Important Concepts Of The Income Statement You Must Know

This post will state and define all the fundamental concepts you should know before you pick an income statement, and which you must know to be able to make sense of it. Before we talk about the different heads of the income statement, it is necessary to know what period is the income statement for. This period will most likely be for one financial year. This will always be mentioned on top of the Income Statement.

Net Revenue

A business either sells goods to its customers or provides services to them. The considerations the business earns from providing these goods or services are summed together and presented as one numerical figure under the head of net revenue.

Cost of sales

A business incurs costs to acquire or produce the goods it sells. The cost incurred for this reason is presented under this head. It is highly likely that a business does not sell all that it buys or produces in the period of the income statement. Thus, other sub-heads such as Opening inventory, Goods Acquired or Produced and Closing Inventory. The amounts of these are stated in dollar terms. The amount of Closing Inventory is deducted from the sum of Opening Inventory and Goods Acquired or Produced to arrive at the numerical figure of the Cost of Sales. In the case where a business provides services, this head is omitted from the income statement.

Gross Income

The numerical figure of the Cost of Sales head is deducted from the numerical figure of the Net Revenues. A positive figure thus indicates that the business is has made a profit, while a negative figure is indicative of the fact that the business has incurred a loss. REMEMBER; this is the gross income. This means that this is not the final profit for the business, and other incomes and costs need to be adjusted to it to arrive at the net profit.

Selling, General, and Administrative Expenses

The Cost of Sales head only presents the cost of acquiring or producing the goods. However, during the normal course of operation of a business, there are a number of other expenses that are incurred. These expenses are divided into three broad categories of selling, general or administrative expenses. Selling expenses are those costs that are incurred to make sure that the sale of a product is completed. It will also include distribution costs. Administrative expenses are those which are incurred to make sure that all the operations of a business are smoothly carried out. It may include the salary of office employees. The costs which do not fall in any of these two heads are categorized as general expenses.

Net Profit

Gross Income less the Selling, General and Administrative Expenses is what is known as the Net Profit. This is the figure that the owner of the business can take home. It is the amount of money that is left over after covering up all the costs of the business from the revenues that the business has earned. A negative figure indicates that the business has incurred a net loss.

Why You Need Standard Costing For Your Business

Standard costing is one of the most commonly used costing systems in the world of management accounting. When you consider all of the advantages that standard costing has got to offer, you’ve got to say that the preference appears to be well justified. Here are some of the proven advantages that standard costing has got to offer to your business:

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Controlling Costs

You know what they say about controlling costs, right? The lower your costs are, the higher your profits will be. Standard costing requires for you to set standard costs against which actual costs can be compared. If the variation in actual costs (compared to standard costs) is found to be remediable, it makes it easier for the management of the business to take corrective action. The better an organization is able to control its costs, the easier it will be for it to improve its profit margin. For that to happen, however, it’s essential for the standard costs to be up to date, embodying all of the latest developments. Only then will the comparison with the actual costs be valid.

Price Determination

The employment of standard costing makes it easier for a business to formulate policies and determine the prices. This is one of the biggest advantages of standard costing, considering that it allows for the formulation of budgets and projections. Making estimates, through standard costing, in the pre-manufacturing phase, for example, can give the management a fair idea of whether the manufacturing will be beneficial for the business or not.

Efficiency

Efficiency is among the essential keys of success for any business, right? Yet, few businesses are able to achieve it. With standard costing, however, a business can be made more efficient over the course of time. How? Well, a thorough investigation conducted for the variation between standard and actual costs often brings into light operational and manufacturing inefficiencies within the business. The management then has the opportunity to take the corrective actions required for promoting efficiency within the organization. Over time, such procedure can lead to the determination and eradication of quite a few inefficiencies.

Better Decision Making

Ultimately, the basic purpose of standard costing is to aid the management of any business in making more informed decisions. Standard costing provides employees targets that are needed to be met. If the employees are unable to meet their targets—or in some extreme conditions—is the management required to interfere. Such a procedure ensures that the management is able to direct its energy towards such departments and segments of the business that REQUIRES its attention. Let’s face it: most employees are annoyed by undue attention from the management. Standard costing, thus, is able to make life easier for the management and employees alike. Standard costing also serves as an evaluation for the performance of the employees and is, often, the basis of bonuses and terminations!

Standard costing has got its advantages, no doubt, but there’s no guarantee if it’s the RIGHT system for your business. Therefore, to facilitate your choice in the perfect accounting system for your business, SKB Accounting has got all of the required expertise!

