this level of reporting? If you are a solo printer, a one person business, you might not need bookkeeping software. I said I’m the accountant. I just told you if you’re a one person business and you have no employees chokey me software and monthly reports, it might be overkill or okay.

Generally you have more complex operations. There’s a lot of moving parts in your operations or you have employees. Once you have payroll, you need this 100% you need to be reviewing these numbers each and every month. Okay? Um, so once you do need this, this is how you want to do it. Six months comparative. And we’re going to start with cash and your cash should be at the top of this report. So we look at, we have this one is RBC checking account. Okay. One of the common errors that I normally see with these checking accounts is this would stick out like a sore thumb for you. If you see the exact same balance in the next month, then anybody know what happened? Probably what happened was the likely what happened was that most likely nobody has done that funds yet. So if you are sitting here in October and it had $7,797 in the bank account, again, it means no one’s sense of the data for that month.

So don’t go into that month and then make business decisions based on that. This is why you didn’t analogy first. Okay? So number one, look at that cash balance and those accounts and you want to make sure a, that they’re changing and be that they’re reasonable. Okay? All right. I think Albert Einstein said, if someone can’t give you a simple enough explanation on it, they don’t understand it well enough. So if you’re getting an anomaly and don’t even give you a simple explanation as her number one, if you can never get, if you could never do that, I completed for you. You understand? They probably don’t understand it either. It really mean for you. Um, Telpay account is kinda unique for the type of work that we do. It’s like a trust account that will never go negative. It goes into an elk, undeposited funds. So undeposited funds, anybody know undeposited funds are billables there.

They’re usually checks or your credit card machine because you’ll collect the farm, but it won’t hit your banking. So it’s going to be, you know, a day to three days if you’re running a credit card or debit card through before it hits your bank. So it’s recorded as collected. But why isn’t necessarily out of your machine? It’s undeposited funds. Or it can be a physical check that’s actually sitting. Yes, the definition. So that’s undeposited funds. Okay. Um, I’m, the positive funds is a big one. So this should be reasonable and a lot of errors we’ll hang out in undeposited funds. So if this is a business, I see 18,000, $338. That means unless you’re a business owner and you have a giant check on your desk for a bunch of checks sitting on your desk, he has to be in a business that it’s reasonable for him to have $18,338 you know, run, run through your credit card machine. So if you’re, you don’t sell a, um, if you’re selling a dog treats and you normally go to the, the, you know, the market and you’re ranked two or 3000 bucks through on a Sunday, maybe that’s the sales average. You shouldn’t see $18,000 sitting in your own and funds. I mean, someone’s made a big mistake. Okay? So this is why you need to see in a comparative of a amount so that you can look at Matt, any, any common areas that you normally

see with passion going to get them all? No. Can you hear them all? Better accounts.

Same thing. It should change from month to month. So you should, it should change. Your accounts receivable should change from month to month because it’s not likely that you have, you know, the same people or are you the same amount of money in month over month? It should not be negative. What does that, if it’s negative, what does that mean? Your money? Yes, you owe them money so they overpaid it. It’s not impossible. Um, they’ve overpaid the bill. Play ended up pause it on something. But generally if it’s negative, it means you know, it was probably a mistake you need to be looking at.

That’s something also to really monitor their accounts receivable. That’s just, it’s a good metric of how well you’re getting people to pay you on a regular basis. And that’s one of the most important things to keep cash coming into the business. So if you’ve got large amounts role in there in terms of your cash or your expenses, you’ve got to figure out a better system of following up or collecting those payments.

Then you get down to property, plant and equipment. So these are assets and you can think of assets in your business as this is Joshua definition, not series definition. By the way, anything that costs $1,000 or more, that has a useful life of longer than one year. So if I buy a bunch of paper and it costs me 1500 bucks, I’m and gonna use it all in the next three months. That’s not an acid. Okay? Now if I buy a computer, it cost me 1500 bucks and I can to keep that computer for two or three years. That’s an asset. It’s going to show up on the balance sheet. So as you know,

computers, but my hearing, no, you just got

vehicles, so it’s that you were him. If he bought a new truck and that truck, he bought a cheap dump truck and it was 10 grand, that would show up as an expense. It’s going to show up with an asset. Okay. When you purchase assets, so stuff that costs more than a thousand bucks and has a useful life of longer than one year, costs more than a thousand UCLA, more than one year. Siri doesn’t like more than a thousand thing, but I’m telling you, you don’t need to be that detailed, devoted, perfectionist. Sometimes the enemy of progress and that’s one of the areas, um, that needs to go on your balance sheet. That’s not an expense.

