Accounting

Revenue vs Cash Flow: What’s the Difference?

Revenue and cash flow are two of the most important financial metrics for your businesses. Regardless of what products or services your business, you should track its revenue and cash flow. All businesses have revenue and cash flow. Like with other financial metrics, though, revenue and cash flow will vary.

What Is Revenue?

Revenue is money that your business generates by selling its products or services. Customers, of course, will purchase your business’s products or services. Whether they pay with cash, credit cards, debit cards, checks, etc., they’ll provide your business with revenue. Your business will generate revenue from the sale of its products or services.

Keep in mind that revenue isn’t the same profits. Your business may generate revenue without turning a profit. If your business’s expenses are greater than its revenue, it won’t turn a profit. You’ll need to keep your business’s expenses lower than its revenue to turn a profit.

What Is Cash Flow?

Cash flow is a measurement of liquidity. It represents money flowing into and out of your business. Revenue is money flowing into your business. When your business generates revenue, its cash flow will typically increase.

In addition to revenue, cash flow takes into account expenses. Money flowing out of your business include expenses. When you pay for utilities, insurance, payroll or other business-related expenses, money will flow out of your business. Cash flow is a measurement of the money flowing into and out of your business.

Differences Between Revenue and Cash Flow

You can’t run a successful business without considering its revenue and cash flow. Revenue refers to money generated by your business from the sale of its products or services. Cash flow, on the other hand, is money that flows into and out of your business.

Revenue only takes into account product and service sales. Cash flow, in comparison, takes into account revenue and expenses. Cash flow is the relation between your business’s revenue — money flowing into your business — and your business’s expenses.

It’s important to note that cash flow can be positive or negative. Positive cash flow means there’s more money flowing into your business than out of your business. Negative cash flow means the opposite. With negative cash flow, more money will flow out of your business than into your business.

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5 Common Myths About Business Credit You Shouldn’t Believe

As a business owner, you should closely monitor your business’s credit score. Business credit scores can fluctuate. With a high business credit score, you’ll have an easier time securing loans and other forms of debt financing. A low business credit score, on the other hand, can pose financing challenges. And without financing, you may struggle to grow or even run your business. Nonetheless, there are several business credit myths that you shouldn’t believe.

#1) Same as Personal Credit

Business credit is not the same as personal credit. Business credit refers to the credit worthiness of a business entity. Personal credit refers to the credit worthiness of an individual person. They are both measured in numerical scores. Business credit is simply associated with a business, whereas personal credit is associated with an individual person.

#2) Buying Things on Credit Will Improve Your Score

In a perfect world, all goods and services that your business purchases on credit will improve your business’s credit score. Unfortunately, this isn’t always the case. Only some vendors may report your purchases to a credit bureau. These reported purchases should improve your business’s credit score. Credit-based purchases that go unreported, though, won’t impact your business’s credit score.

#3) Only Late Payments Will Harm Your Score

Like with personal credit, failing to pay your business’s bills by their due date may harm your business’s credit score. With that said, late payments aren’t the only thing that can harm your business’s credit score. Hard inquiries can have a negative impact on business credit scores. If your business has an excessive number of hard inquiries in a short period, your business’s credit score may drop.

#4) Business Credit Isn’t Necessary

While some businesses may not need it, most businesses will, in fact, need a good credit score to succeed. As previously mentioned, it affects financing. Lenders will check your business’s credit score, and they’ll use this information to approve or reject your application for a loan. Interest rates are also affected by business credit. A high business credit score will help you secure a low interest rate, meaning you’ll pay less over the term of a loan.

#5) Not Available for Sole Proprietorships

Some business owners believe that business credit isn’t available for sole proprietorships. The truth is that all businesses are eligible for business credit. Whether your business is an S-corp, LLC or sole proprietorship, you can build credit for it.

