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Fixed Assets And Quickbooks

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I. Definition of a Fixed Asset

Using the acronym T.I.M.E. we can define a fixed asset pretty easily. A Fixed Asset is Tangible. It is real property, you can touch it. Items like goodwill are intangible. Goodwill is the amount a person would pay over the actual value of a business because of it’s good reputation, location or name. There is no definitive amount that can be assigned to the goodwill category in any transaction as it is a subjective value.

A Fixed Asset is Inventory NOT!. Okay there’s a little bit of license taken with this one, but otherwise, the acronym doesn’t work. Inventory is not a fixed asset and should never be considered as such. Inventory is part of the Cost of Goods Sold account.

A Fixed Asset is Material in value. I had a client at one point that tried to depreciate a $300 software package for ten years. If the asset is under $500, put it in as an expense not a fixed asset. If it is over $1000 it should be depreciated. Amounts in between can arguably go either way depending on the asset itself. Ask your tax professional for the best advice.

A Fixed Asset’s Estimated Life Span is greater than 1 year. In other words, printers, computers, vehicles, buildings all last longer than one year (unless it’s a Ford) okay that was a joke. If the asset isn’t expected to last longer than one year, it is not a fixed asset.

II. Fixed Asset Cost

Go to the List menu and click on the Chart of Accounts to open it. Hit CTRL and N for a new account and select fixed asset. Ideally this is done in the year of purchase when entering into Quickbooks, if it is not, then click on the opening balance and enter the cost of the fixed asset at the time of the purchase.

I find it helpful to actually create one fixed asset account for the item and to enter the cost and other information in a sub-account under that item to help keep track of everything in a more orderly way, which helps if you have more than one fixed asset. It is important to use the total amount of the cost, not the amount financed as the depreciation is based on total cost, we will deal with the amount actually owed later in this article.

III. Fixed Asset Accumulated Depreciation

Vehicles can be depreciated from 5 years of the date of purchase. Computers and certain tools can be depreciated over 3 years as they do not tend to last for 5. Buildings can be depreciated over a period of 27.5 years. The different kinds of depreciation include straight line, double declining balance, etc and they would be a subject of a new article. (Depreciation versus Section 179 – coming soon)

Create another Fixed Asset account, again in a sub-account under the item and name it as below:

Vehicle

Vehicle Cost

Vehicle Accumulated Depreciation

If the description of the item is too long, Quickbooks will abbreviate it for you, just make sure you understand what it is for, Vehicle – Acc. Dep would work just as well. Accumulated Depreciation is entered as a negative figure that reduces the value of the item being depreciated. With vehicles you have to calculate what the value of that vehicle would be in 5 years, you can use http://www.bluebook.com to find a 5 year old vehicle of similar make and model and use that figure. In other words, if your $20000 vehicle will be worth $5000 in five years, you depreciated the difference of $15000 over that five year period which would be $3000 of accumulated depreciation per year. (or $250 a month if you want pinpoint accuracy during the year. It is best to use the registers to enter Accumulated Depreciation, no payee is necessary as this is not a monetary transaction here, you are just removing the value of the fixed asset and assigning it to an account. Which account?

IV. Depreciation Expense

The account you use to assign to the accumulated depreciation is the depreciation expense account. And again, I find it helpful to have Depreciation Expense be the parent or main account and create a sub-account for each fixed asset you are depreciating so you can keep track of each fixed asset’s useful life and the amounts being depreciated. This will help you keep a good eye on fixed assets that you will need to replace soon.

V. Fixed Assets and the Loans That Go With Them

Most business owners do not have the capital to pay cash for their fixed assets, and in a lot of cases it is not to their advantage to do so. So how do you handle the loan? Return to the chart of accounts and hit CTRL N to create a new account which will be a Long Term Liability account. Enter the amount still owed as your opening balance and your as of date. Still using the Vehicle example, it would be:

Vehicles

Vehicle Loan – 20000

Enter a bill for the payment amount when you receive it. And check for the breakdown of what interest you are paying versus what is actually going to the principle of the loan. Apply the principle amount to the Vehicle Loan account on the check or bill and if you have not created an interest account, then do so. Break it down for each item or fixed asset you are paying interest on. This would not be where to put Credit Card Interest, make sure that it’s in a separate category.

