Bookkeeping – Various Terms (Lesson 26)
In the previous 25 lessons I covered a lot of different terms and this lesson is merely a summary of the various terms a bookkeeper encounters.
Expenses
Expenses are costs meeting the tests of ordinary and necessary given the nature of the business activity. ‘Expenses’ is a term customarily referring to overhead types of costs such as rent, utilities, office operations and so forth. This business term has several variances with its meaning; the articles associated with this tag will enlighten the reader about these different definitions.
Bookkeeping – Proper Income Statement Presentation (Lesson 21)
The income statement presents information over a period of time. This time period is referred to as an accounting cycle. Most small businesses use a monthly cycle for regular reporting purposes and an annual cycle for reporting to outside creditors and the government.
Bookkeeping – Other Expenses and Revenue (Lesson 19)
In accounting sometimes an extraordinary event occurs. When this happens the associated revenue and expense is recorded in the expense type of accounts. There are two different methods used to record this transaction – gross or net.
Bookkeeping – Debits and Credits in Parenthesis with the Profit and Loss Statement (Lesson 14)
Both contra and atypical values are reported with parenthesis. The same presentation format is used when reporting contra and atypical values on the profit and loss statement (income statement).
Bookkeeping – Debits and Credits in Expense Accounts (Lesson 8)
Expense types of accounts are the easiest to understand in bookkeeping. In general only debits are entered in expense types of accounts.
Bookkeeping – Account Types (Lesson 1)
To fully grasp the concept of accounting a bookkeeper must accept that there are six (6) different types of accounts. All the reports, ledgers, journals and entries revolve around these six types of accounts. Bookkeeping is the function of entering data based on the economic transaction into the respective type of account.
Carpet Cleaning Service – Margins and Expenses
A very common small business in the service industry is the carpet cleaner. Many owners of such businesses desire to know the margins and of course the associated operating expenses involved.
Hobbies – Business Perspective and Tax Compliance
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.
Chart of Accounts – Layout
The goal of accounting is to record the economic activity of the business. This is achieved by entering each economic transaction into a set of books. The books are formatted to reflect the balance sheet and income statement items. The chart of accounts is designed to present the information in the prescribed format.
Internal Revenue Service (IRS) Definition of an Expense
The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’. Ordinary expenses are those costs typically incurred in your industry. A restaurant would not ordinarily purchase vaccines. And a medical practice would not purchase 50 heads of lettuce.