When you purchase a new vehicle, you get the fun of riding around in a new car with the new car smell! Our job has just begun – to get your new asset recorded properly on your books. We thought it’d be fun to give you a behind-the-scenes sneak peek at our part.
The first thing we’ll ask you for is the sales contract. It will give us the payment price of your car, and we’ll use that number to record your new asset on your balance sheet. If you paid cash with no trade-in, the journal entry we’ll make is:
|Debit: 2019 Toyota RAV4||$25,500|
Then we’ll decide on a depreciation method and book depreciation monthly or at year-end.
|Debit: Depreciation Expense||$5,100|
|Credit: Accumulated Depreciation||$5,100|
If you traded in a vehicle that is on your books, we’ll need to make an adjustment for that. Effectively, your old car will be eliminated from your balance sheet. If this asset had a book value and it was not fully depreciated, the net value would be compared to the trade-in value and a gain or loss on the asset sale would be recorded on your income statement.
Let’s say the balance sheet value of the three-year-old car you traded in was $10,000 ($25,000 original cost less $15,000 accumulated depreciation) and you got $8,000 on the trade-in. Here’s what we would record:
|Debit: 2019 Toyota RAV4||$25,500|
|Debit: Accumulated Depreciation||$15,000|
|Debit: Loss on Sale of 2016 Car||$ 2,000|
|Credit: Old 2016 Toyota RAV4||$25,000|
|Credit: Cash||$17,500 ($25,500 – $8,000 trade-in)|
We’d also start the depreciation for the new car.
New Car Loan
Most often, a new car purchase will be financed, so we have a new liability to record too. We’ll need to get a copy of the loan documents from you and an amortization schedule of the payments. Let’s say you made a ten percent down payment with no trade-in. Here’s how that would look:
|Debit: 2019 Toyota RAV4||$25,500|
|Credit: Toyota Loan||$22,950|
Then, each time you make a monthly payment, the amount will need to be split between principal and interest and those amounts will need to change each month according to the amortization schedule.
|Debit: Interest Expense||$390|
|Debit: Toyota Loan||$60|
We left out a few trade secrets just to keep it intriguing. There are a lot of other numbers on a car purchase: taxes, licenses, warranties, add-ons, fees, and more. Some of these can be directly expensed, while others need to be included in the value of the asset. So if you’re happy that we’ll take care of this for you, we’re happy to do so.
Let us know if you purchase an asset this summer so we can get it booked right for you.
The Mt. Washington Valley Economic Council
QuickBooks® Desktop Boot Camps
with Rhonda Rosand, CPA – Advanced Certified QuickBooks® ProAdvisor
Tuesday, October 2nd, 2018, 9 AM -11 AM
Whether you are starting from scratch or starting over, there is a right way and several wrong ways to set up a QuickBooks® file. Learn how to do it right the first time.
Avoid some of the common mistakes we see people make.
Accounts and Items
Users and Permissions
Tuesday, October 16th, 2018, 9 AM – 11 AM
Learn how to customize forms and templates and create QuickBooks® reports that are useful management tools for your business. Understand the difference between profits and cash.
Customize Forms and Templates
Cash Flow Management
Tuesday, October 23rd, 2018, 9 AM-NOON
This is a session designed exclusively for tax preparers, enrolled agents and accountants. We will cover advanced level topics to help you streamline the process and best practices for troubleshooting your client QuickBooks® file during this busy tax season.
What’s New in QuickBooks® 2019
In Product Demonstration of Features
Client Data Review and Accountant Toolbox
Common Issues and Troubleshooting
Courses are $35 each and held in the Community Room at Granite State College-Conway.
To register please call Susie at (603) 447-6622, email email@example.com, or register online.
Learn How To Add & Edit Multiple List Entries in QuickBooks with Rhonda Rosand CPA and Advanced Certified QuickBooks ProAdvisor!
Learn How To Write Off A Bad Debt In QuickBooks with Rhonda Rosand, CPA, Advanced Certified QuickBooks Proadvisor of New Business Directions, LLC.
Chart of Accounts in QuickBooks Why the Chart of Accounts in QuickBooks is the Most Important List!
How to Back Up Your QuickBooks File Learn how to back up your QuickBooks file with Rhonda Rosand, CPA of New Business Directions, LLC.
Increasing your profits might sound like it’s an unattainable dream just out of your reach. But there are a finite number of ways that profits can be increased. Once you understand what they are, you’ll have clarity on how to best reach your goals.
There are two primary ways to increase profits:
- Raise revenue
- Lower expenses
That’s not particularly enlightening or instructional, is it? Let’s look at the four ways you can increase revenues and the four ways you can reduce expenses to get clearer on what actions we can take.
Four Ways to Increase Revenue
1. Raise prices
The easiest way to raise revenue is to simply raise prices. However, this is not foolproof and assumes you’ll be able to maintain the volume of sales you’ve achieved in the past.
This method is also limited by market demand, what your customers are willing to pay.
