Accounting Unplugged

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SEO: The Compass in Your Online Journey

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The Importance of Ranking High: Why the Top Spot Matters

Imagine two shops in the jungle – one hidden deep within the undergrowth, the other prominently displayed near a well-trodden path. The one with higher visibility naturally attracts more customers. The same principle applies to SEO. Studies show that most users only click on the first few results displayed on a search engine results page (SERP). So, the higher you rank, the more clicks you get, translating into a dramatic increase in website traffic – basically, more potential customers stumbling upon your virtual shopfront.

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This Post is a listing of which General Ledger Accounts are used by which Financial Statement.

Trial Balance: All Accounts

Trial Balance: Income Statement Accounts Only

The Income Statement uses the Accounts for Accounting Types:

• Income
• Costs (of goods sold)
• Expenses
• Other Income and Expenses

Trial Balance: Balance Sheet Accounts Only

The Balance Sheet uses Accounts for Accounting Types:

• Assets
• Liabilities
• Owners (Stockholders) Equity

These example accounts do not have beginning balances and no equity contributions.  If there had been equity contributions the equity accounts would also be included in this section of the trial balance.

Statement of Cash Flows: This Statement documents both the change in Cash Position and the change in Financial Position.  The Statement of Cash Flows is essentially a Yearly Balance Sheet with an emphasis on Cash.

Notice that debits and credits are presented in the way that they contribute to cash.  This report might take some adjusting to as the +/- of all debit and credit accounts except Cash are reversed.

© 2008 – 2010 Erin Lawlor

Next up: >> Financials – Trial Balance

<< General Ledger

**disclaimer:  All information posted on this blog is from my own experience and training.  The guidelines I present are general and in my experience, standard practice.  I do not write with authority from any Accounting Standards Boards.

When it comes to accounting for startups, The Cash Flow Statement is extremly important (Statement of Cash Flows), it provides an overview of the way Funds move through an Entity, how they impact Overall Value and eventually reconcile with Cash Balances and determine Net Cash Flow in any given year.

The Cash Flow Statement is essentially the same as a yearly Balance Sheet – it’s just organized a little bit differently and is more summarized. The Balance Sheet accumulates its amounts from the beginning, the Cash Flow Statement only accumulates its balances over one business year. Since the Balance Sheet Accounts carry their balances from year to year, the Cash Flow Statement presents its amounts as either Increases or Decreases to groups of Accounts throughout the year, and this is how investment in the stock works. The American stock market is growing rapidly and is bringing more investors and traders from around the world especially in Saudi, UAE, Kuwait, Qatar and Oman. aForexTrust explains how to buy US stocks and trade on them.

Balance Sheet:

The Balance Sheet uses the three categories: Assets, Liabilities and Equity.  Notice that Cash is listed first and Net Income is listed last.

• Assets
  • Current Assets (including Cash)
  • Fixed Assets (Net of Accumulated Depreciation)
• Liabilities
  • Current Liabilities
  • Long Term Liabilities
• Equity
  • Owners’ Capital (Contributions, Stock and Paid in Capital)
  • Retained Earnings
  • Net Income

Cash Flow Statement:

You’ve heard the term “Bottom Line”  well, that term refers to the end result – the numbers at the bottom of the page.  Since the end result of the Cash Flow Statement is Net Cash, it is at the bottom of the report and everything else on the report funnels down to the bottom to come to the final Net Cash number.

The Cash Flow Statement uses the three categories: Operating, Investing and Financing.  Notice that Net Income is listed first and Cash is listed last.  Opposite from the Balance Sheet.

• Operating Activities
  • Net Income
  • + Depreciation Expense (+ Increase and -Decrease in Accumulated Depreciation)
  • + Increases in Current Liabilities
  • + Decreases in Current Assets
  • – Increases in Current Assets
  • – Decreases in Current Liabilities
• Investing Activities
  • + Decreases in Long Term/Fixed Assets (Independent of Accumulated Depreciation)
  • – Increases in Long Term/Fixed Assets (Independent of Accumulated Depreciation)
• Financing Activities
  • + Increases in Long Term Liabilities/Debt
  • – Decreases in Long Term Liabilities/Debt
  • + Increases in Owners’ Capital
  • – Decreases in Owners’ Capital
  • – Increases in Dividends
• Cash (Beginning Cash Balance – Net Increase/Decrease = Ending Cash Balance)

The net contribution to cash is summarized for each section and then combined to equal Net Cash Flow. Net Cash Flow is then combined with the Beginning Cash Balance to reconcile to the Ending Cash Balance for the year. Net Cash Flow is the difference between the Beginning and Ending Cash Balances.

