Subscribe by Email

Your email:

Ask the Bean Counter

ask the bean counterHave a question you would like to see answered here?

Submit your question to the Bean Counter

DataCraft Blog

Current Articles | RSS Feed RSS Feed

End of year closing - 5 things to remember

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

end of year closingAs 2010 draws to a close and we look toward 2011, it's time to start preparing for the accounting year end closing process. Whether you prepare your own information or outsource the project to an accountant, as you close out your books for 2010, there are some simple steps you should take to help make the process easier.

The year-end financial statement is the most important reports in the year-end process, it’s used for tax preparation, future reference, and weighs more heavily in decision making than monthly reports. Because it such an important report, accuracy is key.

Here is a list of 5 things to remember when preparing for the year-end:

  1. Bank Rec – Does your general ledger match the bank statements? Make sure your checkbook is balanced and all of your records agree.
  2. Balance sheet – Don’t forget to review your balance sheets for loans to verify payments and account balances with your lending institutions.
  3. Account Payables – Have you recorded and balanced all of you account payables to detail? Make sure that your invoices match up with your records.  
  4. Account Receivables –Have all of your receivables been accurately records in the right fiscal year? Be sure to balance your receivables to detail.
  5.  Payroll – Is your last payroll of the year completed and balanced with your records.

Each accounting software package has its own procedure to follow to close out the year, following those steps and keeping your records up-to-date throughout the entire fiscal year to what makes the difference between a quick and a painful process.

Impact of Inventory Errors

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

Just about every company that deals with inventory experiences errors in their inventory records at one point or another. These errors can occur for a number of reasons, overlooking goods on hand, miscounting goods or simple mathematical errors are common. Your income statement will feel the effect of inventory errors if they go uncorrected.

Inventory errors affect two periods because the ending inventory of one period automatically becomes the beginning inventory of the next, this causes inventory errors to affect the calculation on the cost of goods sold. An error in the cost of goods sold leads to errors in how the gross profit and net income are calculated. Here are the effects of inventory erroes on the current year's income statements:

Impact of Inventory Errors

An error while recording the ending inventory in the current period has a reverse effect on the net income of the next period. For example: if a company understates their ending inventory, their beginning inventory for the next period will be understated while the net income for the next year will be overstated. If the inventory errors go uncorrected, by the time the two periods are over they will have offset each other. If a company has an error in the beginning inventory, it won’t have a corresponding error in the ending inventory. In order to have an accurate ending inventory, companies need to make sure they’re correctly recording the inventory at the balance sheet date.

Financial statements depend on accurate information and it’s important that companies have a correct inventory balance at the end of each accounting period.

Bank reconciliation process

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

bank reconciliation process

As discussed last week, the bank rec process can be quite tedious, but the benefit of doing bank reconciliation is that your records are accurate and up-to-date. The bank rec process isn’t hard, it’s basically cross checking all of your information with the bank and adjusting as needed and if you’ve balanced a checkbook, the idea of doing a bank rec isn’t much different.  There are four steps in the reconciliation process.

The first step of the bank rec process is to adjust the balance on the bank statement to match the true balance. The first thing you need to do is to add deposits in transit. Deposits in transit are amounts that have already been received and recorded by the company, but have yet to be recorded by the bank. Because they’re already included in the company’s records, there’s no need to adjust the company records, but they need to be added to the bank reconciliation as an increase to the bank balance to make sure both reports match and are accurate.

The next step in the process is to deduct the outstanding checks. Outstanding checks are checks that have been recorded in the company’s cash account but have yet to clear the bank. Compare paid checks shown on the bank statements with checks outstanding from prior bank recs and checks issued by the company and recorded in the cash payment journal.

The third step in the bank rec process is to note any errors that might have occurred and add or deduct them as needed. When doing this, make sure that they are listed in the appropriate place to ensure that they have been corrected. Any errors made by the company, such as transposing numbers, need to be adjusted on the company records. Any errors made by the bank, such as entering information on the wrong account, need to be adjusted on the bank records.

The fourth and final step is to trace the banks memoranda to the company records. Any unrecorded bank memos need to be listed in the company’s records. Bank memos include any sort of service charges or fees and interest.

Can the bank rec process be tedious? Yes. Is it fun? No. Is it necessary? Absolutely. Without it, you don’t know if you have the cash needed to pay your bills. The bank rec process also helps to find any inaccuracies between your records. Matching account records are happy account records.

If you have any questions about the bank rec process or have any other accounting questions, check out our QuickCall services.

Why you should pay attention to bank reconciliation

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 
accountant bookkeepingWith a constant cashflow coming in and out of your business, it’s important to make sure that your bank balance matches your book balance. The tedious, but necessary, process is called bank reconciliation, or bank rec for short. Performing a bank rec is a lot like balancing a checkbook, and you do it for the same reason. You want to make sure that the information you have matches the bank and you know how much cash is available in your account.