Reasons Your Small Business Needs Xero

We’re heading into a world that will be dominated by smart devices relying on the Internet of Things (IoT) to share massive amounts of data in real-time. As a business owner, you need to be able to quickly access your business’s financials to make more informed decisions. If you are planning for the long-haul, where you always remain on top of your business financials, then you need accounting applications like Xero. Here are a few reasons why you, too, need Xero:

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(Image source: xero.com)

Work On the Go

Xero allows you to run your business on the go. How? Well, it’s because it gives you access to the financial information of your business no matter where you may be. What this means is that you—or anyone else who needs access to your financial data—can work on updated data whenever they may want to. Managing a business is a tough ask and Xero realizes it as well. That’s why Xero works hard to ensure that you may work on the go!

Get Paid Faster

Cash flows are, perhaps, the most considerations for businesses, especially the smaller ones. Why? Well, it’s because you NEED cash in hand to keep your operations going. This is where Xero comes in, for it equips small businesses with such tools that they may use for the purpose of getting their hands on their receivables faster. Gone are the days when you needed to send your customers printed invoices and wait until they paid up. Xero gives you the option of making use of online receipts so that you may be paid faster. How? Well, online receipts give customers the ability of making online payments through your invoice. This shortens the procedure and, hence, allows you to get your hands on that hard earned money sooner!

Get Rid of the Monotony

One of the worst tasks that come with bookkeeping for a small business is that the nature of the job is monotonous, owing to how certain tasks need to be repeated again and again and…again. With Xero, however, you can put an end to this monotony by letting it perform all of such tedious, repetitive tasks. There are plenty of benefits for doing this. Firstly, it’ll make your job of managing the business more interesting for, let’s be honest, no one loves monotony. More importantly, however, the use of Xero for such tedious tasks will give you more time to spend on such key business issues that REALLY matter for the wellbeing and growth of your business.

Collaborate Better

Xero can serve as a single source of data for all of your employees and advisors. What this means is you and your advisors will be looking at the same piece of information when you’re consulting with your advisor to make the next, big business decision. And the best part is that Xero allows you to invite your advisors into your data for, absolutely, no additional cost at all.

When you look at all that Xero has got to offer to your small business, its employment appears to be an absolute necessity for the wellbeing of your business. If you need advice on how you can make the best use of Xero for your business, the experts at SKB Accounting have got your back!

Why Quickbooks Is Just What You Need

Quickbooks is one of the most popular names in the world of accounting applications. The product has been designed to take care of all accounting needs of a business, giving customers a choice of choosing between software based or cloud based systems, in accordance with their unique requirements. But is getting Quickbooks worth it, or is it just another fancy cost?

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Here are a few reasons why your business needs Quickbooks:

Communication and Online Features

Quickbooks is able to communicate and share data with hundreds of other business applications. What this means is that you won’t have to spend your precious time doing it, nor have to appoint someone for it. With such an automated mode of communication between business applications, the possibilities of human errors are also taken out of the picture. Quickbooks can also receive online payments, through the Quickbooks Online Billing feature. According to it, you can send the invoice through email to your customers and the customers can, in return, pay you electronically. Quickbooks makes the chore of payment and collection easier and convenient for both parties. Other features, such as accepting credit cards and online payment of bills all serve to make Quickbooks, almost, integral for all businesses nowadays.

Automated Reporting

With Quickbooks, you’ll have the ability of generating all kinds of reports at your fingertips. Gone are the days when you needed days, at times, to prepare accounting reports. Regardless of whether you need to know where your business stands or if you’re planning for the future, Quickbooks will be able to generate accounting reports based on, both, historical and projected forms of data. Having such powers at your fingertips will not only aid you in taking important business decisions but also help you in everyday endeavors, such as securing a loan.

Simplicity and Flexibility

On the whole, accounting applications tend to be cumbersome and, at times, too hot to handle. What differentiates Quickbooks from the other applications of its kind is the fact that it’s extremely simple to use. What this means is that all your staff needs to take care of all of the bookkeeping needs of the company is a basic background in accounting and an understanding of how the software works. That’s it! Also, Quickbooks has got such customized accounting packages available for different kinds of businesses, making it one of the most flexible accounting applications out there.

Cost Saving

Regardless of what the size of your business might be, the fact of the matter is that Quickbooks will cost the same. This is what makes Quickbooks so affordable and one of the best bargains in the world of business. For a few hundred bucks, you can automate a lot of your bookkeeping tasks—of varying complexities—and save your money and time in the process. In order to truly make a win/win situation, however, it’s advisable to train your staff before shifting your bookkeeping to Quickbooks.

If you’re looking for advice on how you can best implement Quickbooks in your company, or if you’re looking for the right accounting application for your business, in general, then you should know that SKB Accounting has got the answers to all of your questions. Make the most out of Quickbooks with SKB Accounting!