All right, I’ll be able to deduct that over time. Sorry, what was,

um, anything you purchase as costs more than a thousand dollars that has a useful life? A longer than one year

monthly subscriptions? Nope, it’s gone in one material over like computer building, vehicle, um, those sort of things.

So you’re generally not going to see this accumulated depreciation happened here. You’re just going to see an addition. In this case, this was really easy to view cause it’s, it’s total at the bottom 35,000. That means he didn’t add any new assets or sell any new assets in the last six months.

Awesome. You’re, I can go right down to that brand, the beginning. Okay. Are you familiar? I mean I’m just talking about depreciation some more. Okay.

That’s going to what the accounts payable, accounts payable. What’d you call, what you all do other people, same thing. If you see this number and it’s the exact same number of month over month, we probably have an error that’s not likely to occur. Or if you have a negative numbers, that’s not likely to occur. So this is very much like accounts receivables. They shouldn’t be the same number. It shouldn’t be negative. Okay. And it should make sense. That’s how much I old other people. So it’s like receivables, that’s how much other people will meet. Resembles something like an investment, like a mutual fund or whatever. Would that still count as an asset or is that something you would count as an asset? 100%. It wouldn’t be property planned equipment. It would be a separate section.

Yeah, he’s more often me or this area or just below accounts receivable. Okay. I mean I wouldn’t want it was there

theoretically ordered in their level of liquidity? So cash is the most liquid is at the top and you go down from there in order to clean it, he’s supposed to, okay. Now we have your visa account, so your credit card account using this credit card cam a lot. This guy. Um, so that should be, you know, the balance that should be reflected of what your credit card balances. Again, if it’s not, if it’s the same number, what does that mean? It’s just like the bank account.


they have an end of the day. Again, that probably just haven’t done that month. So if you’re sitting here and you open up your October report and I’m ready to review my October report and it says 51 by 72 last month and 51 five, seven three this month it means no one’s entered the expenses yet. So this is why you interviewed the balance sheet first because you don’t want to go over to the income statement and then say, oh, I had a great month. I’m going to hire someone new on

you. Realize that my credit card expenses haven’t been entered yet. That’s actually pretty Paul. And that’s where you want to look at these, these items here, these items here. That’s where we, where are you going to get the health of what you can find in the short term? Because we’re here. Joan Case of this one. I mean, you know, months negative 51 five 47, this company owes 8,000 more in what they’ve even collected on what they have to catch. So you can see your bank account and go, man, it’s good day. I got $10,000 in it or whatever was up there. Um, but if you’re looking at making decisions instead of just making decisions there and you’ve got also factor in your payables, are you collecting your receivables, which credit card balance at? And those are the three of the four accounts. So you can really see quickly what you can find in how you can grow your business. Some more.

So in the year end accruals, it’s usually going to be a number that set buddy. You’re an accountant and it’ll decreased to zero or will stay exactly the same. You shouldn’t see anything that happens in that year. And the curls pump. So it was either one number, it stays the same the whole year or decreases zero either are fine depending on how your bookkeeper’s handling. Yeah. Could you define what an accrual is? Yeah, it’s an expense that you’ve incurred, but it hasn’t yet been bill. Okay. Okay. So you, you don’t want me in ways that no one’s coming. Right. Usually is like most of the captains are putting their fees because they want to adopt their fees this year to reduce your taxes, but they haven’t sent you a bill because they don’t probably even know what the bill is going to be at training.


You should have separate accounts for federal and provincial corporate tax payable.

They are handled separately. Numbered separatism is alive and well in Alberta. Original Tax Department and take their own checks only happens on the corporate end. Doesn’t happen on a person personal Alberta tax down. It’s paid to the federal government.

So this number is negative is a good number in this because this means you’ve paid more than what your taxes are owed. If you see a positive number, that means you owe tax or remember this number should get a bigger and bigger negative throughout the year because if they no one books your tax expense bumped the model, your tax expense is going to be booked by your year. And the calendar the end of the year. So just because he has a negative number, it doesn’t mean he doesn’t owe any tax, it’s just no one’s calculated yet. This is not really practical.

