Cash Flow (Term Tuesday)

Cash Flow

Definition

  1. Investopedia defines Cash Flow as “A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.” Or “An accounting statement called the “statement of cash flows”, which shows the amount of cash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company’s financial strength.” http://www.investopedia.com/terms/c/cashflow.asp
  2. Another great definition or explanation of Cash Flow from Wikipedia “Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, limited period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation. Cash flow can be used, for example, for calculating parameters: it discloses cash movements over the period.”
  • “to determine a project’s rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and net present value.”
  • “to determine problems with a business’s liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.”
  • “as an alternative measure of a business’s profits when it is believed that accrual accounting concepts do not represent economic realities. For instance, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.”
  • “cash flow can be used to evaluate the ‘quality’ of income generated by accrual accounting. When net income is composed of large non-cash items it is considered low quality.”
  • “to evaluate the risks within a financial product, e.g., matching cash requirements, evaluating default risk, re-investment requirements, etc.” http://en.wikipedia.org/wiki/Cash_flow

Here is a link to brief informational video on “Understanding Cash Flow” from Investopedia:

http://www.investopedia.com/video/play/what-is-cash-flow/

 

Cash Flow Image

 

3 Things to Consider Before Your Business Donates to Charity

Throughout the year we as business owners and individuals are often approached by others about donating to Charities,  do you every questions if you should donate or do you just “Write the Check”…?

Here is a great article from Entrepreneur Magazine of 3 Things to Consider Before Your Business Donates to Charity http://www.entrepreneur.com/article/225130

Charitable Contributions

Cost of Goods Sold (Term Tuesday)

Cost of Goods Sold aka COGS or Cost of Revenue

1st of all please remember Cost of Goods Sold does not apply to just product based companies if you provide a Service you will have cost of services provided as well!

Definition

  1. Investopedia defines Costs of Goods Sold as “The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company’s gross margin. Also referred to as cost of sales.” http://www.investopedia.com/terms/c/cogs.asp
  2. QuickBooks Help defines Cost of Goods Sold as “The Cost of Goods Sold account is added to your chart of accounts the first time you add an inventory item. QuickBooks uses this account to track how much you paid for goods and materials that were held in inventory and then sold. While an item is held in inventory, its value is tracked in the Inventory Asset account, which is also added to your chart of accounts when you create your first inventory item. As soon as that item is sold using an invoice or sales receipt, its value is taken out of the Inventory Asset account and put into the Cost of Goods Sold account.”

For a service based company a few items that might be included but not limited to in your COGS account could include materials used to provide service, direct labor, subcontracted labor and commissions.

http://www.as-bookkeeping.com

Here is a link to brief informational video on Cost of Goods Sold by Investopdedia:

http://www.investopedia.com/video/play/what-are-cogs/

COGS

 

Quick Tip- Shortcut for Writing a Check

Tips

When using QuickBooks there are many shortcut key’s to navigate through screens quickly!  This week Quick Tip is for Writing a Check.

While you are in your Quickbooks Software press and hold the “Crtrl” key followed by the “W” key to open the Check Writing Screen.

Key- controlKey- PlusKey- W

Accounts Payable aka A/P & Bills (Term Tuesday)

bills-to-pay-before

Accounts Payable aka A/P & Bills

Definition

  • “Any amount owed as the result of a purchase of goods or services on a credit basis. Although a firm making a purchase issues no written promise of payment, it enters the amount owed as a current liability in its accounts. Companies often incur this type of short-term debt in order to finance their inventories, especially in industries where inventory turnover is rapid.” http://www.merriam-webster.com/dictionary/account%20payable
  • QuickBooks help center defines this account “The record of the outstanding bills of a business. Accounts Payable is called A/P for short. (Even though the word accounts is plural, QuickBooks uses a single account on the chart of accounts to track all outstanding bills.)”

“An account that QuickBooks automatically adds to your chart of accounts the first time you enter a bill. QuickBooks uses this account to track the money your business owes to others. When you enter a new bill, or pay off outstanding bills, QuickBooks records the transaction in the register for your Accounts Payable account.”

“Your chart of accounts lists the type of this account as “Accounts Payable.” If you need to use more than one of this type of account in your business, you can add additional “accounts payable” accounts to the chart. When you have more than one accounts payable account, QuickBooks lets you choose the account you want to use when you enter and pay bills.”

Have you ever asked yourself How do I pay myself? Salary or Draw?

Have you ever asked yourself as the business owner how you should pay yourself?  This Article from Intuit QuickBooks has some great suggestions on just that!

“Salary or Draw? How to Pay Yourself as Business Owner”