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How to Invite Your Accountant in QuickBooks

Do you have an accountant who’s responsible for managing your business’s books? You aren’t alone. Research shows that over half of all business owners have an accountant. Assuming you use QuickBooks to track your business’s finances, you’ll probably want to invite your accountant to your QuickBooks account. By inviting your accountant, he or she will have access to all of your QuickBooks-stored accounting data.

Step #1) Sign In to QuickBooks Online

To begin, you’ll need to sign in to your QuickBooks Online account. QuickBooks Online is the cloud version of Intuit’s popular accounting software. You can use it with any major web browser. You’ll need to sign in to your QuickBooks Online account so that you can send an invite to your accountant.

Step #2) Add Your Accountant

After signing in to your QuickBooks account, you’ll need to add your accountant. Click the gear-shaped icon at the top of the home screen and choose “Manage Users.” You should see an “Accounting Firms” section. Enter the name of your accountant and his or her email address in this section.

Step #3) Send the Invite

Now it’s time to send the invite. In the “Accounting Firms” section is an “Invite” link. Clicking the “Invite” link will send an invite to your accountant. QuickBooks Online will send the invite to the email address that you specified in the previous step. Assuming you entered the right email address, your accountant should receive your invite.

Your accountant will have to create a user ID when signing in to your QuickBooks Online for the first time. The email invite will contain a link, which your accountant can use to sign in to your QuickBooks Online account. Assuming your accountant doesn’t already have a user ID, he or she will have to create one.

Step #4) Check the Status

You can check the status of the invite to see whether your accountant has accepted it yet. The status is available on the “Manage Users” page of QuickBooks Online. After sending your accountant an invite, you should see an “Invited” status on this page until he or she accepts the invite. Once your accountant has accepted the invite, the status on this page will change to “Active.” The “Active” status indicates that your accountant is now a registered user of your QuickBooks Online account.

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How to Upload Documents to QuickBooks From Your Smartphone

Want to upload documents to one or more transactions in QuickBooks? Assuming you use the Desktop Plus or Enterprise version of QuickBooks, you can upload documents from your smartphone.

Intuit offers a mobile companion app for QuickBooks. You can download it for iPhones or Android handsets. Using the mobile companion app, you can upload documents to QuickBooks. There’s no faster or easier way to attach documents to transactions than by using the mobile companion app.

Check the Format

Before uploading documents to QuickBooks from your smartphone, you should check the format. You can’t upload just any type of document. Rather, you’ll have to ensure that the document’s file format is supported by QuickBooks. As long as it’s supported, you can upload the document from your smartphone. If it’s not supported, you’ll need to convert the document into a supported file format before uploading it.

Supported file formats include the following:

  • PDFs
  • JPEGs
  • GIFs
  • PNGs
  • HEICs

Uploading Documents From an iPhone

To upload documents from an iPhone, launch the QuickBooks mobile app and sign in to your QuickBooks account. You should see an option to upload documents on the app’s home screen. Tapping this option will allow you to take a photo with your iPhone so that you can upload it to Quickbooks.

Alternatively, you can upload a photo that’s already saved on your iPhone. Just tap the photos icon, after which you can select the photo on your iPhone. The QuickBooks mobile app will allow you to customize the photo before uploading it. You can crop and resize it, for instance.

Uploading Documents From an Android Handset

You can upload documents from an Android handset as well. The QuickBooks mobile app is available for both iPhones and Android handsets. If you have an Android handset, you can upload documents such as photos to QuickBooks.

After launching the QuickBooks mobile app on your Android handset, tap ‘Documents” next to “Snap and Upload.” You can then tap the name of your business, followed by “Continue.” Tapping the ‘Snap Document” option will allow you to take a photo with your Android handset. If you want to upload a photo that’s already on your Android handset, tap the photos icon rather than the camera icon. When finished, tap “Use this photo.” The QuickBooks mobile app will then upload the photo to your QuickBooks account.

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What Is a T Account in Accounting?

You can’t run a business without recording your debits and credits. Debits are expenses, whereas credits are revenues. While there are different ways to record expenses and credits, one of the easiest methods is to use a T account.