Calculate it on a month by month basis for a small business.

So last one number per the federal and provincial carbon tax payable. That’s negative. That’s fine.


It should go up by so hidden went up from 58 oh six to 6,006 so give me a $200 in Spellman.


If you see current portion of long term debt, you can ignore it. It’s an account needed by the year end accounts and it shouldn’t change month to month. Current portion of long term debt, current portion of capital, knees, it should just be the same number of month.


Payroll liabilities. How many people get into trouble because they don’t pay the payroll tax? That’s a big one. That is most them. One is like this interest free loan. You think it’s never going to run out and payroll tax is going to come to haunt you. And it’s most common when people get behind them because they think of, I just won’t send him my roommates and they will notice your right, they won’t notice till February, February you got to file your t four is and they find out how much you should have sent in and they know how much you actually sent in and the accident.

So payroll, payroll, liabilities, unless you have your vacation in there, you probably should have a separate account. If you are tracking vacation, quickbooks online these days, which is the most popular program that does not accrue for vacation, it just attracts hours in the background. So it’s not making a numerical entry on your balance sheet or income statement. So if all you have is the, your payroll liabilities, you guys said Cra number should be zero, you should be paying and you should just set this and forget it. You pay your staff, you immediately send in your payroll admins is do not wait for the 15th day of the following month. This, it’s not worth it. They, you’re just going to get behind on that. So as soon as you pay your staff, this is money with help from their checks and primarily they should just go straight ahead. A GST HST payable. That number is going to change month to month because you charged more, but it should be as close to zero as possible. So GST, HST payable should be relatively close to zero. We’ll come back to it. Pretty quick. Report. If you’re late on your GST, you’ll get questions call real quick.

Your shareholder loan, this is the money you took out of the business, so you can see his went from 45 nine 10 to 50,710 so he took just shy of 5,000 bucks out of the corporation. Okay, so that shouldn’t go up. The negative numbers should be increased by the amount that you took out of the company. And this is the big one that can hide a lot of errors in there. So if you see your shareholder loan jumped by $30,000 did you take $30,000 from the company or did you contribute $30,000 for the company? It should make sense to, because a lot of unsophisticated bookkeepers are gonna vary stuff in that number because not going to affect the problem loss. So I’m to, it’s okay to be a little bit bamboozle on some of the stuff that’s on the balance sheet, but you should have someone who can give you a simple answer on it.

And it should be simple. If it’s not simple, probably the person explaining it to you. Does it understand it well enough? So I started quick note on her. Independent bookkeepers be a little careful. Um, I’ve had a number of clients who have almost have their company’s bankrupt by independent book. You first who are hiding money shuffling out $150,000 for their $60 dollar wage. Um, hiring a bookkeeper, watch over it. Very easy to hide numbers and ask an account. Yeah. And even the ones, usually you’re going to declare salary dividends. So like if this was this guy’s you’re in, we have to give them at least 50,000, $710 in salary and or dividends. They get back to zero and then it could

be a positive number. It could actually be able to wear, the shareholder has loaned money to the company and the company owes them money back. So it’s not always a negative number, but there can’t be a negative number after the year out and you’ve got to clear that account with dividends or whatever to get the sharewell cause it, I can’t hold my company money, that’s tax evasion, but

the rule is two consecutive years. So you can’t owe your company two years,

you’re just selling loaning business

money and then your account is going to say how much salary given to me to clear to get rid of that law.

Yeah, it’s, it’s not filed so it’s not, it’s just an account that clears it out. Like it’s just an account. They were like a dummy account and then we, you cleared on the year end to file the taxes and then do the reports and you clear that account out to what what it is because yeah, you’re right. You can’t, I can’t owe my company money. So it was just kind of a dummy account for how we adjust for it or how the account just sport.

So earlier you were talking about a shareholder draws like a way to pay yourself from your company. That’s not, so that’s your go up by that at one round number amount that you took out of your company. So it’s not like a loan sun, pay it back. It’s just like a title for now. It’s, it’s like, Edmonton Accounting Firm, like a clearing account for now. You’re an account is going to have to make a decision on what they’re going to do with it. It does alone per se. But your accountant will balance that low with either a share dividends for salary. Yeah. And their account. If you have a good one, we’ll decide that you should be a mix. Yeah.

