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

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Outsourced CFO | How Accounting Works For Fixed Assets

If small business owners would like to increase the usefulness of their interim financial statements, one of the first things that they should do is ensure that they are entering in the assets and the expenses of their business correctly according to outsourced CFO. Interim financial statements give entrepreneurs the information they need in order to make important financial decisions in their business. However, if the transactions concerning fixed asset purchases such as equipment, vehicles, real estate and leaseholder improvements are entered into the statements incorrectly, they end up with statements that are incorrect, and therefore useless for making informed financial decisions.

In order for business owners to enter in their assets and expenses correctly, they need to understand the simple definition between both of them. Business owners should consider anything a fixed asset that they purchase that has a useful economic benefit of over one year. For example, purchasing a vehicle will benefit the business for many years because the vehicle will be able to be used for a long time. However, a purchase like advertising does not give the business benefit outside of the period of time the advertising was purchased for. Outsourced CFO says there is several common types of fixed assets that entrepreneurs should be aware of so that they can help book their assets correctly. The most common fixed assets in a business is vehicles, also computers, major equipment such as an x-ray machine, real estate and leaseholder improvements. Business owners may not consider leaseholder improvements as a fixed assets, but if an entrepreneur puts money into improving their office space, they are going to be able to operate their business out of that office space for a long time, therefore it is counted as an asset.

While assets in a company can be any amount of money, outsourced CFO recommends that entrepreneurs do not book fixed assets into their financial statements for less than a thousand dollars. The reason for this is because trying to account for all of the small assets and a company not only takes a significant amount of time to book them in initially, but they also have to be depreciated every year. This also takes a lot of time every year, and it does not greatly affect the bottom line of the business once it is entered into the interim financial statements. For the time it takes and to the benefit it gives the business, entrepreneurs are better off putting that time into improving their business either growing it or working on the strategic priorities of their corporation. Entrepreneurs should not consider the goal to be on her percent correct in the assets but what is the most efficient use of their time.

When entrepreneurs are learning how to properly account for their fixed assets, there is a few things that the need to remember in order to ensure the information is entered incorrectly. Understanding what an asset is, and not to worry about booking in very small assets, can help entrepreneurs end up with accurate interim financial statements that can significantly help them make financial decisions in their business.


Outsourced CFO | How Accounting Works For Fixed Assets

When many entrepreneurs start running their business, they get into it because there very good at what their business provides, that does not necessarily make them great at running businesses in general says outsourced CFO. As a result, the do not understand how their financial statements work, or how to properly account for the purchases in those financial statements. Since these interim financial statements can be significant benefits to entrepreneurs in helping them make informed financial decisions in their business, learning how to enter the information in correctly can be a significant benefit to entrepreneurs. Learning what to do can be easy, and can help entrepreneurs with the best information possible.

There are several things that business owners can learn in order to quickly enter their fixed assets and expenses into their accounting. One of the first things that entrepreneurs should learn is that when they purchase fixed assets in their business, they should not expect to see that on the income statements initially. The reason is because if the fixed asset should up on the income statement right away, it would make the month that it was purchased in look like it did not make any money because of that purchase. But since it is an asset and not an expense, it should not count against the prophets of the business in that month. Therefore, outsourced CFO says it should go directly onto the balance sheet and come out of cash. It needs to show up on the income statement eventually however, and how it does this is at the end of the year when the business owner and their accountant calculates the depreciated value of the assets, the amount that it depreciates will show up on the income statement. That means, that when an entrepreneur gets their fiscal year end, all of the fixed assets that they purchased in the year should now be visible on the income statement.

Another helpful hint for entrepreneurs and how to account for assets on the interim financial statements correctly, is to set up subaccounts for fixed assets. The reason for this is because it can help entrepreneurs stay organized and to keep an accurate record of all of the assets that they have purchased in their business. This is extremely beneficial if an entrepreneur ever sells their business, having a detailed and accurate record of all of their assets. Outsourced CFO also says that it helps entrepreneurs if they decide to sell those assets independently. Vehicles are some of the most likely assets to be sold for significant amount of money, and so any businesses that purchase many vehicles in their business should ensure that they are creating subaccounts for those purchases.

By learning how to account their fixed assets into their financial statements, entrepreneurs can ensure that they have correct financial statements as well as are keeping record of all of their purchases so that they can easily sell those assets later, or have a great record in case they need to call on it later.