Overview of T Accounts

A T account is a simple chart consisting of two columns: a debit column and a credit column. It’s known as a “T account” because it resembles the letter. Debits are displayed on one side, and credits are displayed on the other side.

If you use the double-entry bookkeeping method, you may want to take advantage of T accounts. T accounts have become synonymous with double-entry bookkeeping. Double-entry bookkeeping, of course, states that all financial transactions affect two accounts. Each financial transaction is recorded as a debit and a credit. With the double-entry bookkeeping method, you may want to use T accounts.

Advantages of Using T Accounts

Many business owners that use the double-entry bookkeeping method also use T accounts. T accounts work well for double-entry bookkeeping because they feature columns for debits and credits. You can create T accounts manually, or you can generate them automatically with software. Regardless, T accounts feature columns for debits and credits. You can use these columns to record your business’s financial transactions.

You can use T accounts to prepare adjusting entries. Also known as adjusting journal entries, adjusting entries are data records that occur at the end of your business’s accounting period, such as the last day of a fiscal period. Adjusting entries will ensure that your business’s financial records are accurate at the end of the respective accounting period. To prepare adjusting entries, you can use T accounts.

T accounts make it easy to find and fix accounting errors. If you discover an error, you can go back and review the recorded debits and credits. In T accounts, each credit should have a corresponding debit. If there’s not a debit for a particular credit — or if it doesn’t match — you can fix it.

In Conclusion

T accounts are commonly used with the double-entry bookkeeping method. They are charts that feature a column for debits and another column for credits. The double-entry bookkeeping method requires the use of credits and debits for all financial transactions. Therefore, you can use T accounts for double-entry bookkeeping.

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The Pros and Cons of Secured Business Loans

While there are dozens of different types of business loans, most of them can be classified as secured or unsecured. Secured business loans are those backed by collateral. You’ll have to provide the lender with collateral to obtain them. Unsecured business loans are not backed by collateral. Before applying for a secured business loan, you should weigh all of the pros and cons.

Pro: Doesn’t Require Good Credit

You don’t need good credit to obtain a secured business loan. Lenders pay little or no attention to credit scores when evaluating applications for secured business loans. You don’t need good credit, nor do you need any credit, in fact. You just need to provide the lender with collateral.

Pro: Low Interest Rate

Both secured business loans and unsecured business loans come have an interest rate. The interest rate is an added fee on the principle of the loan that’s baked into the payments. Secured business loans, though, typically have a lower interest rate. You can expect to pay less in interest fees over the term of the secured business loan.

Pro: No Equity, No Problem

Secured business loans don’t involve any equity. Equity represents ownership in a given business. You can use it to obtain financing from investors. Known as equity financing, it generally involves selling an ownership stake in your business to one or more investors. If you want to retain full ownership of your business, you should choose a secured business loan. Secured business loans don’t involve any equity.

Con: Requires Collateral

While you don’t need good credit to obtain a secured business loan, you will need collateral. All secured business loans require collateral. After all, collateral is essentially what distinguishes them from unsecured business loans. Different lenders may accept different types of collateral. You might be able to provide them with property deeds, treasury notes and stocks. If you don’t have a sufficient amount of collateral — or if you don’t have the right type of collateral — the lender may reject your application.

Con: Potential Loss of Collateral

As long as you repay the secured business loan, you’ll get to keep your collateral. Problems can arise, however, if you fail to meet your payment obligations. Defaulting on a secured business loan will typically result in the loss of collateral. The lender will take ownership of your collateral.

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QuickBooks: How to Update Your QuickBooks Company File With an Accountant’s Copy

Do you outsource your business’s bookkeeping to an accountant? Rather than doing it in-house, many entrepreneurs and business owners rely on the services of a professional accountant. With QuickBooks, you can send a special file to your accountant. Known as an Accountant’s Copy, it will allow the accountant to make changes to your business’s financial data without actually affecting your company file. After he or she has made the necessary changes, though, you’ll need to update your company file to reflect it.

