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Sheet Help
Explanation
of Terms: ASSETS
Current Assets
Cash
Cash means all funds that are readily available including cash, checks
not yet deposited, credit card deposits that are pending (not yet
deposited to your account), and money in a savings or checking account.
Accounts Receivable
These are accounts that your customers owe you for products or services
they have already received but not yet paid for.
Reserve for
Bad Debts
Every business will have customers that owe them money that don’t
pay, and those doubtful accounts should be placed under this category.
Many businesses consider collection on accounts doubtful after 90
- 180 days have passed since the bill was due. Some accounts don’t
fall under this category if payment is expected to occur, for instance
many governmental entities will take 90 –120 to pay but the business
knows it will eventually be paid.
Merchandise
Inventory (at cost)
The inventory you are selling should be itemized here at the price
you paid for it, not what it will eventually sell for.
Prepaid Expenses
If you have prepaid for a trip, item, or service it may be listed
here. An example would be the deposit you pay for electricity or telephone.
Those are usually returned to the business if the account is kept
in good standing over a period of time.
Notes Receivable
If your company has loaned another company, an employee, or you money
that will be paid back eventually it should be listed here.
Explanation
of Terms: ASSETS
Fixed Assets
Accumulated
Depreciation.
Financial statements are prepared using a term called the “historic
cost” principle, meaning the amounts recorded are those at the time
the transaction occurred, and are not adjusted later for changes
in the fair market value. Because many items lose value (depreciate)
over time, tax laws allow a business to deduct a certain amount
per year from the original price of the item, producing a “book
value”. The sum of all yearly depreciation over a period of time
is called Accumulated Depreciation, or the depreciation amounts
that have accrued over that period since the item was purchased.
Depreciation schedules vary widely depending on the item or property
involved, or even the price of that item. IRS laws also change frequently.
It is recommended you confer with your accountant on how property
should be depreciated. You may also wish to visit the IRS web site
(http://www.irs.gov) and view IRS Publication 946 How to Depreciate
Property. To search for forms on the IRS web site, go to: http://www.irs.gov/formspubs/index.html.
Equipment
Equipment can range from an expensive chain saw to a forklift. You
should consult with you accountant if you have questions. Most, but
not all, items listed here will be those requiring a depreciation
schedule.
Other Assets
Items here will include things of value that don’t fit in the other
categories, such as larger signs, collectible items that may have
significant value, Intellectual Property, or other items owned by
the company. It may also include “goodwill”, which is an intangible
value placed on the value of the company’s name, customer base, or
logos. Goodwill involves things that have notable recognition that
will cause customers to do business with the company rather than go
somewhere else.
As an example,
people go to certain fast-food restaurants, such as McDonalds, because
they know what they can expect for food regardless of the location
of the restaurant. The food is consistent in quality, taste, and
pricing, so they may make a stop there rather than go to an unknown
restaurant. Therefore, the “goodwill” value in the name recognition
means that people will stop in on the name alone wherever they may
be. That has substantial value to someone buying a McDonalds franchise
regardless of the location.
As another example,
the Nike logo is one that is internationally recognized without
the actual name being present. Hence, it has substantial value to
the company or anyone who would want to purchase the company.
Explanation
of Terms: LIABILITIES
Current Liabilities
Accounts Payable
These are accounts you owe money to such as vendors, rent, utilities,
phone, or other bills usually paid on a monthly or quarterly basis.
Sales Taxes
Payable
These are monies collected from customers as sales taxes on merchandise
you sold, but not yet forwarded to the State.
Payroll
Payroll Taxes Payable are taxes such as withholding, FICA, FUTA
that have been collected from the employees but not yet deposited
with the State or Federal Government as required. This amount should
include the employer's share of FICA, Medicaid, and FUTA that is
owed with the deposit.
Accrued Wages Payable
are funds that an employer owes employees but has not yet paid, including
earned bonuses.
Short-Term Notes
Payable
Usually accounts that are due within a year or two such as Credit
Cards, or other short-term loans from companies or individuals.
Short-Term Bank
Loans Payable
Loans payable to banks within a year or two such as 90 day notes,
vehicle loans, and Lines of Credit.
Explanation
of Terms: LIABILITIES
Long-Term Liabilities
Long-Term Notes
Payable
Loans that structured over a longer period of time such as equipment
loans, larger vehicle loans, or working capital loans.
Mortgages Payable
Loans on buildings and real estate.
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