Month: February 2014

Fixed Costs – Explanation and Examples

Fixed Costs

‘Fixed costs’ is a business term used mostly in cost accounting.  It has several meanings based on its usage.  The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume.  The best example is rent for a company.  It doesn’t matter whether you produce or sell one widget or several thousand, the rent must still be paid.

So why is it important to understand fixed costs?  How is it used in cost accounting and in financial reporting?  Finally, what are examples of fixed costs? 

Lease or Buy

Lease or Buy

Fixed assets are normal in business operations.  However, financing those assets is the critical issue.  If you buy the asset outright, you tie up capital that can be used to expand operations or keep overall costs low in operating the company.  You can buy the asset paying a down payment and borrowing funds from a lending institution and make payments over time.  This is still a form of purchasing the asset.  However, there is another option, leasing.

Hobbies – Business Perspective and Tax Compliance

Hobbies

Many people turn their hobbies into a business operation.  Not so much to make a living or make big profits, but more to help offset the costs of the hobby.  Whenever you go to one of those community fairs, the vendors at the respective booths are mostly folks selling a product that is direct outcome of their hobby.  The bands that play on stage, they make some money, but never enough to offset the cost of instruments, gear and transportation.  But they enjoy entertaining folks and they hope someday they’ll get discovered. 

The Federal Reserve System

Federal Reserve

No other federal government creation is more misunderstood than the Federal Reserve System.  The Federal Reserve’s primary purpose is to act as the central banking system for the United States.  Formed in 1913, the Federal Reserve was tasked by Congress with three primary functions.  One – maximize employment in the United States.  Two – stabilize prices (control the inflation rate) and three – influence the interest rates for long-term notes.  Since 1913 the Federal Reserve has expanded its role to include setting the monetary policy and regulating the entire US banking system.

Insolvency and Bankruptcy – Know the Difference

Insolvency and Bankruptcy

Every business owner needs to know the difference between insolvency and bankruptcy.  Often these two terms are misunderstood and improperly used in conversation.  You need to know their correct meaning because both are used in civil law and both have different issues to address during the process.  In addition, understanding these two terms builds a better comprehensive understanding of financing your business.

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