Reconciliation (Term Tuesday)

Reconciliation aka Balancing the Check Book

Definition

Investopedia defines Reconciliation as “An accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key process used to determine whether the money leaving an account matches the amount spent, ensuring the two values are balanced at the end of the recording period.” http://www.investopedia.com/terms/r/reconciliation.asp

If you use a Bookkeeping software you most likely enter the transactions that go through your bank account or credit cards into the software but just “Entering” those transactions does NOT mean you have reconciled your account most bookkeeping software’s have another area in which you compare your accounts in two different forms to make sure everything has been entered at the end of each month! If you have not been completing this second area of reconciliation you might want to contact a bookkeeper to help you to actually complete your Reconciliation’s.

 

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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/

 

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