An Introduction to Quick Ratio in Accounting

When researching accounting processes, you may come across quick ratio. Millions of businesses calculate their respective quick ratio for accounting purposes. Also known as an acid test, quick ratio provides into a business’s cashflow and, thus, its ability to satisfy debt and liabilities. As a business owner, however, you might be wondering what quick ratio means exactly. This post offers an introduction to quick ratio and how it works in accounting.

What Is Quick Ratio?

Quick ratio is a measurement of how easily your business can pay its debt and liabilities. It essentially reflects your business’s liquidity. The greater your business’s liquidity — meaning it can easily convert assets into cash — the higher its quick ratio will be.

How to Calculate Quick Ratio

There are a few different ways to calculate quick ratio. One of the most common formulas involves adding your business’s cash, accounts receivables and other short-term assets, followed by dividing that number by your business’s short-term debt and liabilities. You can perform this quick ratio calculation for any given period. To determine your business’s quick ratio for last year, for example, just perform the aforementioned calculation using last year’s data.

A quick ratio of 1 means your business’s short-term assets and short-term liabilities were equal for the reporting period. A quick ratio of 2, on the other hand, means your business’s short-term assets were twice as much as its short-term liabilities for the reporting period. Any quick ratio below 1 indicates that your business’s short-term assets were less than its short-term liabilities during the reporting period. You should typically strive for a quick ratio of 1 or higher because it symbolizes positive liquidity.

Why Quick Ratio Is Important

Why should you care about your business’s quick ratio? Quick ratio is all about liquidity. And the greater your business’s liquidity, the easier it will be for your business to satisfy short-term debt and liabilities. Nearly all businesses incur debt. Debt is particularly common during the early stages of a new business. Assuming your business is liquid, you can easily convert its short-term assets into cash, which you can then use to pay off your business’s short-term debt and liabilities.

There are other ways to measure your business’s liquidity. Quick ratio is popular among business owners and accountants, though, because of its simplicity. You can calculate using only your business’s short-term assets and its short-term liabilities. A high quick ratio means that your business has more short-term assets than its short-term liabilities.

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What Is a Personal Paycheck Program (PPP) Loan?

The U.S. Small Business Administration (SBA) offers several financing programs to help small businesses stay afloat. In addition to traditional SBA loans, there are Personal Paycheck Program (PPP) loans available to small businesses. Launched in the early part of 2020, PPP loans are an integral part of the Coronavirus Air, Relief and Security Act (CARES Act). If you’re thinking about applying for a PPP loan, however, there are several things you need to know about them.

The Basics of PPP Loans

PPP loans are SBA-backed loans that are designed to assist small business owners in covering the cost of payroll, as well as other expenses, during the coronavirus pandemic. The coronavirus, of course, disrupted the operations of countless businesses. Small businesses were particularly hurt, with many of them struggling to pay their employees. This prompted the federal government to launch the PPP. PPP is a federal financing program that allows small businesses to draw money from banks to cover payroll and other expenses.

Benefits of Using a PPP Loan

You might be wondering what benefits, if any, PPP loans offer over traditional loans. The main benefit is forgiveness. PPP loans can be forgiven if certain conditions are met. The same can’t be said for traditional loans. If you obtain a traditional loan, you’ll have to pay it back — and you’ll also be charged interest on the principle, which you’ll have to pay back as well. PPP loans, on the other hand, may be forgiven.

In other for a PPP loan to be fully forgiven, you must use at least 60% of it to cover the cost of your small business’s payroll. With that said, PPP loans can be partially forgiven. If you only spend 50% of a PPP loan to pay your small business’s employees, for example, half of the PPP loan will be forgiven. If you spend 40% of a PPP loan on payroll, conversely, 40% of it will be forgiven.

PPP loans are also relatively easy to obtain. Even though they are backed by the SBA, they are distributed by banks. You can apply for a PPP loan at a local bank. Assuming you meet the necessary requirements, the bank will provide you with a PPP loan. You can use this loan to cover payroll and other expenses. Some or all of the PPP loan may even be forgiven.

