In life, there are upsides and downsides to most things - debt included. Debt is something that receives a negative connotation, but virtually everyone has some sort of debt. It seems odd to say there is such a thing as “good” debt, but there is. On the flip side, there is also “bad” debt, which should be avoided. Nobody wants debt, however, good debt works in your favor, while bad debt does not.
Good debt has the potential to increase your net worth or further you in life in some way. It’s typically low interest and will “pay off” in some way down the road. This includes loans for your education, for a business, a mortgage or other real estate investment.
Bad debt will drive your credit score lower and weigh you down.
We’ve discussed cash flow before - what it is, what it means for your business - but now let’s discuss what causes cash flow problems. There is a difference between making money and managing cash flow. Managing your cash flow wisely is a combination of being informed, prepared, and making smart decisions. Cash flow problems stem from one of these factors faltering along the way.
One of the obvious causes of cash flow problems are profit issues. This could be lack of profit or sporadic profit. If your company has down months where you make very little money and then shoots up during peak times of the year, you have sporadic profit, and this causes issues for your business. It’s hard to do virtually anything if your business has no money - pay bills, complete payroll, or stay afloat.
Neglecting your bookkeeping is another cause of cash flow issues. Not having up-to-date records on the ins and outs of your business means you’re conducting business blindly. How can you make informed and financially safe decisions for your business if you have no records? This goes hand-in-hand with another cause of cash f
If you’re just starting to navigate your books, you may be unsure of some of the lingo. It’s like a different language for those outside of the accounting world, but the more you work with your books, the quicker you’ll catch on. What’s important is to think of everything in terms of your business; these terms provide you with vital information about your company’s standing. Let’s go over some common terms you’ll frequently hear and need to use in order to discuss and understand your books.
Need to write off an uncollectible invoice but don’t know how? It’s sad but sometimes people don’t pay you what is owed. You need to get these numbers out of your books, but you also want to track this correctly, so what do you do? Here are step-by-step directions to do this in QuickBooks:
Step 1. In your Chart of Accounts create an Income Account called “Bad Debt.”
Step 2. In your Items create an item called “Bad Debt-Uncollectible” and link it to “Bad Debt” (the account you created in Step 1).
Step 3. Create a Credit Memo in your QuickBooks and use the Item “Bad Debt-Uncollectible” (that you created in Step 2) with the amount that you need to write off.
Step 4. Apply this Credit Memo to the invoice(s) that are uncollectible.
Now when you look at your P & L report, you’ll see a negative number in the Income Area, labeled as “Bad Debt.” Although it seems unusual to have a negative number for Income, this is correct.
Here is an example of what is happening in the backgrou
Have you ever left a conversation with your accountant with nothing but confusion, asking yourself “What did they just say?” You’re not alone. We’re here to bridge the gap between accountant and client. Here is a list of common terms you will likely here from your accountant, if you haven’t already, and what they actually mean:
Accounts Payable (A/P): Money you owe to others.
Accounts Receivable (A/R): Money others owe to you.
Asset: Items of value owned by a business. This includes money in your bank, A/R, equipment, vehicles, buildings, and so on.
Bad Debt: Uncollectible A/R.
Balance Sheet: A list of company assets, liabilities and equities for the company.
Cost of Goods Sold (COGS) (a.k.a. Cost of Sales—COS): What it directly costs to produce your product or service. For manufacturing companies, this includes raw materials and the direct labor to make your product. For service companies, this includes the cost of labor to directly service your customer.
Equity: How much you have invested into your business or taken out of your busin