Every time I teach an Intro to Financial Accounting course my students get lost on the concepts of debits and credits. For many of the students this is their first foray into accounting outside of their debit cards. They view debits and credits as negative and positive, respectively. The words debit and credit have Latin [...]

With my blog I am trying to convince business owners to use their accounting data to make business decisions. There are many reasons to use you accounting information on a regular basis, preferably monthly. In addition, there are many different ways to use the data. Accounting data can be used to: 1. Determine how liquid [...]

In my last blog post we discussed why you should read and analyze your Balance Sheet. Now we’ll discuss how to use it in your business. Each month you should compare your current Balance Sheet to the prior month and to the prior year the same month. How does the current Balance Sheet compare? Hopefully [...]

How often do you review your Balance Sheet? Is it monthly, quarterly, yearly or never? The Balance Sheet is the ugly stepsister to the Income Statement. Every business owner wants to know how much money they have in the bank. They may even review the Income Statement and perform ratio analysis to gain more information [...]

Once you have the Income Statement prepared, see The Income Statement: How to Read it post, it is time to compare your results from the current month to the prior month. Using the same logic, compare your current results to the same month of the prior year. In what areas did your business improve? What [...]

Many business owners follow the motto that “cash is king.” And while cash is extremely important, the ending balance in your bank account does not tell you much about how you generated or used cash. Looking only at your cash balance may cause you to miss some key indicators on how your business is doing. [...]

Gross profit and profit margin sound very similar, yet they are very different and serve distinct purposes for analyzing your business. Gross profit is found by taking the net sales minus the cost of goods sold. For example, to find gross profit, a dressmaker make add up all of the receipts for the dresses sold, then [...]

Financing is typically divided into two different categories, Debt Financing and Equity Financing. Understanding the different financing options is a critical step in a company’s financial planning strategy. Debt Financing involves borrowing money that will be paid back over time. The debt can be short term (less than one year) or long term (more than [...]

You need some new equipment or an new vehicle for your business. Do you lease or buy? The last blog post discussed the pros to leasing, which can be attractive when you don’t have idle cash available to make a down payment or the risk of obsolescence is high (i.e., when technology changes fast). It [...]

Is it time to replace an outdated computer, piece of equipment or automobile? If so, are you going to lease or buy the new asset? There are pros and cons to both options. The blog post on June 3rd will discuss the pros associated with buying an asset. When you lease an asset the transaction [...]