ost businesses have capital assets (also known by older names: fixed
assets or property, plant, and equipment). Capital
assets are tangible assets (i.e., you can see them
and feel them) that have value to the business for
more than the current year.
Capital assets
include the following:
Land
Buildings
Machinery
Furniture
Vehicles
Computer equipment
Computer software
Leasehold improvements
T
hese
are all capital assets because they all have use to
the business in future years as well as in the
current year (unlike, for example, pens and paper,
which you will use up quickly).
W
hat
complicates the accounting for capital assets is the
concept of depreciation, a recognition that these
assets will eventually wear out.
Inventory
If
you sell goods, the management of your inventory
is crucial to your business's success. This
session examines in-depth the methods of
inventory tracking, valuation, and counting.
Inventory
is a concept as well as a physical pile of
goods. Many unscrupulous companies manipulate
their inventory figures for the purpose of
changing values on their financial statements.
Understanding the underlying concept will help
you not only to operate your business more
efficiently, but also to read other companies'
financials with new eyes.
Leases and Loans
I
n
the course of business, there may be many loan
transactions, including bank loans, loans from the
company to other companies or individuals, and
longer-term loans, such as the mortgage on the land
and building in which the company operates. In
addition, leases are becoming a prevalent way to
finance and have the use of equipment and vehicles.
T
his
session looks at equipment and vehicle leases and
their treatment for accounting purposes, then moves
on to a discussion of loans :-
he
accounting behind leases and loans can be a bit
difficult to navigate. Most loans are set up as a
fixed payment with a changing proportion of interest
and principal. Leases can be used as a way to get
the use of an asset without owning it outright or
can be another method of financing an asset. The
accounting in each scenario differs.
Maintaining a Petty Cash System
I
t
is importance of depositing
all of your cash receipts into the bank account on a
daily basis, and the importance of setting up a cash
disbursement system for any payouts.
H
owever,
almost every business has a myriad of tiny expenses
for which writing a check would be impractical:
running to the store for coffee cream, for example,
or getting stamps at the post office. Enter petty
cash.
You
will learn
the following lesson here:
etty
cash is simply money kept on hand rather than
deposited in the bank account. It can be kept in the
cash register, an envelope, or a box for all of the
occasions where you have an expense of only a few
dollars. Although the petty cash fund is usually
only $100 or
so, it is important to keep control of the fund and
to be able to reconcile it, both to make sure that
all expenses have been accounted for and also to
make sure that cash does not go missing. This
session will show you how to set up, maintain, and
replenish your petty cash system.
Reconciling the Bank
N
ow you
want to make sure that you have recorded everything
that has actually gone through your company's bank
account. You will do this in the reconciliation
process. Most businesses get statements from the
bank on a monthly basis, along with the canceled
checks that have cleared the bank account. You may
get your banking information more often than this if
you have access to Internet banking. Some
computerized bookkeeping programs allow you to
download the bank information directly into the
reconciliation module to assist in the process.
lthough
each computerized bookkeeping system has a different
method for reconciling the books to the bank, this
session will look at the manual process to give you
a thorough understanding of the purpose of the
exercise.
ost
provinces in Canada have their own provincial retail
sales taxes. In some provinces, these are integrated
with the federal GST, and in other provinces, the taxes are
administered separately. The issues are similar to
GST; however, in some provinces, instead of getting
back the tax you pay, you simply do not pay the tax
up front if you are registered. The complexities of
provincial commodity taxation are beyond the scope.
Transactions Between the Company and Its Owners
A
s
a small-business owner, you will have many
interactions with your business finances, especially
in the start-up phase. Sometimes, you might be short
on personal cash, so you buy groceries with the
company debit card. You may be out at a store and
see a phenomenal deal on office supplies but have
only personal cash, so you buy the supplies, knowing
that the company will pay you back later.
In
this session,
you will learn
lthough
these are common transactions, it's wise to minimize
this type of activity. For one thing, it creates
more bookkeeping (and you don't need any more
bookkeeping than you already have!). Second, if your
company were to be audited by the IRS or CCRA or
other taxation bodies, they would find that you have
created a link between your business and your
personal finances. You may have accounted for all of
these transactions correctly, but the fact that
you've mixed personal and business finances may
cause the government to dig a little deeper to make
sure you are not deducting personal expenses for tax
purposes. A hassle all around!
N
onetheless,
there will be times when you have no choice. This
session looks at shareholder loans, business use of
personal assets, and bonuses and dividends.
o
matter how great a bookkeeper you are, how many
courses you've taken or how many years' experience
you have, you will furl into reconciliation problems
that you just can't figure out. They will annoy you,
drive you crazy (and possibly to drink), and cause
you to use all kinds of colorful expressive
language.
T
o
solve these problems, you need to go back to the
basics and answer the question, "What am I trying to
do here?"
Online Balance Sheet Lessons