Business Finances: The Income Statement is the best financial tool, continued -- www.OnlineOrganizing.com

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The Income Statement is the best financial tool, continued

Although revenue is my favorite piece of the income statement, expenses have to happen to earn the revenue.

Record everything –

I find small businesses neglect to record some expenses, especially if you work from your home. Here are some no-no's:

Don't mix business cash with personal cash and forget to record something
If you work from home, don't forget to record expenses as if you were in an office. Include rent, utilities, supplies, anything that you would have to pay for if you weren't at home.
If you use one credit card for personal and work, don't use personal cash to pay, use business cash for business charges and personal cash for personal. If your not sure, use separate cards.
Don't forget to keep track of mileage if you travel. Record this as an expense.

Accrual vs. cash basis –

Same as revenue, you can record expenses as you incur the cost (accrual basis) or as you spend the cash (cash basis). Once again, my preference, record expenses on an accrual basis. You want to know how much it cost you to run the business on a monthly basis (or some basis that makes sense to your industry, retail/restaurants run on a four week period).

Depreciation –

This is such a simple concept that gets so complicated, especially when mixed in with taxes. Here it is: depreciation represents the expense of a purchase (an asset) spread over time. The time span might be a couple of years, if you buy a computer, or decades, if you buy a building. The expense is recorded as "depreciation expense" instead of what you actually bought. The offset is on the balance sheet.

Comparing expenses, month to month will help you pinpoint differences. Research the differences and decide if there is a mistake or if the change is reasonable.

posted on: 2/2/2008 11:30:00 AM by Tracie Utter
category: Finances

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Business Finances

by Tracie Utter

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About Tracie:

I am a Professional Organizer that focuses on financial information although I organize homes as well. Prior to organizing, I worked as a CPA for public and private companies as an auditor, controller, project manager and more. Now, I organize full-time with a focus on office organizing (both home and corporate), managing paperwork, managing Quicken/Quick Books and banking. I help people understand what type of paperwork/computer files to keep, how long to keep it and how to store it.

Tracie's Website:

utterlyorganized.net

My Favorite Websites for Small Businesses

KY Society of CPA's
There is a section "For the Public" that has information related to starting a business. There's also a calendar which indicates when certain financial information is due, such as, taxes.