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What Are Cash Equivalents in Accounting?

You can’t run a successful business without performing various accounting processes. Accounting is necessary for all businesses. Whether you run a sole proprietorship — meaning you don’t have any employees — or a large business, you’ll need to record and track financial transactions. Accounting, of course, can be confusing. You’ll probably come across certain terms with which you are unfamiliar, one of which being cash equivalents. What are cash equivalents in accounting exactly?

Overview of Cash Equivalents

Cash equivalents are defined as short-term assets that can be quickly and easily converted into cash. They are considered one of the primary asset classes in accounting. Like all assets, cash equivalents have monetary value. For an asset to be considered a cash equivalent, though, it must be highly liquid, meaning you can quickly and easily convert it into cash.

The conversion of a cash equivalent into cash is typically done through a sale. If your business needs additional cash, you can sell one or more of its cash equivalents. You’ll lose the cash equivalent, but you’ll gain cash from the sale.

Common types of cash equivalents include the following:

  • Treasury bills
  • Government bonds
  • Certificates of deposits (CODs)
  • Commercial paper
  • Money market funds
  • Stock shares

Why Cash Equivalents Are Important

You might be wondering why cash equivalents are important. For starters, they are a prime indicator of your business’s financial health. With cash equivalents, your business will have strong and healthy finances. As previously mentioned, cash equivalents can be quickly and easily converted into cash. Therefore, if your business enters a rough patch and requires additional cash, you’ll have the freedom to sell some of its cash equivalents.

Another reason cash equivalents are important is because they can be used as collateral to secure loans and other forms of debt financing. Many lenders require collateral. If your business doesn’t have credit — or if it has bad credit — you may struggle to get approved for a loan. Cash equivalents offer a solution. You can use some of your business’s cash equivalents as collateral.

In Conclusion

To recap, cash equivalents are short-term assets that you can quickly and easily convert into cash. They are used to gauge the financial health of businesses while also offering a means of collateral for loans and other forms of debt financing.

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How to Print W-2 Forms in Quickbooks

Does your business have one or more employees on its payroll? If so, you’ll need to provide them with a W-2. In the United States, employers are required by law to provide all employees with a W-2. This otherwise common tax form breaks down the earnings of a given employee so that he or she can file taxes. While you can always create W-2 forms using an external program, Quickbooks offers an easier and faster solution. Using Intuit’s accounting software, you can easily and quickly print W-2 forms for your business’s employees.

Steps to Printing a W-2 Form in Quickbooks

To print a W-2 form in Quickbooks, log in to your Quickbooks account and go to “Payroll Tax Center.” This section contains all the features for managing your business’s payroll taxes, including its W-2 forms. From the home screen, select “Employees,” followed by “Payroll Center.” Next, select “Print Forms & W-2s,” after which you’ll be asked to enter your payroll PIN. Your payroll PIN is the unique passcode that’s associated with your Payroll Tax Center. If you don’t remember it, you’ll need to recover your payroll PIn before proceeding.

After following the steps listed above, you should see a tab titled “W-2.” From this tab, you can scroll through your business’s list of employees. Choose the employee or employees for whom you wish to print a W-2 form. Selecting an employee under the “W-2” tab will result in a checkmark being added next to his or her name. You can then click the “Open/Save Selected” option, which should reveal a printing window.

Other Tips for Printing W-2 Forms in Quickbooks

When printing W-2 forms in Quickbooks, you’ll have to specify a reason for printing. Quickbooks provides one of three reasons from which you can choose: including “first time,” “replacements,” or “for your own records.” This won’t affect how the W-2 forms are formatted. Rather, it’s used for reference purposes. With that said, you should still choose the most appropriate reason when printing W-2 forms in Quickbooks.

Keep in mind that Quickbooks uses Adobe Reader for W-2 forms. When you create a W-2 form, Quickbooks will save the form as an Adobe Reader document. You’ll need to print the W-2 form by loading it in Adobe Reader, after which you can choose “File” and then “Print.”

