Accounting Basics

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How Experience Impacts the Budgeting Process

Business owners with little experience in an industry often plan poorly, in part because they don’t have much personal history to go on. Also, some people have trouble accepting the reality of their business [more…]

How Timing Impacts the Budgeting Process

Different business decisions have different timelines that depend, in part, on the dollar amount of the decision you’re making. Understanding your timeline helps you make intelligent decisions about spending [more…]

How People Impact the Budgeting Process

The budgeting process isn’t only about numbers; it also involves people. A budget is something that a group of people typically reviews and eventually comes to an agreement on. Involve people, consider [more…]

Sales Projections and the Budgeting Process

Sales projections help answer the question of how you earn a reasonable level of profit. Of course, the answer is complicated if competitors are selling the same product or service, because it suggests [more…]

The Budgeting Financials

Your budget becomes a set of pro forma financial statements. Pro formas are what-if statements, filled with budgeted, planned, and forecasted items. Unless you have a crystal ball, your budget is always [more…]

Revenue and Production Budgets

Revenue and production budgets, put simply, forecast how many units you plan to produce and how many units you plan to sell. Material and labor costs are considered [more…]

Cash Basis Accounting: Using Your Checkbook to Budget

On a very basic level, your cash budget is a reflection of your checkbook. It’s the sum of the deposits you make (revenue) and the checks you write (costs). The budgeting result of cash basis accounting [more…]

Accrual Accounting

An effective budget applies the matching principle. The principle states you should match the timing of the expenses of creating and delivering your product or service with the timing of getting revenue [more…]

Budgeting to Produce the Income Statement and Balance Sheet

A final step in the budgeting process is to create a budgeted balance sheet and budgeted income statement. Your balance sheet and income statement, whether budgeted or actual, are the two great financials [more…]

Flexing Your Budget: When Plans Change

Regardless of how carefully you budget, plans may change. Assume you plan a cross-country family camping trip. You diligently create a budget spreadsheet based on your research and assumptions. Unfortunately [more…]

The Face of Notes Payable

Face is the easiest type of note to account for. With this type of note, the present value of the note payable is the same as its face, which is the amount stated on the note. [more…]

No-Face, No-Interest Notes Payable

A no-face, no-interest note payable is issued for the present value of the amount the borrower receives from the lender, which is less than the face value [more…]

No-Face, Interest Bearing Notes Payable

Now that you’ve tackled zero-interest-bearing notes payables, you can dig into interest-bearing notes. Assume that a note payable has a stated (face) interest rate of 6 percent. At that stated rate, interest [more…]

Mortgages Payable

The most common type of note payable is a mortgage, which is used to finance the purchase of real property assets such as land and buildings. The property [more…]

Valuing Bonds Payable

A company can issue bonds either at face value (also known as par value), which is the principal amount printed on the bond; at a discount, which is less than face value; or at a [more…]

How to Figure Out the Present Value of a Bond

In many ways, the present value process is the same as the concepts used for notes payable. Assume a company issues a $100,000 bond due in four years paying seven percent interest annually at year-end. [more…]

Bonds Issued at Face Value

Bonds issued at face value are one of the easiest type of bond transaction to account for. The journal entry to record bonds that a company issues at face value is to debit cash and credit bonds payable [more…]

Replacing Assets: Replacement Value

One measurement of a business’s worth in dollars is its book value — the cost of all assets less all accumulated depreciation. The following information should help you consider the cost of replacing assets [more…]

How to Use Future Earnings and Cash Flow for Asset Valuation

Although asset value provides a snapshot of a company’s current value, it doesn’t provide much insight into the company’s potential future value. Taking into account the replacement value of assets, as [more…]

The Basic Steps of Bookkeeping

Bookkeeping can be made simpler if you follow a logical set of steps. Here are three fundamental concepts that can help keep things in order when handling the books for a business. [more…]

Accounting For Canadians For Dummies Cheat Sheet

Every business and not-for-profit entity needs a reliable accounting system to facilitate day-to-day operations and to prepare financial statements, tax returns, and internal reports to managers. This [more…]

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