What is Working Capital in Accounting?
Some business owners assume that working capital is the amount of money they have or revenue they generate, but this isn’t necessarily true. Working capital can best be described as the amount of money and assets a business has minus its debt and liabilities. To learn more about working capital and how it pertains to accounting, keep reading.
As explained above, working capital is the amount of assets a business has minus its liabilities. If a business has $100,00 of assets — cash, outstanding invoices, property, etc. — and $30,000 of debt, for instance, it’s working capital is $70,000. The $30,000 worth of debt is subtracted from the business’s $100,000 worth of assets; thus, leaving $70,000 of working capital.
Why Working Capital is Important
So, for what reasons do business owners need to keep track of their working capital? For starters, it allows business owners to see whether or not they can cover short-term liabilities, such as overhead and payroll. If a business has a low working capital, it may struggle to cover short-term expenses like these. On the other hand, a high working capital indicates the business is financial stable and can easily cover these expenses.
Furthermore, lenders often scrutinize a business’s cashflow and working capital when the business applies for a loan. While lenders use a variety of criteria to determine whether to approve or deny a business’s loan applicant, there’s a great deal of emphasis placed on working capital — and for good reason. If a business has a low or even negative working capital (see below), it may struggle to pay back the loan. This doesn’t necessarily mean the lender will reject the business’s loan application; however, they may charge higher interest rates and/or require the use of collateral.
Negative Working Capital
Let’s hope his doesn’t occur with your business, but there are times when a business’s liabilities may exceed its assets. Known as negative working capital, this indicates the business is struggling financially and may not be able to pay its short-term debt and liabilities. If a business’s debt and liabilities exceed its total assets, the business has negative working capital.
To recap, working capital is a measure of a company’s short-term financial health. It uses the formula of assets minus liabilities, revealing its working capital. Hopefully, this gives you a better understanding of working capital in accounting.
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When (and How) to Void Checks in Quickbooks Online
There are times when you’ll need to void a check that has already been written. Maybe you paid the vendor already, or perhaps it’s a payment for a different vendor. Regardless, you’ll want to ensure the check is “voided” in your accounting software. Assuming you use the cloud-based Quickbooks Online software, you can follow the steps listed below to record voiced checks.
First, you’ll need to enter the voided check in Quickbooks Online. This is done by logging in to your account and clicking the Plus Sign (+) > Checks, after which you’ll need to enter the information associated with the check, including bank account, check number, date on which the check was issued, dollar amount, etc. When you are finished, click the “More” option at the bottom and choose “Void.” Quickbooks Online will prompt you to confirm, at which point you should click “Yes” to proceed. After following these steps, Quickbooks Online will void the respective check as of the current date.
The steps listed above, however, should only be used to record a voided check in Quickbooks Online. If you want to void a check that has already been recorded, you’ll need to take a different approach. This involves logging in to your account and choosing Accounting > Chart of Accounts > View Register (for the bank account associated with the voided check) > highlight the check > Edit > More > Void. Quickbooks will also ask you to confirm your choice, at which point you should click “Yes.” Once complete, the voided check will post on the bank account selected as the default account for your Quickbooks Online.
Additionally, you can create a report of all voided check in your Quickbooks Online account. This report is accessed by clicking Reports > Accountant Reports > Transaction List by Date > Customize. Here, you can enter the date range for the report. Simply choose the “From” and “To” date ranges, which Quickbooks will use as the basis when running the report. Alternatively, you can select a specific date by selecting the “Transaction Date” drop-down menu. After selecting the date or date range for the report, click Filter > Memo > Void > Run Report. Quickbooks will then return a report of all voided checks associated with your account. Whenever you void a check, it’s a good idea to run a report to ensure Quickbooks has accounted for it properly.
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What Is Accountants Receivable in Accounting?
In business accounting, accounts receivable refers to money owned for products or services. Also known as A/R, it’s essentially an invoice for payment that hasn’t been received yet. If your business performs a service and allows customers to pay after it has been completed, for instance, you’ll have an accounts receivable for completed jobs that customers haven’t paid for.
The purpose of accounts receivable to keep track of money due. If a customer owes you money, you need a record so you can collect it. Accounts receivables allows business owners to do just that.
Of course, not all businesses need accounts receivables. If your business requires payment at the time the customer purchases the goods or service, you won’t have any money due, in which case you also won’t have any accounts receivables.
Accounts Receivable in Quickbooks
When using Quickbooks, you’ll probably come across accounts receivable. Quickbooks automatically creates and adds them to your chart of accounts the first time you create an invoice. Quickbooks will then use this accounts receivable to track who owes money to your business and how much they owe. This information is listed as accounts receivables in your Quickbooks account. If you have two or more accounts receivable, Quickbooks will allow you to choose the account you want to use when creating a new invoice or entering a customer payment.
