Small Business Accounting

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Examining Fixed Manufacturing Costs and Production Capacity

Product cost consists of two distinct components: fixed manufacturing costs and variable manufacturing costs. The production capacity refers to the people and physical resources needed to manufacture products [more…]

Recording Store Credit Transactions in a Bookkeeping System

When sales are made on store credit, you must record specific information into the accounting system. In addition to entering information regarding cash receipts, you update the customer accounts to be [more…]

Things to Remember about Budget Analysis

A budget truly gives a business owner or manager a way to plan out the year's operation, think about what's most important, and quantify what the firm should achieve over the year. While formulating your [more…]

Understanding Activity Ratios in Bookkeeping

Activity ratios provide an indication of how efficiently a firm runs its operations. For example, all other factors being equal, a firm that keeps a very modest amount of inventory is in better shape than [more…]

Understanding Profitability Ratios in Bookkeeping

The profitability ratios analyze a firm's profitability. In a sense, these profitability ratios are the most important ratios that you can calculate. They typically provide terribly useful insights into [more…]

Understanding Traditional Overhead Allocation on an Income Statement

The problem in many businesses using traditional overhead allocation is that their overhead expenses or operating expenses don't cleanly tie to products or services. Without good allocation of overhead [more…]

Understanding Activity-Based Costing

To create an activity-based costing (ABC) product line income statement, you attempt to trace the overhead cost directly to products or services. For example, suppose that in the case of an imaginary hot [more…]

Should You Use Activity-Based Costing in a Small Business?

Activity-based costing (ABC) lets you better allocate overhead costs and, as an added bonus, also often gives you unique insights into what "drives" your overhead costs. With this information in hand, [more…]

How to Implement a Simple Activity-Based Costing System

Activity-based costing (ABC) systems don't have to be that complicated, particularly if you just want better allocation of your overhead costs rather than a system to look at the cost drivers or the activities [more…]

Understanding Liquidity Ratios in Bookkeeping

Liquidity ratios measure how easily and comfortably a firm can pay its immediate financial obligations and exploit immediate short-term financial opportunities. For example, everything else being equal [more…]

Understanding Leverage Ratios in Bookkeeping

Leverage ratios measure how much debt a firm carries and how easily a firm pays the interest expenses of carrying that debt. Leverage ratios are important for an obvious reason. Typically, a firm mostly [more…]

Understanding Economic Value Added in Business

Economic Value Added (EVA) analysis measures how profitable it truly is to run a business instead of selling it. It states in a formula something you already know in your gut: If you're a business owner [more…]

How to Use Economic Value Added When Your Business Has Debt

In very large businesses, economic value added (EVA) analysis gets really computationally burdensome. Although there are multiple potential problems, you should be familiar with one common complication [more…]

3 Steps for Calculating Rate of Return on Capital Expenditure

Capital budgeting boils down to the idea that you should look at capital investments (machinery, vehicles, real estate, entire businesses, yard art, and so on) just as you look at the CDs [more…]

Thinking about Risk with Capital Investments

Risk is an issue even with simple investments like bank CDs. But with capital investments, no government agency is looking out for your interest and picking up the pieces if things do a Humpty Dumpty and [more…]

How Profit-Volume-Cost Analysis Works

Profit-volume-cost analysis is a powerful tool that estimates how a business's profits change as the sales volumes change as well as breakeven points. [more…]

Calculate Breakeven Points in Your Business

Profit-volume-cost analysis is a powerful tool that estimates how a business's profits change as the sales volumes change. It can also help estimate the breakeven point. A [more…]

Finding Market Equilibrium Price and Quantity

Buyers and sellers interact in markets. Market equilibrium occurs when the desires of buyers and sellers align exactly so that neither group has reason to change its behavior. The market equilibrium price [more…]

Identifying Market Failures

Sometimes markets fail to generate the socially optimal output level of goods and services. Several prerequisites must be fulfilled before perfect competition can work properly and generate that output [more…]

How to Calculate Payroll for Employees at Your Business

When you know the details about your employees’ withholding allowances and their benefit costs, you can then calculate the final payroll for your business and post it to the books. [more…]

Bookkeeping: How to Track Sales Discounts

When your business offers discounts to customers, a good bookkeeping tactic is to track the sales discounts in a separate account so you can keep an eye on how much you discount sales in each month. [more…]

Recording Sales Returns and Allowances for Your Business

Bookkeeping can become pretty confusing if you incorrectly record sales returns, gift card sales, and returns bought with a discount. Most stores deal with sales returns and sales allowances [more…]

Monitoring Accounts Receivable and Recording Business Losses

It’s important for businesses to closely monitor Accounts Receivable to minimize the recording of business losses. One of the bookkeeper's crucial responsibilities is to make sure customers pay their bills [more…]

Deciding How Frequently to Pay Your Business’s Employees

Deciding how frequently you’ll pay employees is an important point to work out before hiring staff. Most businesses choose one or more of these pay periods: [more…]

Determining Net Pay for Employees in Your Business

Net pay is the amount a person is paid after subtracting taxes and benefits. So, after all deductions are subtracted from an employee’s gross pay, you are left with the net pay. After you figure out all [more…]

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