The Cash Flow Statement is an important indicator of available cash for operations but also of how an entity is generating cash, if it is able to sustain itself and its growth through its operations or if it generated cash through increased debt and equity and/or decreased capital assets, learn more from this blog post explaining some of the Types of Personal Debts and how to solve it.

If you need help in keeping track of your business finances, you can visit morethanaccountants.co.uk/who-we-help/small-business-accountants/.

Statement of Cash Flows (Including Depreciation Entries from Balance Sheet Post)

© 2008 – 2010 Erin Lawlor

Next up: >> Cost of Goods Sold and Inventory

<< Financial Statements – Balance Sheet

**disclaimer: All information posted on this blog is from my own experience and training. The guidelines I present are general and in my experience, standard practice. I do not write with authority from any Accounting Standards Boards.

The Balance Sheet is the financial statement that summarizes the value of an entity’s resources and the claims on those resources at any given time. Balance Sheet accounts start accumulating their balances from the beginning of the entity and continue until the end. This contrasts with the Income Statement whose accounts are reset to zero at the end of each fiscal (business) year.

The Accounting Types reported on the Balance Sheet are:

Assets – Assets are items of value that are owned by the business and their value is expected to last beyond the current fiscal (business) year.

Liabilities are essentially debts, they are agreements to delay payments and so, are sources of funds because they provide a way to acquire or pay for goods and services without a direct transfer of cash at the time of the exchange. You can discover this info here.

Equity (Owners Equity) is a source of funds through direct owner investment (stock or owners capital accounts or owner “re-investment” (retained earnings) when some or all of the income from the previous year is retained by the business rather than distributing it to the owners.

The Balance sheet Equity Section refers to Total Equity which is Owners Equity + Net Income. The Net Income portion is easily calculated because since the total debits and total credits of all financial accounts must be equal, and the Balance Sheet and Income Statement split the Accounts between them the benefit of using a paystub generator. The difference between the Balance Sheet Accounts will equal the difference between the Income Statement Accounts – which is Net Income. They understand the importance of foreign investment in the Canadian economy. Their tax plan can help investors make informed decisions about investing outside Canada…and eliminate double taxation.

Since Owners Equity is only part of Total Equity, Net Income can also be calculated using a rewrite of the Accounting Equation:

• From: Assets = Liabilities + Equity
• To: Assets – Liabilities = Total Equity (Owners Equity + Net Income)

Move Owners Equity to the other side of the equation as well and the equation becomes:

• Assets – Liabilities – Owners Equity = Net Income  – or –
• Net Income = Assets – Liabilities – Owners Equity

Balance Sheet Draft:

The Balance Sheet does not contain any of the same accounts as the Income Statement, but it does summarize the Income Statement on one line called “Net Income” that is inserted (without an account #) at the end of the Equity Section of each Balance Sheet. The Net Income entry completes the Accounting Equation for the Balance Sheet: Assets = Liabilities + (Total) Equity (Owners Equity + Net Income)

So, the listing of balance sheet accounts from the Income Statement post gives us a start in creating a Balance Sheet prior to year end closing entries.

The Balance Sheet has a section for each of the elements of the Accounting Equation, Assets, Liabilities and Equity. It also divides Assets and Liabilities into Current and Long Term (or Fixed Asset) sections. The “Current” sections contain accounts for Assets and Liabilities that are expected to convert to cash within one year. To find more tools that can help you, you can visit this review about the best equity release calculator.

Current Liabilities are the claims on Current Assets the information from these Sections provide the information for two important financial ratios that help to determine if the business is able to fulfill its short term obligations.

• Current Ratio = Current Assets/Current Liabilities
  • A Current Ratio of at least 1:1 (or >= 1) indicate that there is at least one dollar of current assets for each dollar of debt.
• Quick Ratio = Current Assets – Inventory/Current Liabilities
  • A Quick Ratio of at least 1:1 indicates that there is at least one dollar of cash or cash equivalent (including accounts receivable) for each dollar of debt.