Accounts Receivable Financing
There’s also a special type of business financing that involves the use of accounts receivables. Known as “accounts receivable financing,” this is an asset-based financing option in which a business owners sells his or her business’s accounts receivables for capital. The financing company, typically called a “factoring company” pays the business owner for his or her accounts receivables. Rather than paying the business owner, however, the customer pays the factoring company. It’s a mutually beneficial financing option that allows business owners to receive cash in less time while the factoring company earns additional money on the receivables.
Normally, accounts receivables financing companies pay roughly 80% for accounts receivables. If an invoice is worth $1,000, for instance, the factoring company will pay $800 for the invoice. However, the company may also pay the remaining 20% / $200 after it has collected payment from the customer. In this scenario, the factoring company makes a second payment to the business for the remaining amount of the invoice minus a factoring fee.
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How to View a List of Journal Entries in Quickbooks
As you may already know, journal entries are used in Quickbooks to create a record of a transaction, which can be either a debit or credit. It’s essentially a chronological record of a business’s transactions, revealing what the transaction is for, the credit or debit amount, date and other key information. While it’s just one of many accounting tools available in Quickbooks, it’s arguably the most important for these reasons and others. So, if you want to view a list of your recent journal entries in Quickbooks, keep reading for a step-by-step walkthrough.
To view a list of your recent journal entries, you’ll need to log in to your Quickbooks account and click the Plus (+) sign in the upper-right corner of your home screen, followed by Other > Journal Entry. From here, you should click the icon that looks like a clock in the upper-left corner of your screen, followed by “View More” on the bottom left and “Recent Journal Entries.” Quickbooks will then provide a list of all recent journal entries, which you can go through to analyze and/or double-check to ensure they are correct.
Because many businesses have hundreds or even thousands of journal entries, trying to weed through them all can be tedious and downright time consuming. Thankfully, Quickbooks simplifies this otherwise crude task by offering a filter option. At the top of your screen, you should see an option to filter your journal entries by date. So, if you want to find a specific journal entry from a particular date or month, set the filter option to the appropriate date range. You don’t need to know the exact date; rather, choose a start date and end date that corresponds for the date on which you believed the journal entry was created. As long as it’s within this range, the journal entry should appear.
Hopefully, this gives you a better understanding of how to view journal entries in Quickbooks. Alternatively, you can view them by pulling a Journal report. This is done by selecting on the left-hand side, at which point you can type “Journal” into the search box. From here, click the “Customize” button > expand the “Filter” section > click “Transaction Type” > choose “Journal Entry” > Run Report. This will essentially run a Journal report that only includes your journal entries.
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What is Chart of Accounts in Business Accounting?
In business accounting, a chart of accounts (COA) is a detailed list of accounts used by the respective business. It’s purpose is to define the class of items that the business pays for while also organizing the business’s finances. A typical COA contains lists the type of account and number associated with the account. Normally, account numbers in COAs are at least five digits in length. Each of these digits represents a different division within the company or department.
By defining the class of items for which a business pays, COAs help to segregate various transactions. A COA, for instance, separates expenses from revenue, allowing businesses to see a general overview of their organization’s financial health. While other lists can also reveal a business’s financial health, COAs are simple and easy to create, assuming you know how they work.
So, how are accounts listed on COAs exactly? Normally, they are listed in the order of their appearance on bank and financial statements. This means balance sheet accounts are listed first, followed by asset accounts, liability accounts, equity accounts, etc. However, being that most countries do not have a standard COA — including the United States — some companies may format their COA in a different manner. The key thing to remember when creating a COA is that it should be consistent with your business’s past practices. If use a different format, stick with that format instead of changing to a new format.
There are many different types of accounts, each of which has its own specific use. An asset account, for instance, may include bank accounts with a positive balance, cash, goodwill and accounts receivable. A liability account, on the other hand, represents debt and other financial obligations of the business, including bank loans, credit cards, bonds payable, etc. Other types of accounts used in COAs include equity accounts, revenue/income accounts, expense accounts and contra accounts.
Of course, COAs are also an important part of Quickbooks. Whether it’s Quickbooks Online or Quickbooks Desktop, a COA follows a similar principle by listing all accounts — asset, liability, equity, expense, etc. — used in a business’s transactions. This is perhaps one of the most important elements of Quickbooks accounting, as it helps to keep a business’s financial information and transactions properly organized.
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What is an Independent Contractor?
Not all workers in the United States are classified as “employees.” According to a recent article published by Forbes, approximately 35% of the entire U.S. workforce are independent contractors. Furthermore, analysts believe this number will grow to 40% by 2025. So, what is an independent contractor exactly, and how do they differ from employees? To learn more about independent contractors, keep reading.
Independent Contractors: The Basics
An independent contractor is a person, business or corporation that provides services and/or goods under a contract or other agreement. The key difference between an independent contractor and an employee, however, is that the former does not perform regular, ongoing work. Instead, independent contractors work on their own schedule.