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An Introduction to Quickbooks Online Advanced

Choosing the right accounting software is essential to your business’s success. Research shows that nearly half of all small- and medium-sized businesses spend over 40 hours a year on accounting. With the right software, you’ll be able to record and track financial transactions more quickly and accurately. Intuit, however, offers several types of accounting software, one of which being Quickbooks Online Advanced. If you’re thinking about using it, there are a few things you should know about Quickbooks Online Advanced and how it works.

What Is Quickbooks Online Advanced?

Quickbooks Online Advanced is the premium version of Intuit’s cloud-based accounting software. There are two primary types of Quickbooks software: desktop and cloud. Desktop refers to Quickbooks Desktop, which is installed and operated locally. Cloud refers to Quickbooks Online, which is installed and operated on the cloud. Quickbooks Online Advanced is the premium version of the latter type.

Features in Quickbooks Online Advanced

Being that it’s the premium version of Quickbooks Online, it shouldn’t come as a surprise to learn that Quickbooks Online Advanced is packed with features. It offers more features than the standard version of Quickbooks Cloud.

Quickbooks Online Advanced offers batch invoicing, for example. With batch invoicing, you can create and send multiple invoices to groups of customers in batches. It’s a faster way to facilitate your business’s invoices. If your business has a lot of customers — and your business uses invoices to collect payments — you may want to use this feature in Quickbooks Online Advanced. Batch invoicing eliminates the need for creating and sending invoices individually. Intuit, in fact, claims that batch invoicing is 37% faster than traditional invoicing.

Quickbooks Online Advanced also comes with premium support. You’ll have 24-hour access to Intuit’s support team. If you encounter a problem — or if you simply need an answer to a question — you can reach out to Intuit’s support team by phone or email. You can even connect your Quickbooks Online Advanced account to your Google account. In doing so, you’ll be able to export your business’s accounting data to Google Sheets.

Other features in Quickbooks Advanced include the following:

  • 1099 preparation
  • Inventory tracking
  • Location tracking
  • Payment scheduling
  • Profitability tracking
  • Class tracking
  • Workflow automation
  • Company data restoration
  • Custom chart building
  • Role-based access customization

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An Introduction to Equity Financing and How It Works

You can’t expect to keep your business afloat without financing. All businesses need money to facilitate their operations. Depending on the type of business you run, you may need to purchase supplies, equipment, insurance, advertising services and more. While you can always obtain a loan from a bank, another financing method to consider is equity financing. In this post, you’ll learn more about this alternative financing method and how it works.

What Is Equity Financing?

Equity financing is a fundraising process that involves the sale of equity to an investor or group of investors. Investors are different than lenders. Lenders offer loans that must be paid back — typically with interest. Investors, conversely, offer to purchase equity in a business. If you need additional money to keep your business afloat, you can reach out to an investor about the possibility of equity financing.

How It Works

Although it sounds complex, equity financing is quite simple. It revolves around the sale of stock shares to an investor or group of investors. As a business owner, you probably own most if not all equity in your business. Equity is reflected in stock shares. You can sell these stock shares to an investor. The investor will benefit from receiving equity in your business, whereas you’ll obtain capital that you can use to finance your business. That’s essentially how equity financing works. There’s no obligation to repay the money from equity financing; you just have to sell equity in your business.

Pros and Cons of Equity Financing

By using equity financing, you can obtain money very quickly. It’s typically faster than traditional financing methods, including loans. You can sell some of your business’s equity to an investor, and after the transaction has closed, you’ll have money to use for business-related purposes.

You don’t have to worry about credit problems with equity financing. Unlike with loans, equity financing doesn’t require good credit. Rather, you can use it as a financing solution for your business with bad credit or even no credit.

On the other hand, you’ll have to give up equity in your business to the investor or investors from which you can secure equity financing. Some business owners are unwilling to give up equity. They want to “own” all of their business, so they avoid equity financing.

