Preparing the Books for a Small Business

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The Positive Impact of Depreciation on Cash Flow

Depreciation has a positive impact on cash flow for a business. Fixed assets wear out and lose their economic usefulness over time. Some fixed assets last many years, such as office furniture and buildings [more…]

Types of Interest Available for Business Loans

Few businesses are able to make major purchases without taking out loans. Businesses must pay interest, a percentage of the amount loaned, to whoever loans them the money, whether loans are for vehicles [more…]

Nominal and Effective Interest Rates for Business Loans

Two interest rates used in business loans are the nominalinterest rate and the effective interest rate. The annual interest rate quoted by the bank is often called the nominal rate [more…]

Handling Interest Income for Your Business

The income that your business earns from its savings accounts, certificates of deposits, or other investment vehicles is called interest income. A bookkeeper is rarely required to calculate interest income [more…]

Recording Short-Term Debt Transactions for Your Business

Most businesses borrow money for both short-term periods (periods of one year or less) and long-term periods (periods of more than one year). Short-term debt usually involves some form of credit-card debt [more…]

Checking Out Computerized Journal Records for Your Business

Although you don’t have to close out journal pages if you keep your books using a computerized accounting system, running a spot check (at the very least) of what you have in your paper records versus [more…]

How to Summarize the Cash Receipts Journal

You can summarize the Cash Receipts journal for your business once you’re sure that all cash receipts — as well as any corrections or adjustments to those receipts — have been properly entered in the accounting [more…]

Closing the Cash Disbursements Journal for Your Business

After you close the Cash Receipts journal for your business, the next step is to close the Cash Disbursements journal. Any adjustments related to outgoing cash receipts, such as bank credit-card fees, [more…]

Using a Temporary Posting Journal in Your Business

Some businesses use a Temporary Posting journal to record payments that are made without knowing how the cash outlay should be posted to the books and which accounts will be impacted. For example, a company [more…]

Reconciling Bank Accounts for Your Business

The process of reconciling the bank accounts for your business refers to proving out cash — verifying that what you have in your business’s bank accounts actually matches what the bank thinks you have [more…]

Tracking Down Bank Account Errors for Your Business

Periodically, you need to reconcile your business’s bank accounts against statements provided by the bank. Ideally, your balance and the bank’s balance adjusted by transactions not yet shown on the statement [more…]

Reconciling Business Bank Accounts with a Computerized System

If you use a computerized accounting system such as QuickBooks in your business, reconciling bank accounts should be much easier than if you were keeping your books manually. When you start the reconciliation [more…]

Preparing to Close Out a Business’s Journals

As you prepare to close your business’s books at the end of an accounting period, you first need to summarize (total) the journals. During the process, it’s a good idea to look for blatant errors and be [more…]

Planning for Cash Flow in Your Business

The process you go through each month as you prepare to close the accounting books for your business helps you plan for future cash flow. Reviewing the Accounts Receivable and Accounts Payable Aging Summaries [more…]

Posting Adjustment Entries to the General Ledger

An important part of closing the accounting books for your business is posting to the General Ledger any corrections or adjustment entries you find as you close the journals. This type of posting consists [more…]

Summarizing Journal Entries to Check for Accuracy

The first step in checking accuracy in your accounting journals is summarizing them, which is primarily totaling all the columns in the journal. This summary process gives you totals for the accounts being [more…]

How to Allocate Prepaid Expenses for Your Business

Most businesses have to pay certain expenses at the beginning of the year even though they will benefit from that prepaid expense throughout the year. Insurance is a prime example of a prepaid expense. [more…]

Counting Inventory When Preparing Financial Statements

Inventory is a balance sheet asset account that needs to be adjusted for financial statements at the end of an accounting period. During the accounting period, your company buys inventory and records those [more…]

Allowing for Bad Debts in Financial Statements

When you prepare financial statements at the end of an accounting period, you may need to adjust the books to allow for bad debts from customers that will never pay the amount owed to your business. No [more…]

Recognizing Unpaid Salaries and Wages in Financial Statements

When preparing financial statements at the end of an accounting period, you must record unpaid salaries and wages as adjusting entries in the books. If you pay your employees every two weeks, you may end [more…]

Testing a Business’s Adjusted Trial Balance

When you make adjusting entries to your accounting books, you’ll need to prepare another trial balance, the adjusted trial balance, to ensure that your adjustments are correct and ready to be posted to [more…]

Making Changes to a Business’s Chart of Accounts

After you finalize your General Ledger for the year, you may want to make changes to your Chart of Accounts, which lists all the accounts in your accounting system. You may need to add accounts if you [more…]

Calculating Cost of Goods Sold and Inventory Cost

After a business’s product is sold, the product cost is taken out of inventory and recorded in the cost of goods sold expense account. One main accounting decision that must be made by companies that sell [more…]

The FIFO Method for Cost of Goods Sold

With the FIFO (first-in, first-out) method for cost of goods sold, you charge out product costs to cost of goods sold expense in the chronological order in which you acquired the goods. It’s like the first [more…]

The LIFO Method for Cost of Goods Sold

The main feature of the LIFO (last-in, first-out) method for cost of goods sold is that it selects the last item you purchased first, and then works backward until you have the total cost for the total [more…]

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