Small Business Accounting

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Entering the Initial Inventory Costs for a Business

When your business first receives inventory, you enter the initial cost of that inventory into the bookkeeping system based on the shipment’s invoice. Invoices are sometimes sent separately, and only a [more…]

Controlling Inventory and Supplies Billing in Your Business

Eventually, you have to pay for both the inventory and the supplies you purchase for your business. These bills are typically posted to Accounts Payable when they arrive, and they’re paid when due. A large [more…]

Tracking and Recording Cash Sales in a Bookkeeping System

Most businesses collect cash as payment for the goods or services they sell. These cash sales must be tracked and recorded in a bookkeeping system. Cash receipts include more than just bills and coins; [more…]

How to Balance Cash Register Transactions

A business must balance cash register transactions at the end of each day to properly track and record sales transactions. This also helps to ensure that cashiers don’t pocket a business’s cash — cashiers [more…]

How to Maintain Employee Records

Keeping employee records accurate and up to date is essential for your business, especially when considering all the state and federal filing requirements for employee taxes. Otherwise, you’ll have a hard [more…]

Basic Types of Business Manufacturing Costs

Businesses that manufacture products have several additional cost factors to consider compared with retailers and distributors. These types of manufacturing costs include raw materials, direct labor, variable [more…]

How to Classify Product Costs for a Manufacturer

Two issues exist when businesses classify product costs for a manufacturer. They must distinguish between manufacturing and non-manufacturing operating costs, and determine how to allocate indirect costs [more…]

How to Calculate Product Costs for a Manufacturer

Businesses that manufacture products must determine how to calculate their product costs. Because most businesses produce multiple products, their accounting systems must be very complex and detailed to [more…]

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…]

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