The pay for independent contractors also differs from employees. Independent contractors are typically paid on a freelance basis, such as a flat amount of per job completed, whereas employees are usually paid by the hour or given an annual salary. There are other nuances separating the two, however, such as employee protection laws — something that’s not offered independent contractors.
Advantages of Being an Independent Contractor
There are several advantages to being an independent contractor, one of which is the ability to set your own hours (at least to some degree). While employees typically work on a fixed schedule, independent contractors have greater freedom over the hours which they work. Independent contractors are also able to develop a network of clients and customers, which can prove highly useful for long-term success.
Disadvantages of Being an Independent Contractor
On the other hand, however, there are also disadvantages to being an independent contractor. For starters, there’s no minimum wage required for independent contractors. Being that many independent contractors are paid per sale or by performance, you could end up making less than the minimum wage for your respective state. Secondly, independent contractors are responsible for paying their own taxes, which usually involves making quarterly estimated payments to the IRS based on how much you expect to earn for the year.
An independent contractor comes with its own pros and cons. However, there’s no denying the fact that independent contractors are becoming more and more popular in the United States. Whether it’s Uber, Lyft, AirBNB, etc., countless companies are now expanding their workforce by hiring independent contractors.
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What is a Trial Balance in Accounting?
While most business owners and professional accountants are familiar with terms like gross revenue and net profit, a lesser-known term is “trial balance.” So, what exactly is trial balance and how to you calculate it? To learn more about trial balance in accounting, keep reading.
Trial Balance: The Basics
A trial balance is essentially a list of all general ledger accounts, including revenue and capital accounts. It contains the names of all nominal ledger accounts and their respective balances.
As you may already know, every account in the nominal ledger features either a debit or credit balance. A trial balance contains two separate columns, one for the credit balances and another for the debit balances. All credit balance values are listed in the debit column, while the credit values are listed in the credit column.
Purpose of Trial Balance
Businesses use trial balances to show that the value of their debit balances is equal to the total of their credit balances. When creating a trial balance, the business owner or accountant must check to make sure the debit column is equal to the value of the credit column. If the debit column does equal this amount, there’s an error somewhere in the nominal ledger accounts, which the business owner or accountant must identify before he or she can make a profit and loss statement.
Trial balances also allow for the creation of other financial reports. Because they contain every debit recorded by the respective business, trial balances can be used for a wide variety of reports. Furthermore, they help business owners and accountants identify errors, which of course is essential in small business accounting.
How to Create a Trial Balance Report
While it may sound confusing, creating a trial balance report is actually a relatively easy and straightforward process.
A typical trial balance report contains a column for all debits and another column for all credits. There’s also a third column in which the name of these accounts are listed. A row for “sales” may reveal a $10,000 credit listed in the credit column, while a row for office renovations may have a $4,000 expense listed in the debit column. Business should create trial balance reports by including all relevant credit and debit accounts. Each debit should feature a corresponding credit entry. After completing the trial balance report, you can add the two columns up to check and see if they are equal.
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How to Fix an Incorrect Deposit in Quickbooks
So, you accidentally recorded an erroneous deposit in Quickbooks, and now you’re trying to fix it? We’re only humans, so mistakes such as this are bound to happen sooner or later. But even a single erroneous transaction can throw off your entire books, which is why it’s important to fix them ASAP. Follow the steps listed below to fix incorrect deposits in Quickbooks.
It’s important to note that there are two instances that can cause payments and receipts to end up missing from your Bank Deposits section in Quickbooks. This includes entering the wrong deposit option (e.g. fund were deposited directly to your bank account), or they were added to the wrong deposit by accident. Either way, it’s frustrating when you check on a deposit, only to find that it’s no longer in your account.
First and foremost, you’ll need to find the incorrect deposit in your Quickbooks account. If it was a payment in an Invoice, log into your Quickbooks account and choose Transaction > Sales, after which you should choose the correct payment or sales receipt, double-check to ensure it is marked Deposit to Undeposited funds, and click Save.
But if you marked the payment correctly, you’ll need to check for the word “Deposit: Amount of $$$ on [date],” which occurs below the deposit options. This indicates the money was already deposited into the respective account. Now, if this is the deposit that you entered incorrectly, you’ll need to fix it by clicking the date listed, after which you’ll see a new window for the Bank Deposit options. You can click this field to open the deposit screen and clear the erroneous information, followed by Save to complete the changed. This should bring you back to the payment/sales receipt, or register, after which you should click Save one more time. Return to the Bank Deposit screen and add the payment again, but this time using the correct information.
Following the steps outlined above should set you on the right path to fixing your incorrect deposit. Ideally, you should double-check your deposits before making them to ensure they are correct. Going over the information two or even three times is guaranteed to minimize errors such as this. However, mistakes are bound to happen. And when you make an incorrect deposit, you’ll need to fix it by following the advice listed here.
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