Any questions on the balance sheet? It’s not something that you’re not going to become an account is the fact is most important part. Are you getting simpler explanations? Um, did the numbers of uh, appear plausible and are you simply reviewing your balance sheet before your view or a Aecom state? And you’re going to get better and better at it overtime, it’ll make more sense to you. But if you never look at it, you’re never going to get good at it. You’re going to be four years in your business and it’s still gonna look like it’s written from the Martian. So review it. Edmonton Accounting Firm, were you that one first?

And we move on to the income state, which is what every business owner wants to see when they start. I want to see my income statement again. You’re the smart business owner. You breed Bouchee birth. So what we do in, Edmonton Accounting Firm, an income statement, actually just backing up all these reports should be on one page. If you don’t get a summary in one page, you need to either rearrange your chart of accounts or fire your bookkeeper because you need to be able to make this decision on one page. If it’s more than one page, you’re not getting enough analysis. More accounts that are not bad at all. You’re going to up, this is with classification errors. So one day you classify it as paper, the next day you classified it off as an expense and you’re trying to compare these two accounts and it’s a meaningless Erickson.

You generally probably don’t meet any account on your income statement that has less than $10,000 back to the specific required for tax reporting. So again, we’re having a six months comparative on the income statement, it fits on one page or the income statement balance sheet that someone page. And there’s a couple of ways that income statements or balance sheets or income statements will be ordered. Sometimes it’s by the income’s always going to be on call. Then we have the direct costs. So the costs of good sold and then we had general expenses. Okay. So income will always be on call. Um, what’s this income statement? Tell them this big, how’s, how’s he doing in the month of October compared to,

you got some.

So yeah, it stand up month in June and October is a good month, but it’s, it’s, it’s as you know, almost as third bits kind of middle of the road there. You know, he’s ranged from 32,000 a month to $56,000 a month. It’s like you hit a slow season. Yeah. Well that’s, you know, you’re looking at what that range is. Is that reasonable? Is that the amount of work that I did? Does that make sense? So if you can see why, this is why you don’t review just October in a backup or you’re not going to pick out the anomalies. Okay. Cost of good sold. This one’s nice and simple. He has one for subcontractors and one for materials. Um, that’s really important for contractors because you know, they had key slips that have to be filed, those subcontractors. So it was wanting to be separated. So if you’re a general contractor and the high route a electrician or plumber, there’s a specialty slips like gotta go to them.

So they should be in a separate account. And here’s one from a curious. So I remember going back to that business plan. He knows what his direct costs are in geography. So if he was the count up the number of projects that he did, he can get his average project size very quickly on this, you can count of number of projects you did in the last six months. Divided no, take two 39 six oh six divided by the number of projects and then boom, there’s this average project size and he can take one 38 three 59 the total cost of good sold right here and divided by number of projects he does, he knows how much you spent the average. Now he knows what his average margin on every project is so really easy. Then we get to the general expenses and they can be ordered in alphabetical order. Some programs will order it by the account number, but how do we like to order it

and what do you guys

always numerically descending? So you should be looking at your expenses numerically descending or so as a business owner, what’s the most important number? I gave it to you earlier in the presentation. Most important number of business is 668 you only have so much time. And I’ll get business owners, they’ll come in, they’ll start talking about the cell bill or their bank fees, and then when was kind of a whole two hour and a half meeting talking about the bank fees and if you know how much they, you know how much their cell phone bill was, how much they had to pay for prefix cars or is that stuff doesn’t matter. It’s noise. Unlike your personal finances where if you can minimize expenses, you’ve got to focus your time on stuff that moves the needle. It’s not that you ignore this stuff, but you have to allocate your time and proportionate.

So what moves a bit the needle, this guy’s business is a, is a com B as cost of good soul and see his payroll expenses. If you add up all of the other expenses combined, they won’t make as big of a difference as those numbers. So if he’s deciding what he’s going to work on it on his hundred and 68 hours, should you work? Should you spend 12 hours on the phone with the tell the save $30 a month on his phone. That’s called 12 hours on the supplier. Yeah. Trying to negotiate the contract. That’s right. He gets sort of 1% on his, Edmonton Accounting Firm, on his, uh, supplies. Now we’ve changed as this business, right? An extra 2% on the margin. So you could literally draw a line. When I’m talking with clients, I’m literally drawing a line in my head, usually about halfway down the income statement.

