Edmonton Bookkeeping | these services are vital to business growth
If business owners do not end up accounting correctly for loans and capital leases properly, they will end up with having incorrect financial statements says Edmonton bookkeeping. This can negatively impact their ability to make informed financial decisions, and puts their business at risk. In fact, into it, who is the company that makes accounting software QuickBooks did a survey of small business owners in order to determine their knowledge of business finances. 82% of the respondents scored less than 70% on the quiz which included questions about what an accrual is, what is the role of a balance sheet and how to improve cash flow. This demonstrates that many business owners struggle with understanding their business finances, and by helping entrepreneurs gain a deeper understanding of that can help ensure that they are making better financial decisions that can help them grow their business.
One of the first things that entrepreneurs should understand is that loans and leases should get accounted for on the balance sheets of the business and not their income statement. The balance sheet is for telling what the overall financial position of the business is by using assets, liabilities, and equity. The income statement, on the other hand, says Edmonton bookkeeping indicates the financial performance of a specific time period of the business and includes the revenue of that month, the cost of goods sold in that month and the expenses in that month.
Many business owners believe that the month that they signed the lease are the loan should be indicated on the income statement, because they made that decision in that month. However, this is not accurate, because the loan and the lease will need to be paid for over a long period of time, and it affects the overall position of the business not just in that specific time period.
The lease or loan should go on the balance sheet, because they are either building up their assets with a loan, or they are causing a liability to their business by creating a payment, not in order to get an asset at the end. Therefore, Edmonton bookkeeping says that by understanding the differences between leases and loans can help entrepreneurs understand where on the balance sheet these go, and why they should not appear on the income statement of the business.
The next thing that can help entrepreneurs ensure that they are accounting for their loans and leases accurately is by understanding that when they are putting the amounts on their balance sheet, every separate lease or loan needs its own account on that balance sheet. Absolutely no commingling is allowed says Edmonton bookkeeping, so that an entrepreneur is able to see every single loan as it appears on their balance sheet, and how much is owing on that loan at that moment.
By understanding how to account for their loans and leases can help an entrepreneur end up with accurate financial statements in their business. When they do this, Edmonton bookkeeping says that entrepreneurs will be able to end up making the best financial decisions possible, and even being able to strategize on how to grow their business even more successfully than they are able to if they were not reviewing their financial statements at all.
Edmonton Bookkeeping | Importance Of Accounting For Loans And Leases
Many entrepreneurs get into business ownership says Edmonton bookkeeping because their passionate about delivering that product or service that their business is in. Most entrepreneurs do not have prior business ownership experience, and they often make an assumption that if they are good at the service that their business provides, they will be good at running that business. However, Michael Gerber who is the author of the E myth wrote in his book: ìthe fatal assumption is: if you understand the technical work of the business, you understand a business that does that technical work.î This is not true, and entrepreneurs need to work hard at understanding their business finances so that they can make better business decisions.
The first thing that entrepreneurs need to understand about loans and leases even before they obtain them, is they need to ensure that they have enough income in order to cover principal payments. The reason why says Edmonton bookkeeping is because if they do not have the profit to make a payment to a lease or loan, they will have a negative balance in their business. If they do this consistently, without increasing the profit they will eventually run out of money in their business. Therefore, business owners need to review their financial statements in order to determine if they have enough profit in their business to obtain financing.
When entrepreneurs are looking at their financial statements, in order to see their loans and leases, as long as they are in separate accounts, they should be able to see all of the loans and leases listed, and how much is left owing on all of them. If an entrepreneur is looking at a six-month comparative statement, which Edmonton bookkeeping recommends, they will be able to see the decrease to the loans each month as an entrepreneur makes the payments. If they happen to not see how alone decreases in one month when they look at a comparative statement, that could be an indication that an entrepreneur has entered the information incorrectly into their accounting software.
A typical reason why an entrepreneur has entered loan amounts incorrectly into their accounting software is it is usually in the wrong loan account. They can fix that by seeing which loan account decreased more than it typically has, and an entrepreneur can fix that and their accounting software. This can ensure that an entrepreneur is keeping the integrity of their financial statements intact so that they can have accurate financial statements to make monetary decisions with.
It can be very easy for entrepreneurs to learn how to do the accounting for their loans and leases accurately says Edmonton bookkeeping. However, when an entrepreneur does learn that the impact they can have to their business is great, allowing them to make the most beneficial economic decisions in their business so that they can grow their business and be successful.