Interest Expense 2338

Vehicle Interest 350

Equipment Interest 888

Building Interest 1100

Credit Card Interest 430

Each time you issue a check, the principle amount should be deducted from what you owe on the vehicle and the statements you are sent should reconcile nicely.

Just a note for those who are financing a car through a credit card company, make sure that you are not recording it as a credit card payment, make sure that the fixed asset information is entered and accurate otherwise you could be losing the advantage of depreciation expense being deducted from your taxable income. And keep an eye on those fees from credit card financiers as they tend to fluctuate wildly in everything from interest paid to fees they charge you for the privilege of paying them over the phone or online. This is money not going toward paying off the vehicle and is more of a detriment to your financial picture than it is an advantage.

A number of these companies have been guilty of adding unnecessary fees to make repayment of the loan extremely expensive. One company in particular has a payment office in Miami and one in San Diego. Where does a customer in Miami have to mail his payment to? San Diego. Why? Because there is a greater chance of being able to charge you a late fee, even if the payment is mailed on time. They are predators, so beware!

[ad_2] Source by David S Roberts

How to Read a Balance Sheet

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Reading or analyzing your balance sheet may sound a bit intimidating, like it’s something stock analysts and bank managers do. I’d like to bring it much closer to you and help you become familiar with it so you can use it as one of your business tools.

Preparing Accurate Financial Statements To begin, we have to get accurate financial statements for your business. It’s not always as easy or as obvious as it sounds. Many small business owners, when they first come to me, complain about not having a correct balance sheet. They had a family member take care of their books and that person had just the very basic knowledge of QuickBooks and knew how to input invoices and pay bills.

In order to prepare accurate financial statements for a business, a bit more accounting knowledge is needed. So, let’s make sure we have that first.

Reading a Balance SheetNow we can start by understanding its main categories – assets, liabilities and equity. It’s really all very logical and intuitive. Assets are simply things your business owns, liabilities are the company’s debts and obligations and the equity is the residual value. Your balance sheet must always balance and the equation is:

Assets = Liabilities + Equity

Assets and Liabilities are further divided into short-term and long-term categories. Everything which comes due within 12 months or the operating cycle is considered short-term.

Examples of current (short-term) assets are: cash, marketable securities, accounts receivable and inventory.

Long-term assets can be items such as: property, plant & equipment (land, buildings, equipment and vehicles) and intangible assets (ex. goodwill and trademarks).

On the liabilities side, we have the current category typically composed of: accounts payable, current portion of long-term debt, unearned revenues, taxes payable and accrued wages.

And here are examples of long-term liabilities: long-term notes payable and bonds payable.

The equity section usually contains the following: common stock, retained earnings and net income for the period. The equity section will be different depending on the legal structure of the business.

Balance Sheet AnalysisIf you are looking at only one period, you analyze it vertically, as opposed to comparative analysis when you are looking at two or more periods.

The best way to read and analyze a balance sheet is using ratios, because absolute numbers don’t tell the whole story and do not capture the important relationships between the different components of the balance sheet and therefore the business.

Ratios, on the other hand, are like barometers, helping you stay on track and warning you when things start going in the wrong direction.

The most important ratios are:

Current ratio = Current Assets / Current LiabilitiesQuick Ratio = Current Assets less Inventory / Current LiabilitiesNet Working Capital = Current Assets less Current LiabilitiesDebt to Asset Ratio = Total liabilities / Total AssetsDebt to Equity Ratio = Total liabilities / Shareholders Equity

[ad_2] Source by Lucy Rudnicka

Business Laws Unveiled

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Each and every person in this world must have at least once thought about opening some sort of business to increase his or her income. No matter if you are thinking about opening a small family business or a larger company, you cannot do anything but obey the business laws! If you don’t, you and your business can get into serious trouble!

In case you are under the impression that you need to be a graduate of a business law college or have a business law major in order to understand and use some of the basic ideas of small business law and corporate business law, you are making a very big mistake. Perhaps you have heard form the news and the headlines that employment law for business is one of the most dangerous fields, as a person can easily break the business laws and regulations.

The least any business man should know is that he or she must meet the general international business laws. You must also consider the export laws, import laws and but, by all means, one must obey to the specific laws of the country in which your business is situated.