In this guy’s case, I’m really looking at everything from 18, three, six up. That’s where the majority of the meeting needs to spend. That’s where we need to do some planning on, cause the rest of the stuff, it can suck your time away and it becomes very tangible. I know how to get my bank charges down. I can call Scotia Bank and move everything over and they’re gonna charge me 15 bucks a month instead of 20. I guess what you lost money this month because you weren’t focusing on the things that mattered was different than your personal circumstances. And if first of all, circumstances do when you’re trying to minimize costs on your business circumstances. Um, I’ll be the first thing it tells you there’s a lot of things in my business. Oh actually no. I know I need this. I have about two or $300 a month in my cell phone bill.

We have too many units or paying too much and um, got do it. Yeah. Why don’t I’m here doing this, uh, this program. I’m not going to miss the chance to put a push up my Google video. I know exactly what I’m going to build next month. I know that number inside. No, I look at my payroll number cause that matters, right? Both businesses are very much the same. What’s the revenue? What’s the cost of the cost of good sold? What’s the staff cost and what’s the space cost and everything else is, it can be noise. No, you can be the best in the world at managing those costs. They’re not going to make a lot of difference. Anything else you see on this one, man? Nope.

Sorry. Just looking at the October monitor if you, okay. And you can get the comparison for all of them. So in here, I mean it’s like, like we’re not going to spend any time on this. So I’m looking at the general cost and I’ll see, you know, interest and bank charges. And why was that $1,039 and 50 cents I might click in there. It’s not huge. I know what that credit card balance was on the last page. So it seems reasonable, which you start looking at these general costs, you know, he spent, here’s the one that we jump up is he spent 27 85 20 and auto and truck expense. So if I’m looking at this report, I probably want to do one click on these general expenses. If I’m going to make one click, I spent all my time on the top once because that’s what’s gonna move the needle for the business. And I probably clicked into auto and truck has two bets and find out that he probably did a repair button, new tires or you know, it’s getting into the adventurous new tires because it’s getting into the winter season there.

Well depending on your cyclicality and your business and kind of a sales cycle, you know, and this could have been a project here that really started a lot of work here, you know, had some more drive time there. But that profitability came here and then okay it’s a good mind but might not just be tied to that month, you know. So if you’re going to business like in a construction business, you know, might even make more sense to look at it on a three month rolling basis of kind of what’s your average profitability those times instead of, you know, it was like a retail business. I mean you’re looking like month to month because it’s transaction cycles very quick.

So another reason why I needed six months. So the big keys are, is everything all balance sheet and income statement. One page no more. Okay. You should be able to distribute something that you can get on one page and it looks you don’t have to need a magnifying glass to do, you use it. Um, number two is you look at the balance sheet first, okay? Number three on the income statement, you’re focusing your time on the revenue, the cost of good salt, the payroll, and probably location space. This guy doesn’t have a location. Yeah, but if you did a location, that’s probably a significant line item. It’s usually the exact same familiar as you’re spending $70,000 a month in rent and the same number every month. But if you’re actually going to make a change in your business, that’s one of the needle. And then the rest of your general expensive, there’d be numerically descending order. Okay? Cause that’s how much time they’re worth to you. That’s how much they’re going to change your business. They’re usually really easy to fix and you think you can fix them, but they’re usually not going to make a difference in if your business is going to make it or break it. It’s different than um, uh, you know, how you treat personal finances. You spend less, you win in business. Sometimes you have to spend more. How many Internet connections that we have at our office?

Three, three, three I, it’s certainly, that costs me more. I have every Internet connection that they’ll sell me. I have the telus home one, those that they’ll run it to the, to our location. We have the telus business one and we have the shop business. When we have all of that, I and I’ll, and if they upgrade the package, I’ll buy more because I know how much it costs. As soon as the Internet connection goes down, I just switched over. I trust none of them. They’re all terrible because I know at the end of the day, my internet expense is nothing compared to mine labor expense. So I’ll pay as much as possible to make sure my employees are labor versus one month of extra doubling in 10 people gone and it’s gone as soon as it goes down, once it’s gone into himself. So it’s things like that. We make conscious choices. Where would it be sometimes? Sometimes more is better in those expenses. Okay, so we’ll, we’ll get everyone a break. You, we’ll get a full 15 minutes.