Outsourced CFO | How Fixed Assets Look On Financial Statements
Since accounting is the language of business according to Warren Buffett, helping entrepreneurs understand their business finances can help them make more informed decisions in their business says outsourced CFO. Interim financial statements are tools that entrepreneurs can use to make guided business decisions. Unfortunately, if the transactions that they enter our not entered into those statements correctly, this tool ends up being completely unusable and puts business owners at risk for making poor financial decisions in their business.
When entrepreneurs can understand the difference between assets and expenses, they can learn how to enter each of those into their accounting software to ensure the accuracy of their interim financial statements. Outsourced CFO says that a simple definition of an asset is anything an entrepreneur purchases that has a useful life span of over one year in the business. A great example of assets for entrepreneurs are vehicles, major equipment, computers and real estate.
On the other hand, expenses of the business are purchases that entrepreneurs need to make in order to operate their business, and have no additional useful value outside their initial purchase. A great example of an expense says outsourced CFO is office supplies. They are necessary to operate the business, but once they are used they have no additional benefits.
Entrepreneurs need to understand that assets and expenses get entered into their accounting software differently. Income statements are aware entrepreneurs should put the expenses of their business. The reason for this, is because the expenses of the business needs to be matched to the income that they generate. This will help an entrepreneur understand the expenses they incurred during that month of operating, and that can help them minimize their expenses if they need.
The fixed assets on the other hand according to outsourced CFO, do not appear on the income statement, because since they have an economic value greater than that one month, they should appear on the income statement over their useful life. In order to do that, entrepreneurs will end her that fixed asset onto their balance sheet, and at their fiscal year end, the accountant will help an entrepreneur calculate the depreciation value, and that amount of depreciation gets entered into the income statement. This way, an entrepreneur can ensure that that asset appears on the income statement, but as it is used.
When entrepreneurs understand the difference between fixed assets and expenses in their business, then they will be better prepared to be able to put them into the right category in their accounting software. Income statements are where expenses go, and balance sheets are where fixed assets go. By understanding this and keeping it is just great, can help entrepreneurs ensure that they are ensuring the accuracy of those interim financial statements in their business. By doing that, entrepreneurs are increasing their chances of being able to make positive decisions in their business that can not only help them avoid problems, help them significantly increase and grow their business.
Outsourced CFO | How Fixed Assets Look On Financial Statements
There is an extremely high failure rate on Canadian businesses says outsourced CFO. Industry Canada says that 15% of entrepreneurs fail in the first year, 30% have failed by year two, and 50% have failed by their fifth year in business. Helping entrepreneurs understand how to speak the language of business, can help them better financial decisions. As Warren Buffett, the famous investor has been quoted as saying, ìaccounting is the language of businessî.
When way that entrepreneurs can ensure they are making the right decisions about their business finances, is helping them understand how to enter their assets and expenses into their accounting software. One great rule that entrepreneurs should learn says outsourced CFO, is to not enter any assets into their balance sheet that are under thousand dollars. While technically assets can be any monetary amount, when entrepreneurs use this rule, or saving themselves significant amounts of money. The way they do this is when they do not have to account for assets under thousand dollars, they also do not have to depreciate all of those assets every single year. Since entering those assets into their software is not going to affect their bottom line very significantly, they can be rest assured that saving that time will allow them to spend it better on activities that will help them grow their business as well as achieve the strategic priorities of their corporation. Therefore, entrepreneurs should count any assets under thousand dollars as an expense and put it into the income statement and be done with it.
An unintended benefit of putting all expen assets ses under thousand dollars as an expense into the income statement, is that it will help entrepreneurs catch errors on their interim financial statements. Outsourced CFO says that if an entrepreneur sees a small amount being entered into the asset account when reviewing those interim financial statements, they can be certain that it is an error. It usually has been the result of somebody claiming an expense as an asset. By being able to fix this error and then looking quickly to see if there are other errors, entrepreneurs can ensure the accuracy of those interim financial statements in their business.
Other things that entrepreneurs keep in mind when they are entering in assets into their balance sheets, is in order to stay very organized, they should be entering in assets into subaccounts. If they are any assets that they believe will be able to be sold at a later date for a significant sum of money, then keeping organized and the maximum information on those assets is extremely important. An example of a fixed assets that entrepreneurs should keep a good record of our vehicles. Computers are an example of an asset that are generally not likely to be sold due to their tendency to be obsolete by the time and business owner is done with them. This can also be significant when entrepreneurs sell their business, by having a great list of all of the assets in their business.
When entrepreneurs learn how to enter assets and expenses into their accounting software, it helps them maintain the integrity of their interim financial statements. Outsourced CFO says this can help business owners have the best information possible when making financial decisions in their business, which can positively impact their business.