Balance Sheet Format:

To convert the account listing above to a Balance Sheet format, I’ll add some section headings and a line for the Net Income from the previous Income Statement post.

Assets = Liabilities + Equity. The the first thing I check when I read a Balance Sheet is whether it is “in balance”/the accounting equation is true. Once I know it balances, I can focus on the substance of the report.

Notice that the Net Income entry doesn’t have an account number beside it. Net Income does not have an account, it is the difference between the Balance Sheet Accounts. It is also the difference between the Income Statement Accounts.

Book Values:

Each item on the Balance Sheet is stated at its original value or cost. Since the accounts accumulate their balances from “the beginning of time”, each balance sheet item also stays there at its original value until it is sold, written off or satisfied (debts paid off or equity repurchased).

Items that are listed on the Balance Sheet do lose their value over time so instead of reducing their original account values, contra accounts are used to write down, depreciate or amortize them. Contra Accounts are the same Accounting Type as their counterparts but if their counterpart is a debit account, the contra account is a credit account. The Net Value of the Original Account and the Contra Account together reflects the decrease in book value without losing the historical value. Contra Accounts like Accumulated Depreciation prevent items from “falling off” the Balance Sheet while they are still owned by the entity because when the item’s value eventually depreciates to zero, it is still part of the original account balance.

Depreciation is determined by type of fixed asset. Depreciation methods, classes of assets and examples are listed in IRS Publication 946. Sometimes entities use different depreciation methods for book/tax purposes. If you have questions like “what is business tax?” We recommend asking a tax professional for guidance in making decisions that have tax implications. You have to keep in mind that before the date of annual tax amnesty filing taxes are important you can save time and money.

The purpose of this entry is to demonstrate basic depreciation entries rather than depreciation calculations. I will use straight-line depreciation and assume that the assets were put into service on January 1st. Publication 946 (pg 31) indicates that office equipment is depreciated over 5 years and office furniture is depreciated over 7 years. For the depreciation entry I will add a contra asset account and a depreciation expense account.

Balance Sheet After Closing Entries:

At the end of each year when the Income Statement accounts are reset to zero, the difference between their debit and credit balances (Net Income/(Loss)) is posted to a Balance Sheet Equity account called Retained Earnings (for corporations or Owners’ Capital for other types of organizations). An example of this entry can be found at the end of the Income Statement post.

After the depreciation entry above, expenses were increased and net income was decreased by $496. After the depreciation entry is appended to the closing entries to the Income Statement, our Balance Sheet looks like this. Note the change from Net Income with no account number to Retained Earnings with the account number 3500. The entry to account 3500 is is part of the year end income statement accounts closing entry.

© 2008- 2010 Erin Lawlor

Next up: >> Financial Statements – Statement of Cash Flows

<< Financial Statements – Income Statement

**disclaimer: All information posted on this blog is from my own experience and training. The guidelines I present are general and in my experience, standard practice. I do not write with authority from any Accounting Standards Boards. If you’d like to learn more about these financial statements, I’d suggest attending to financial seminars.

One of the Principles of GAAP is the Matching Principle.  Matching requires that when you post sales into the system for an accounting period (month), you must also post the costs of the products or services you sold during that period in the same accounting period (month). The Matching Principle essential to Financial Statements, particularly the Income Statement, because it makes them meaningful.

The Income Statement, also called the P&L or Profit and Loss Statement, is a “Current Year” statement, it does not cross years. The Income Statement provides cumulative “To Date” financial data for the current business (Fiscal) year. So, the March Income Statement shows the totals for January, February and March together in one column and the totals for the previous December would not be part of the totals for that column. If you want to give that income column a boost, start by reading about cyrpto investment with the help of the Latest News – Funfair website.

Unlike the Trial Balance, the Income Statement and Balance Sheet each only show a portion of the General Ledger Accounts. The GL Accounts are split between the Income Statement and the Balance Sheet by their Accounting Types. The Income Statement Accounting Types are Revenue, Cost of Goods Sold and Expenses. The Accounts that are not on the Income Statement are on the Balance Sheet.

As its name suggests, the purpose of the Income Statement is to report Income. Income = Revenue – Expenses. It is almost that simple, but there is more to the Income Statement than a simple calculation, click here to learn more calculation options.