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Fiscal vs Calendar Year for Accounting: What’s the Difference?

When planning your business’s tax returns, one of the decisions you’ll have to make is whether to use fiscal or calendar year accounting. In other words, do you intend to report income — as well as claim deductions — for the last fiscal year or the last calendar year? Some businesses use fiscal year accounting, whereas others use calendar year accounting. To determine which method is right for your business, you’ll need to learn the differences between them.

What Is a Calendar Year?

Calendar year accounting is the most common method. A calendar year is an annual period that runs from January 1 to December 31. It consists of 12 consecutive months. A calendar year begins on New Year’s day and ends on New Year’s Eve.

What Is a Fiscal Year?

The Internal Revenue Service (IRS) doesn’t require businesses to use calendar year accounting. It allows businesses to choose between calendar year or fiscal year accounting. A fiscal year is simply a 12-month-long period. Unlike a calendar year, though, it doesn’t begin on January 1, nor does it end on December 31. By definition, a fiscal year can’t begin on January 1 and can’t end on December 31. It must have a different starting date and a different closing date.

Choosing Between Calendar and Fiscal Year Accounting

You can typically use either calendar year or fiscal year accounting. Only a few types of businesses are required to use calendar year accounting. If your business doesn’t maintain books, for instance, you’ll have to use calendar year accounting. Alternatively, if your business operates as a sole proprietorship, you’ll have to use calendar year accounting. For most other cases, however, you can choose between calendar year or fiscal year accounting.

Calendar year accounting is the easiest of the two methods. You won’t have to worry about assigning — as well as using — a fiscal year. With calendar year accounting, you’ll report income and claim deductions for your business based on standard annual periods. Many businesses use calendar year accounting simply because it’s easy.

There are still reasons to consider fiscal year accounting. It can defer some of your business’s taxes, for instance. With fiscal year accounting, you’ll have more time to settle your business’s tax liabilities. Fiscal year accounting is also ideal for seasonal businesses. If your business generates all or most of its sales revenue during a specific time of the year, you may want to use fiscal year accounting.

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A Comparison of the 4 Types of Business-Related Expenses

In the world of business, you have to spend money to make money. All businesses have expenses. No matter what type of business you own and operate, you’ll have to buy various products or services. Known as expenses, they are essential to your business’s operations. There are different types of expenses, however. In this post, you’ll discover the four primary types of expenses.

#1) Fixed

Fixed expenses are those that stay the same. Your business may incur them on monthly basis. From month to month, though, fixed expenses will remain the same. Common examples of fixed expenses include insurance, interest on loans and certain utilities. An expense is considered “fixed” if it doesn’t change.

#2) Variable

Variable expenses, on the other hand, are those that do change. Variable expenses are intrinsically associated with production levels. The more products your business produces — or sells for that matter — the higher its variable expenses will be. You may have to pay for additional labor, raw materials, packaging materials, etc., all of which are variable expenses. Variable expenses are distinguished from fixed expenses because they fluctuate. Fixed expenses remain the same, whereas variable expenses change according to your business’s production levels.

#3) Accrued

There are also accrued expenses. Accrued expenses can be either fixed or variable. The term “accrued” simply refers to any expense that’s recorded in your business’s accounting books before your business pays it. They are part of the accrual accounting method. With the accrual accounting method, you’ll record expenses after receiving an invoice or bill. Accrued expenses are those that are recorded before your business pays them. Your business may receive an invoice, in which case you can record it as an accrued expense in your business’s books.

#4) Operational

Finally, operational expenses are those that play a direct role in your business’s operations. All businesses have operational expenses. Operational expenses consist of products and services that businesses need to perform their operations. Like with accrued expenses, they can be either fixed or variable.

There are four primary types of business-related expenses, including fixed, variable, accrued and operational. Fixed expenses are characterized by their persistent and static pricing. Variable expenses are characterized by their ability to change or fluctuate. Accrued expenses are characterized by the use of the accrual accounting method. Operational expenses are those that are essential to your business’s operations.

