Edmonton Bookkeeping | Commonly Asked Questions About Leases And Loans

It is important for entrepreneurs to do the accounting for their loans and capital leases properly so that they can end up with accurate financial statements and understand the cash for their business says Edmonton bookkeeping. However, many entrepreneurs struggle with learning this, resulting in having an inaccurate financial statement in their business. By learning the answer to the most commonly asked questions about accounting for leases and loans can help entrepreneurs gain a deeper understanding that will allow them to have more accurate financial statements in their business.

One of the first questions that entrepreneurs have about doing the accounting for their loans and leases is: should each loan account have her separate balance sheet account? The answer to this question is yes. It is very important actually that every single loan or lease has a completely different and separate account on the balance sheet. No matter how big or small the loans or leases are, or how related they might seem, it is important for an entrepreneur to ensure that they are separated out consistently.

The second question that entrepreneurs typically have when they are learning how to do the accounting for loans and capital leases is: should the monthly payment be posted to the balance sheet or the income statement? This is a very difficult one because Edmonton bookkeeping says many business owners believe it should go on the income statement. However, the balance sheet tells the overall financial position of the business while the income statement shows the financial performance during a specific month. Therefore, loans and capital leases are going to benefit the business as a whole and give the business whole either an asset or liability, therefore it should go on the balance sheet. However, entrepreneurs can take note that the interest component could go on the income statement if they know what the interest is on the payment.

The third question that many business owners have when they are learning how to account for leases and loans is: why do you need enough income to cover these principle payments? This is extremely important, and one that many business owners get wrong which can cause their business to close is if they do not have enough profit in their business to cover the payment, they will put their business at a negative balance to cover their loan or lease payments. If they do this often enough says Edmonton bookkeeping, they will run out of money in their business. Therefore, it is important that an entrepreneur learns how to read their balance sheet in order to understand if they have the profit to cover payments before they obtain financing.

When business owners understand how to do the accounting for their loans and capital leases, they can ensure that they are making the best financial decision that they can in their business. When they are able to make better financial decisions, not only can they avoid making decisions that could put their business at risk, but they’re going to be able to strategically plan the spending in their business to grow their business and be even more successful.

Edmonton Bookkeeping | Commonly Asked Questions About Leases And Loans

It is important for entrepreneurs to understand the finances of their business says Edmonton bookkeeping. By not understanding their finances, might end up with an entrepreneur making financial decisions that could cause problems financially in their business. And when business owners are not able to properly account for loans and capital leases, not only will they have incorrect financial statements, the also be unable to understand that the cash flow in their business is. Therefore, entrepreneurs should learn this early on. Here are the most common questions that entrepreneurs have when they are learning how to do this in their business.

Many entrepreneurs wonder why they should look for a consistent decrease to the main loan accounts on their balance sheet each month. The reason why says Edmonton bookkeeping is so that entrepreneurs can verify that the monthly payment is happening. The loans and leases that an entrepreneur has will be represented on their balance sheet by the amount of money that they owe. As an entrepreneur makes that payment, and then enters that payment into their accounting software, that payment reduces how much is left owing. Every month that an entrepreneur reviews their financial statements, they should be seeing a consistent decrease every month.

The second question entrepreneurs often have is what are some likely causes if there is no change to the loan account one month? . If they do not see a decrease, that is either because an entrepreneur has entered the information incorrectly, or they simply have not paid. One common mistake would be an entrepreneur accidentally entering the loan amount into the wrong loan account. They can easily check this if not only they do not see a decrease in one loan accounts, but they see an even larger decrease in one loan account then they should typically see. That is an indication that an entrepreneur has simply entered the information into the wrong area. Otherwise, the mistake that an entrepreneur might have made when entering the information into their accounting software, is that they put in a completely different area and it is simply misclassified somewhere on their financial statements. All they need to do in that case says Edmonton bookkeeping is review their balance sheet and their income statement looking for the exact amount that should have been paid on that loan account and see where else it exists on the financial statements.

Edmonton bookkeeping says that if an entrepreneur has seen that there is not a consistent decrease in one of the loan accounts in one month, and they have checked the financial statements and determined that it is not because of an error, that could simply be an entrepreneur missing a payment. By checking their bank statements, an entrepreneur can verify if that money came out of their bank or not. If it did not, an entrepreneur can make the payments and avoid defaulting on their loan. If it did come out, but it is not on their financial statements, and there is no error on their financial statements, and the entrepreneur could have simply forgot to put that one payment in. By fixing it can help entrepreneurs end up with accurate financial statements so that they can make more informed financial decisions in their business.