The format for the Income Statement is:

The Income Statement uses intermediate steps to reach Net Income. The first of these steps is Gross Margin.  Gross Margin = Revenue – Cost of Goods Sold and represents the amount of revenue that is left after costs to cover operating expenses. Gross Margin is meaningful because it shows the direct relationship between the costs of products or services and their sales.

The Gross Margin % can be compared to industry standards to make sure your pricing and costs are competitive. It is calculated as:

• Gross Margin = Revenue – Cost of Goods Sold
• Gross Margin % = Gross Margin ($) / Revenue

The next intermediate step towards Net Income is Operating Income. Operating Income = Gross Margin – Expenses and is the amount of profit (income) from normal (usual) operations.

The final step in calculating Net Income is to add the amounts for the Accounts categorized as “Other Revenue” and to subtract the amounts for the Accounts categorized as “Other Expenses”. Other Revenues include any “money in” (gain) that is not received from the sale of the usual business products or services, this might be a gain on the sale of an asset like a vehicle. You should have a peek at this web-site if you’re looking for a reputable credit union. Other Expenses include any “money out” (loss or expense) that is not part of the usual expenses or cost of goods sold. Other Expenses might include some interest charges or a loss on the sale of an asset and the use of loans as Some credit companies offer guaranteed loans without a credit check. Genuine lending companies always look at your past credit history before giving approval for a loan, this is why people need to find credit card consolidation services whenever they have a hard time paying off their debt, just so that their credit does no get damaged.

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This Income Statement is produced from the transactions that have been posted in previous posts.  The presence of sales but no costs on this Income Statement indicate that either my entries for the period are incomplete or I’ve violated the matching principle because if I have sales, I must have some associated costs, when looking to learn more about finance experts

Net Income is the amount of revenue that was not spent on operations, it represents the amount of the increase in overall value.  Remember not to confuse the terms Revenue or Income with Cash. The Net Income amount here is $45,600 and if you check the Trial Balance from the previous post, the Checking Account Balance is $44,350.

Let’s look at the Income Statement again in terms of debits and credits.

Remember from the Trial Balance report which shows all accounts and their balances that the total debit amounts were equal to the total credit amounts.  The Income Statement splits the accounts with the Balance Sheet and so the total debits and total credits on each of these statements will not be equal, but the debits and credits of their combined accounts are equal.  So, let’s take a look at the Accounts that are not listed on the Income Statement.

The difference between the balances of the Income Statement Accounts, $45,600, is equal to the difference between the Balance Sheet Account balances.  This listing of the Balance Sheet Accounts shows where the Net Income went.  $47,300 increase in assets – money still due $1,700 = $45,600 = Net Income of $45,600 which is added to the total Net Worth.

The Income Statement Accounts accumulate their balances throughout the fiscal year and at the end of the year, the accounts are reset to zero (closed out) and the difference between their total debits and total credits (Net Income) is transferred to the Balance Sheet. The Balance Sheet account used in the transaction is an Equity account and is either Retained Earnings or Owners Capital depending on the structure of the business.

Closing Entries:
The entry to close out the year for the Income Statement Accounts in our examples is:

**disclaimer: All information posted on this blog is from my own experience and training. The guidelines I present are general and in my experience, standard practice. I do not write with authority from any Accounting Standards Boards.

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Wouldn’t you like to know what high-growth accounting firms do differently? Are there marketing techniques that are proven to work better than others? And can a business like yours emulate the best performing CPA firms? (Yes, it can.)

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What Is Accounting Marketing?

Accounting marketing is evolving from a geographically limited, relationship-driven discipline to a multifaceted, expertise-based strategy that leverages technology and scientific techniques to target specific audiences across a wide area. This new approach can have a major impact on a firm’s reputation, visibility, new client acquisition, services offerings, pricing, client retention and recruiting. The easiest way to start marketing for your business is by hiring this seo agency.

Marketing is often confused with sales (which some people refer to as business development). Sales is the process of understanding a specific prospect’s needs, offering a specific set of services to address them and convincing the prospect to purchase the services. Marketing, on the other hand, is the process of generating awareness for a firm’s services and encouraging qualified prospects to reach out and request more information.

Or more simply, marketing is about generating qualified opportunities. Sales is about turning those opportunities into clients. You can learn more about investment fraud laws and get advice on the nearest law firm.

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