Should you own a company that operates in your home country, then you must get to understand the business laws there. If you cannot manage to get a business permit or license, you can find yourself in a great amount of trouble, as your business can get shut down. Not to speak about the inconveniences due to business and hefty fines and penalties!

If you thought that Internet and online businesses do not need to take these rules seriously, then you can have the unpleasant surprise of getting serious problems. Of course these types of business need to obey the business laws, but they are called Internet compliance laws. Therefore, should you be operating a website of any kind and do not care about all these rules and regulations, criminal prosecution and hefty fines are waiting for you right across the corner.

Well, if all these bad things have made you fear doing business of any kind, you must know that no one expects you to be able to navigate the complexities of any type of business law by yourself! The best option for you is asking for help from a qualified professional of a business law firm. This way you will never get into trouble of any kind!

[ad_2] Source by David Rumsey

Information Security Policies: Foundations of Asset Protection

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Information security Policies: Foundations of Asset Protection

Information security policies, whether corporate policies, business unit policies, or regional entity policies provide the requirements for the protection of information assets. An information security policy is often based on the guidance provided by a frame work standard, such as ISO 17799/27001 or the National Institutes of Standards and Technology’s (NIST) Special Publication (SP) 800 series standards. The Standards are effective in providing requirements for the “what” of protection, the measures to be used, the “who ” and “when” requirements tend to be organization-specific and are assembled and agreed based on the stakeholders’ needs.

Governance, the rules for governing an enterprise are addressed by security-relevant roles and responsibilities defined within the policy. Decision making is a key governance activity performed by individuals acting in roles based on delegated authority for making the decision and oversight to verify the decision was properly made and appropriately implemented. Aside from requirements for protection measures, policies carry a variety of basic concepts throughout the entire document. Accountability, isolation, deterrence, assurance, least privilege and separation of duties, prior granted access, and trust relationships are all concepts with broad application that should be consistently and appropriately applied.

Policies should ensure compliance with applicable statutory, regulatory, and contractual requirements. Auditors and corporate counsel often provide assistance to assure compliance with all requirements. Requirements to resolve stakeholder concerns may be formally or informally presented. Needs for the integrity of systems and services, the availability of assets when needed, and the confidentiality of sensitive information can vary significantly based on cultural norms and the perceptions of the stakeholders.

The criticality of the business processes supported by specific assets presents protection issues that must be recognized and resolved. Risk management requirements for the protection of especially valuable assets or assets at special risk also present important challenges. NIST advocates the categorization of assets for criticality, while asset classification for confidentiality is a long standing best practice.

Requirements for policy may arise from a contractual source or from a partner’s request, the Payment Card Industry’s Data Security Standard (PCI DSS) requires a policy addressing the Standard’s requirements that applies to all assets within the scope of the standard. DSS requirements can be integrated into a single corporate policy but given the stringency of the requirements an enterprise may elect to segregate protection domains with separate dedicated policies so that less stringent requirements are applied to assets outside the scope of the DSS, saving resources and tailoring protection based on the lesser perceived threat/risk to the assets.

Risk assessments are an important source of policy requirements that are specific to the environment and assets to be protected. Risk mitigation measures based on an assessment of risk and the assets at risk allows managers the opportunity to weigh investment against potential damage to reach a level of risk acceptable to the decision makers.

Attacks targeting online applications and their data have become an issue of well-founded concern, policy should focus on risks in this area by specifically addressing the software development lifecycle and measures to ensure bespoke applications are sufficiently robust to withstand common attacks.

Policies should be reviewed and accepted at senior levels, ensuring the policy’s authorizing authority has the stature necessary to make policy compliance mandatory. An authorization process to document and approve instances of noncompliance should also be provided. Often a compliance window is granted to allow time for the implementation of the policy by all applicable organizational entities.

Auditors often provide assurance of compliance as a result of their activities. The senior Auditor is also an important stakeholder and reviewer of policy drafts and amendments. Policies should be reviewed on an agreed schedule, often every two or three years. Changes in technology, evolution of business objectives and changes to the organization’s goals and processes all act to invalidate and outdate a policy. Keeping the policy fresh and relevant is essential to providing appropriate protection to important assets and supporting mission performance.