Discrepancies between the accounts usually occur for two reasons: time lag and errors. Time lags are the most common cause of inconsistencies between the accounts. A time lag is something that prevents one of the records from recording the transaction in the same period. Making a deposit after bank hours and the time lapse between a check is written and the date the bank posts the check are both considered time lags. Errors can also cause your records to not match up with the bank’s records. Errors are less common than time lags, but can still occur. Reconciling your accounts helps to determine if the discrepancy is due to time lag or error.   

If your business write hundreds of checks a month, doing a bank rec can be time consuming but it's worth the hassle. The main benefit of bank rec is knowing that the amount of cash reported by your company is consistent with the amount of cash being recorded by your bank. Regular bank rec also helps you find inaccuracies in your accounts and quickly

Monthly bank reconciliation helps you clear up any problems between your records and the banks records. Next week we’ll go over the bank rec procedure.

With a constant stream of cash coming in and out of your business, it’s important to make sure that your bank balance matches your book balance. The tedious, but necessary, process is called bank reconciliation, or bank rec for short. Performing a bank rec is a lot like balancing a checkbook. You want to make sure that the information you have matches the bank and you know how much cash is available in your account.

Discrepancies between the accounts usually occur for two reasons: time lag and errors. Time lags are the most common cause of inconsistencies between the accounts. A time lag is something that prevents one of the records from recording the transaction in the same period. Making a deposit after bank hours and the time lapse between a check is written and the date the bank posts the check are both considered time lags. Errors can also cause your records to not match up with the bank’s records. Errors are less common than time lags, but can still occur. Reconciling your accounts helps to determine if the discrepancy is due to time lag or error.   

If your business write hundreds of checks a month, doing a bank rec can be time consuming but it's worth the hassle. The main benefit of bank rec is knowing that the amount of cash reported by your company is consistent with the amount of cash being recorded by your bank. Regular bank rec also helps you find inaccuracies in your accounts and quickly

Monthly bank reconciliation helps you clear up any problems between your records and the banks records. Next week we’ll go over the bank rec procedure.

Financial Statements Preparation OR How To Be Your Bank's Best Friend

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

support services quickbooksWe've seen it time and time again; a company is racing against the clock to get their financials prepped for their banker and something just doesn’t look right. Whether they’re not sure if their numbers are correct or they’re having problems understanding the format of their reports, they’re frustrated and tempted to skimp on the financial statements preparation and send off what pieced together information they have just to get the painstaking process over it.

If you've ever had similar thoughts, follow our words of advice:

Don’t. Do. It.

Sending your bank inaccurate information only causes more frustration, not only for you but also for your banker. Taking time to give the bank correct financials is not only the nice thing to do, but it also helps to paint a clearer picture of the financial health of your company. Accurate information helps your bank to correctly gauge is loaning your business money is a sold investment. They want to look at your information and determine; can you pay, will you pay, and what will happen if you don’t. The more accurate information you give them, the faster response you will get about a request for a loan.

If you’re not sure what kind of information you need to give to your banker or how to pull the correct reports from your system, don’t be afraid to ask for help. It’ll save you and your banker a lot of time and stress.

For help with accounting of QuickBooks questions, sign up for a 30 Day trail of QuickCall(TM)

Point of Sale

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

DataCraft POS

Here at DataCraft, we are pleased to announce the addition of Point of Sale software to our line of products and services. POS software improves the check out and inventory tracking process for consumer based businesses by handling sales and the inventory database from the cash register.

“We are excited to offer retailers from Rockford and the surrounding areas the ability to enhance their efficiency with their computerized sales and inventory operations,” DataCraft Project Manager John Karvelis said. “Point of Sale software offers businesses distinct advantages by instantly managing their inventory.”  

POS helps business owners run a more efficient business by automatically adjusting inventory levels at checkout. This helps to give companies accurate assessments of inventory on a daily, weekly, and monthly basis. Having an accurate count of inventory at any given time helps companies eliminate unnecessary inventory, optimize cash flow, and reduce inventory shrinkage by detecting theft and bookkeeping errors.

For more information about POS and how it can help your business give us a call at 815-965-9800.

 

Preparing a trial balance

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

preparing a trial balance

In double entry bookkeeping, a trial balance is a worksheet that lists all of your general ledger accounts and their balances at a given time. Typically, trial balances are prepared at the end of an accounting period. Accounts are listed in the order they appear in the ledger, as always debits are listed on the left and credits are on the right.

There are three trial balances that need to be prepared. The first  trial balance that needs to be made is a preliminary general ledger trial balance. This trial balance needs to be done before working on adjusting entries. Once the preliminary trial balance is finished, you can make adjusting entries. An adjusted trial balance can be done once the entries are adjusted and posted to the general ledger. The last step is a post-closing trial balance. This trial balance only contains balance sheet accounts which help ensure that your books are balanced for the beginning of a new accounting period.

Why is a trial balance important? The trial balance helps to spot errors in the accounting process before moving on to the next step. Preparing trial balances help call accounting errors and irregularities to light.