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Why Liquidity Is Important for Your Business

What’s the liquidity of your business’s assets? All businesses have assets. Assets are items of monetary value. They can be tangible or intangible. Regardless, if your business owns something of value, it’s considered an asset. Assets with high liquidity, however, are typically more valuable than those with low liquidity. To learn more about liquidity and why it’s important for your business, keep reading.

What Is Liquidity?

The term “liquidity” refers to the ease at which you can convert a given asset into cash. Most assets can be sold. When you sell an asset, you’ll convert it into cash. Assets with low liquidity are harder to convert — and often take longer to convert — into cash than those with high liquidity.

Secure Loans

Liquidity is important because it can affect your ability to secure business loans. Most banks and other financial lenders will look at your business’s liquidity ratio during the application process. When you apply for a loan, the bank or lender will analyze your business’ liquidity ratio to determine its overall financial health. A high liquidity ratio indicates that your business is capable of paying back borrowed money. A low liquidity ratio, on the other hand, indicates that your business may struggle to pay back borrowed money. To secure loans, you should focus on improving your business’s liquidity ratio.

Cover Unexpected Expenses

As a business owner, you’ll probably encounter expenses that you didn’t originally plan for. Unexpected expenses come with the territory when operating a commercial enterprise. Maybe you need to purchase a new piece of equipment, or perhaps you need to take out a new loan to finance your business. Regardless, unexpected expenses can and do occur in the world of business. Fortunately, a high liquidity ratio can help your business cover these expenses. When an unexpected expense arises, you can easily and quickly convert assets into cash. Using this cash, you can then pay off the expense.

Increase Cash Flow

With a high liquidity ratio, you can increase your business’s cash flow on the fly. Converting an asset into cash will result in a higher cash flow. Your business will have more cash on hand to cover both expected and unexpected expenses. A low liquidity ratio, conversely, can harm your business’s cash flow. You may struggle to convert assets into cash, resulting in a lower cash flow.

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Write-Off vs Write-Down in Accounting: What’s the Difference?

The terms “write-off” and “write-down” are often interchangeably to describe the devaluation of an asset. Regardless of what type of business you own, chances are it has assets. Nearly all businesses have at least some assets. Assets are things of monetary value, such as cash, equipment, materials, real property and even patents or other forms of intellectual property.

While both write-offs and write-downs do, in fact, involve lowering the value of an asset, they aren’t necessarily the same. Write-offs and write-downs are intended for different purposes. When recording

What Is a Write-Off?

A write-off is the complete devaluation of an asset. When you write-off an asset, you are claiming that it no longer holds any value to your business. If a piece of equipment is broken or obsolete, for instance, you may want to declare it as a write-off. You can write-off the asset by lowering its value to $0 in your business’s books.

You can also claim write-offs such as this as a tax deduction. The Internal Revenue Service (IRS) allows businesses, as well as freelancers, to deduct the cost of write-offs from their taxes.

What Is a Write-Down?

A write-down, on the other hand, is the partial devaluation of an asset. Assets can depreciate in value. In some cases, they may lose all of their original value in a short period. In other cases, devaluation occurs more slowly. A write-down is an accounting process in which you record an asset’s value as being lowering than its original value. The asset still has some value, but it’s less than the original value from when you initially purchased or acquired the asset.

Differences Between Write-Offs and Write-Downs

The main difference between write-offs and write-downs is that the former is the complete devaluation of an asset, whereas the latter is the partial devaluation of an asset. With a write-off, you are claiming that one of your business’s assets is essentially worthless. With a write-down, you are claiming that an asset has lost some but not all of its original value.

There are also nuances regarding the tax implications of write-offs and write-downs. Write-offs offer the greatest tax benefits. When you write-off an asset, you’ll lower your business’s tax liabilities for the year in which you claim it. Write-downs can lower your business’s tax liabilities as well, but they don’t have the same positive impact because they still recognize the asset as having some value.

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