2. Add new customers
Adding new customers is what most entrepreneurs think about when raising revenue. Increasing your marketing or adding new marketing methods is typically the way to add new customers.
Another related option is to work hard to keep the customers you already have. You can also potentially contact the customers you lost and ask them to come back.
3. Introduce new products or services
For some companies, your products and services are changing every year. For others, not so much. To increase revenue, consider adding new products or services that will bring in an additional revenue stream that you didn’t have before.
Even if your products are changing every year, you can consider adding something completely different that your customer base would love. For example, a hair salon could add a nail desk, a clothing store could add handbags or shoes, a grocery store could add a coffee bar, a restaurant could add catering, a landscaper could add hardscaping, and so on.
The final way a business can increase revenue is to acquire another business in a merger or acquisition.
Four Ways to Reduce Expenses
1. Negotiate for a better deal with vendors
If you’ve been working with a vendor for a while, you may be able to re-negotiate your contract with them. This is especially common with telecom companies. Call your phone provider and ask them for the latest deal. They always favor new customers over long term customers, but they don’t want to lose customers either. Just calling them usually yields a better price than what you are paying now.
2. Change vendors
If a vendor has gotten too expensive, it might be time to look for a new vendor. Health care insurance seems to be in this category. Often, changing providers will lower your costs.
3. Cut headcount
If there is not enough work to support your employees or not enough cash flow to pay them, then it might be time for a layoff or restructuring. You might also consider outsourcing a function that you previously did in-house.
4. Cut the expense or reduce services
It might be your business no longer needs to spend money on an expense. Perhaps this expense has been automated. In this case, it’s an easy decision to cut the expense out entirely.
Those are the eight ways to increase profits. Which one makes the most sense in your business? Create a plan around these eight ideas to boost your profit in 2017, and let us know if we can help.
Tim Ferriss made the 4-hour workweek a popular concept in his 2007 book. But is there such a thing, and more importantly, can business owners like you and me cash in on it? As the last of the Baby Boomers approach retirement, the topic of working less while making the same or more income is popular.
Here are five ideas to help you work fewer hours while making the same or more income.
Active vs. Automatic Revenue
Some business models allow you to generate automatic revenue. Automatic revenue is revenue you can earn and leverage over time by doing something only once and not over and over again. Active revenue is earned while doing something over and over again. Showing up for a teaching job with a live audience is active revenue while producing and selling video recordings of the same teaching is automatic revenue.
A goal of a 4-hour workweek concept is to increase automatic revenue while reducing active revenue. You may have to think out of the box to do this in your industry, but the payoff can be huge.
Delegation and Outsourcing
One traditional way to move to a 4-hour workweek is to have others do the work. Hiring staff frees up your time and allows your business to become scalable. When it runs without you, it’s more salable too.
If you have a lot of distractions in your day, you can easily double your productivity by learning time batching, which is grouping like tasks together in a block or batch of time and getting them done. For example, if an employee interrupts you with questions multiple times a day, train them to come to you only once a day to get all their questions handled at one time. Take your calls one after the other in a group, and then stay off the phone the rest of the day. Do the same with email, social media, running errands, and all of your other tasks.
Automation and Procedures
New apps save an amazing amount of time. List all of your time-consuming chores and then find an app that helps you get them done faster. For example, a scheduling app can reduce countless emails back and forth when setting meetings and appointments. To-do list or project management software can cut down on emails among you and your staff. And apps like Zapier can connect two apps that need to share data, reducing data entry.
The key to working less is to embrace the concept of leverage. How can you leverage the business resources around you to save time, increase staff productivity, and improve profits? It takes discipline and change, two difficult goals to accomplish. But when you do, you will be rewarded.
If you grant credit to customers, then you have a balance in accounts receivable. DSO stands for Days Sales Outstanding, and this helps you measure how fast your receivables are being converted to cash.
Here’s how to calculate it:
DSO = Accounts receivable balance / Annual net credit sales * 365.
DSO is measured in days and it represents how many days it takes to collect the customer invoice balance and convert it to cash.
Whether the DSO measure is “good” or not varies by industry as well as the terms you’ve set for your clients. If you’ve set your invoices to be due in 30 days and your DSO is 45 days or less, that’s pretty good. If you’ve set your invoices to be due in 10 days and your DSO is 60 days, then you might want to consider a more aggressive collection policy to speed up your cash flow.
Here are some tips to reduce DSO:
1. Invoice clarity.
Make sure your invoices are accurate and clear. Make it clear whom to make the check out to, where to mail it, the due date, and the amount due. All of these features should be easy to find on the invoice.
2. Consider discounts.
A common discount term is 2/10, net 30. This means the customer can take two percent off their invoice if they pay in 10 days; otherwise they owe the whole amount in 30 days. If you have customers from large companies, discounts are often required by policy to be taken and this can speed up your payments from them.
3. Consider electronic payments.
Going paperless with your invoicing as well as your payment process can speed up the entire billing cycle. Customers getting their bills earlier will also pay earlier.
What’s your DSO? If you need help calculating it, give us a call.