ISO 17799/27001 and NIST SP800-53A Revision3 both provide a long list of information protection best practices. There is frequently an inclination to declare one of the documents to be the corporate standard and demand policy comply with the corporate standard. Ignoring cost issues, there are several important things wrong with this approach, first and most importantly, it ignores risk realities. Best practices are the average, where extraordinary risks exist, they are too weak and where risk is significantly below average they are too strong, wasting resources. Policy should be based on reality, not an idealized set of homogenized requirements. Arguably the correct approach is to begin with a standard and bend it to fit the shape of the enterprise. There is one exception to this rule, shops that run an absolutely standard architecture can benefit from the simplicity and straightforward nature of a standardized policy. Governance issues remain and should be dealt with quickly and cleanly as exceptions.

Security guidelines, component configuration standards, and standard operating procedures are based on and build on the information security policy. Care should be exercised that the documents are consistent with each other and are reviewed and exercised for correctness and reliability. Security training is often based on the detailed documents ultimately leading to repeatable processes and a predictable level of protection being realized.

An information security policy is a necessary first step in securing an environment and providing appropriate protection to all information assets. Building consensus around a policy is an effective approach to resolving concerns and resistance to the idea of mandated controls. Listening to and involving stakeholders while ensuring the policy reflects their issues will go a long way in gaining acceptance of the program of protection.

[ad_2] Source by Chris A Inskeep

Business Ownership Structure – Sole Trader

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If you want to start or purchase a business – or have an existing business – you may want to know the best ownership structure for you to use. We’ll talk about the three main business structures in Australia and NZ – sole trader, partnership and company – over the next three articles and please email us if you want to know more.

The first is that you don’t have to stick with the same structure – you don’t have to form a company to buy a company, for example. A company can buy a partnership, a sole trader can buy a company and so on. Or, if you’re currently a sole trader, you can turn it into a company; a company can be wound down and turned into a partnership. There is, of course, cost and hassle in making these changes so let’s get it right, now, and have your money and effort directed at productively running a business.

Personal Liability

A sole trader is you, the owner and the person. Therefore a sole trader is a legal entity because the law recognises you – you can sign contracts, sue and be sued, own property, take out loans, have bank accounts and so on. Partnerships are not legal entities and cannot do this – we’ll cover that next week.

So, you start or buy your business, paying from your personal bank account or a separate business account and, from whatever account you use, you make business purchases – assets and expenses. This is exactly like making private purchases.

If you don’t repay your mortgage, the mortgagor can sell your house and then sue for any shortfall and you can lose other personal assets.

The same with your business: if your business spending is on credit and you don’t pay, the creditor, lender, mortgagor or bank can sue you and get the court to take your personal and/or business assets. Because the business is you, the legal system doesn’t see any difference between your business and your personal assets. Companies avoid this problem and you can read about that here in two weeks.

Taxation

As you are your business and it is you, legally, so the business income is yours. Whatever profit (or loss) you make from your business, it’s added onto your other income. So, if you have interest and other income of $10,000 and your business makes a profit of $30,000, your taxable income is $40,000 (10,000 + 30,000 = 40,000). If your other income was $40,000 and your business made a $25,000 loss, your taxable income would be $15,000 (40,000 – 25,000 = 15,000). Simple maths.

The disadvantage of this is that all the business income (or loss) is yours – you cannot spread it to other members of your family to reduce tax, as you can with a partnership or company.

Your business’s Tax File number will be your existing personal tax number.

Any business in Australia has to have an Australian Business Number (ABN) so you’ll need to get that [not applicable in NZ]. You have to register for GST if your gross income is going to be over $75,000. You can do this on the ABN form.

You Trade Alone

When you die, the business ends, unless you provide for the assets to be passed on in a will. You can’t pass on your shares in the business as you can with a company.

You can only borrow money against your personal assets. A company gives you more access to finance and we’ll cover that in two weeks time.

Summary

As with every ownership structure, there are advantages and disadvantages. Above, we explained the three main issues and below is a summary of the advantages and disadvantages of a sole trader ownership structure.

Advantages of Sole Trader

  • Low cost of entry – no company set-up costs.
  • Easy to set up – it’s only you.
  • Few legal costs.
  • Only one tax return required – cheaper accounting fees.
  • No registration of name required (if trading under your own name).

Disadvantages of Sole Trader

  • Personally liable for business debts.
  • When you die, the business dies.
  • Cannot split income out to other family members to reduce tax.
  • Limited access to business finance.

[ad_2] Source by Philip Bradbury