But what do you do if the trial balance that just won’t balance? After finding out the difference between the two columns, several steps can help:

  • If the error is $1, $10, $100, and so on, simply re-add the trial balances columns and recalculate the account balances.
  • If you can divide the error by 2, look over the trial balance to look for a balance that’s equal to half of the error that has been entered in the wrong column.
  • If you can divide the error by 9, look for the account balances on the trial balance to see if there was a transposition error. An example of a $9 error would be listing $12 ad $21.
  • If you can’t divide the error by 2 or 9, look over your ledgers for an account balance that matches the error number  to see if an account balance with that same number has been omitted from the trial balance and scan the journal to see if a posting of the same amount was left out.

A trial balance won’t guarantee that your records will be error-free and even if the balances match, it doesn’t mean that every transaction has been accurately recorded.  

Creating trial balances help keep your business on track but starting the new accounting cycle balanced.

Debt versus Equity : Which is right for your business?

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

Choosing how to finance your business is one of the most important decisions you can make for you company.  There are two main sources of financing broken into the following categories, debt financing and equity financing. Both have unique pros and cons and deciding which one to use depends on your long term business goals.

debt to equity formulaLet’s start off with debt financing. Debt financing is borrowing money from a lender that has to be repaid, with interest, over a period of time. A business can borrow money for a short term, which is less than a year, or a long term, over a year. With debt financing, the lender does gain any ownership in the business. There are other advantages to debt financing including the ability to deduct the interest on your company tax returns.  Also as a borrower, you’re also only obligated to pay back the principle and interest of the loan.

Before deciding on debt financing, there are some disadvantages. New businesses especially feel the restraints of debt financing due to lack of consistent cash flow which could make paying back the loan more difficult. This could also leave a business vulnerable to higher interest rates. Business owners are warned to stay away from too much debt financing because it can make it more difficult for them to raise capital in the future.

Another option to look into is equity financing. Equity financing involves  exchanging money for a share in the business.  The biggest advantage equity financing has over debt is that the business isn’t obligated to pay back the loan. Unlike the debt financing option, investors become part owners of the business and receive part of future profits. 

Much like debt financing, equity financing also has some disadvantages. As mentioned earlier, investors own a part of the business, which mean they also get a say in company decisions. More investors mean less control for the business owner. Relying too heavily on equity financing might give off the idea that capital is being misused or not used to its full advantage.

Both options are viable ways to finance your business but beware of focusing too heavily on one area over the other. Lenders will take a look at your debt to equity formula, which measures a company’s portion of shareholder equity and debt to finance company assets. The ratio is calculated by dividing total liabilities by shareholder equity. Although it varies depending on your industry segment, the ideal debt to equity ratio should fall anywhere between 1:1 and 1:2. The ratio helps to show lenders if the company is creditworthy.

Need help with QuickBooks Setup or consulting? Know where to look!

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

Quickbooks consulting

Intuit’s QuickBooks Enterprise Solution software has helped thousands of small business around the country get their financial information together in a manageable form that’s easy to use. In order to have a successful QuickBooks accounting system you need to take an adequate amount of time preparing your data before entering it into your new accounting software and have support available in case anything arises.

Throughout the years, we’ve spoken with many QuickBooks users who for a variety of reasons didn’t have the time or ability to clean up their data before importing it into the QuickBooks system. The result of this is usually frustration and uncertainty.  It could be that they’re worried about giving their banks inaccurate financial information or they’re unhappy with the format of their reports, whatever the reason is, it’s good to have someone in your corner.

You don't have to tackle the project on your own, whether you need help upgrading your system, cleaning your financial data, or if you just have a question about your pulling a report out of you system, help is available. DataCraft has Certified ProAdvisors offers QuickBooks consulting services, QuickBooks training, and QuickCall service.

Contact DataCraft for help with your QuickBooks needs.

 

Calculating the Cost of Goods Sold Ratio

  | Share on Twitter Twitter | Share on Facebook Facebook | Submit to Digg digg it |  Add to delicious  delicious |  Submit to StumbleUpon StumbleUpon |  Share on LinkedIn LinkedIn | Submit to Reddit reddit 

We've had great questions submitted to the Bean Counter lately, and one we've seen several times has to deal with cost of goods sold. This week we're going to cover calculating the cost of goods sold ratio.

The cost of goods sold (also known as COGS or cost of sales) is the direct for a company to produce a product and sell its services. While the cost included in the COGS differs depending on the business, they typically include inventory sold, raw material, and freight and labor costs.

How do you calculate the Cost of Goods Sold ratio? The basic way to calculate the COGS is to start with the beginning inventory for the period and adding the total amount of purchases made during the same period, then subtracting the ending inventory.

For example:

Your company has $25 million in inventory, makes $15 million in purchases and ends with $10 million in inventory; the COGS would be $30million.

$25 million starting inventory + $15 million in purchases - $10 million ending inventory =$30 million COGS.

Knowing and understanding the COGS is important because it helps companies make important decisions when it comes to pricing products and services. It helps to uncover opportunities to reduce cost and improve production.

Keep in mind that if you want to have accurate COGS, you must have a well managed inventory system.

If you have an accounting question, submit it to the Bean Counter.

 

All Posts