Step #1) Back Up Your Company File

Before updating your company file, you should back it up. Creating a back up is always a good idea. If something goes wrong during the update, you can restore your company file without experiencing any loss of data.

Step #2) Import the Accountant’s Copy

After backing up your company file, you can import the Accountant’s Copy. Click the “File” menu on the home screen and select “Send Company File.” Next, choose “Accountant’s Copy,” followed by “Client Activities.” You should see an option to import accountant changes from file. Selecting this option will allow you to choose the Accountant’s Copy file on your computer. After navigating to the Accountant’s Copy file on your computer — the Accountant’s Copy file uses the QBY extension — you can then import it.

Step #3) Verify the Changes

QuickBooks will automatically update your company file so that it reflects the Accountant’s Copy. Any changes made to the Accountant’s Copy will appear in your company file. Therefore, you should verify the changes in your company file. You’ll need to make sure the Accountant’s Copy is accurate and doesn’t contain any bad or inaccurate data that could otherwise harm your company file.

You can review the changes in QuickBooks to see what your company file will look like with the imported Accountant’s Copy. If everything looks good, you can choose “Incorporate Accountant’s Changes” to complete the import process. If there are mistakes with the Accountant’s Copy, you can click the “Close” button.

Step #4) Turn on Advanced Inventory

Depending on which version of QuickBooks Desktop you use, you may need to turn on Advanced Inventory after importing the Accountant’s Copy. QuickBooks Desktop Pro and QuickBooks Desktop Premier feature Advanced Inventory. When importing the Accountant’s Copy, you’ll have to disable this feature. And when you are finished importing the Accountant’s Copy, you’ll have to enable Advanced Inventory.

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What Is Operating Leverage in Accounting?

What’s your business’s operating leverage? When you invest in business-related products and services, you may expect them to drive revenue. Some of these costs, however, may prove more valuable to your business than others. By calculating your business’s operating leverage, you’ll have a better understanding of how effectively — or how poorly — your business is using its equipment, machines and other business-related products and services

The Basics of Operating Leverage

Operating leverage is an analysis of a business’s fixed to variable costs. It’s used to calculate revenue changes associated with fixed costs.

All businesses have costs. Most costs can be classified as either fixed or variable. Fixed costs are those that remain constant for a prolonged period. And unlike variable costs, fixed costs are used to generate revenue. Your business may purchase equipment and machines, for instance, to produce products. Because they are directly used to generate revenue, equipment and machines are considered fixed costs.

Why Operating Leverage Is Important

Operating leverage is important because it reveals the correlation between fixed and variable costs. While they both consist of expenses, fixed costs and variable costs aren’t the same. Fixed costs are typically considered more valuable because they translate into revenue. When your business purchases equipment, machines or other essential products or services, it will likely generate revenue from those fixed costs.

Variable costs are less valuable. As previously mentioned, variable costs don’t translate into revenue. You can’t expect to avoid all variable costs when running a business, but you should try to keep them to a minimum. A high ratio of variable to fixed costs may result in less revenue for your business. Operating leverage, of course, will allow you to track your business’s fixed and variable costs.

If you know your business’s operating leverage, you can use it to calculate your business degree of operating leverage (DOL). DOL represents how efficiently your business turns its fixed costs into revenue. DOL, of course, is based on operating leverage. After identifying your business’s DOL, you’ll know whether your business is using its equipment, machines and other fixed costs to their fullest potential.

In Conclusion

Operating leverage may sound confusing, but it’s a relatively simple metric. It provides insight into fixed and variable costs. Calculating your business’s operating leverage will allow you to calculate your business’s DOL, thus revealing how well your business converts its fixed assets into revenue.

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5 Things You Need to Know About Filing a Tax Extension

If you’ve fallen behind on your taxes and are unable to make the April deadline, you may want to file an extension. A tax extension is exactly what it sounds like: It extends the date on which your taxes are due. It will give you a little extra time to prepare and submit your taxes to the Internal Revenue Service (IRS). Maybe you’re still waiting on a 1099, or perhaps you need to collect bank statements. Regardless, you may want to file a tax extension. Before doing so, however, there are a few things you should know.

#1) 30 Days or 6 Months

Tax extensions are typically good for either 30 days or six months. Six-month extensions are the most common. Instead of submitting your taxes, you can submit them in October. But if you only need a few extra weeks to prepare your taxes, you can file a 30-day extension. There are 30-day and six-month tax extensions available.

#2) Requires Approval

You’ll have to apply for a tax extension. Tax extensions aren’t automatically granted for all tax payers. When you apply for a tax extension, you’ll either be approved or rejected. Assuming there’s nothing wrong with your status, you should be approved. But rejections can and do occur. The bottom line is that you’ll need to get approved for a tax extension.

#3) Payment Is Still Required on the Regular Due Date

Contrary to popular belief, a tax extension doesn’t extend the due date for tax payments. Rather, it only extends the date on which taxes must be filed. If you owe money on your taxes, you’ll have to submit a payment to the IRS on the regur due date — typically April 15 — regardless of whether you file an extension. A tax extension simply gives you extra time to submit your taxes to the IRS; it doesn’t give you extra time to submit payments for money owed on your taxes.

#4) Eliminates Late Filing Penalty

One of the main benefits of filing a tax extension is that it eliminates the IRS’s late filing penalty. If you submit your taxes past the due date, you’ll typically be charged a fee. A tax extension will eliminate this fee. You won’t be charged for submitting your taxes late if you file for an extension.

#5) Extensions Are Free

You can file a tax extension for free. To file a tax extension electronically, you’ll need to complete and submit Form 4868 to the IRS. Alternatively, you can mail a paper extension application to the IRS. The IRS doesn’t charge tax payers for extensions.

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In-House vs Outsourced Payroll: Which Is Best?

How many employees does your business have? While some small businesses are structured as sole proprietorships, most are structured as either a limited liability company (LLC) or an S-Corp. And research shows that small businesses in the United States have an average of 10 employees. Whether your business has more or fewer employees, you’ll have to pay them. The process of paying employees, of course, is known as payroll. You can perform payroll in-house, or you can outsource your business’s payroll to a third party.

Benefits of In-House Payroll

You’ll inevitably save money by choosing in-house payroll. In-house means that you perform it internally within your business With in-house payroll, you’ll be responsible for tracking employees’ hours and, ultimately, paying them for their work.

By choosing in-house payroll, you’ll gain a better understanding of your business’s operations. You’ll be able to see firsthand how many hours your business’s employees worked as well as how much money those employees earned. With outsourced payroll, a third party will handle this data.

In-house payroll is easier than you may realize. There’s dedicated payroll software available that you can use to pay your business’s employees. Alternatively, you can use QuickBooks. QuickBooks offers an in-house payroll service at https://quickbooks.intuit.com/payroll.

Benefits of Outsourced Payroll

There are reasons to consider outsourced payroll as well. If your business only has a few employees, in-house payroll may suffice. For a larger business with more employees, though, you may want to choose outsourced payroll. Outsourced payroll will allow you to focus on running and growing your business rather than payroll-related tasks.

You won’t have to worry about filing fax forms with outsourced payroll. Taxes, of course, are a component of payroll. When you pay employees, you’ll have to withhold some of their earnings, and you’ll have to submit this information to the Internal Revenue Service (IRS) at the end of the respective period. Outsourced payroll eliminates this burden. By outsourcing your business’s payroll, a third party will take care of these tax forms.

Mistakes are less likely to occur with outsourced payroll. Providers of this service specialize in payroll. They know how to track employees’ hours, pay employees and file all of the necessary tax forms. This doesn’t mean that mistakes never happen. When compared to in-house payroll, though, mistakes are less likely to occur with outsourced payroll.

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