how to

Accounting Reports: What is a Balance Sheet?

Keeping accurate and up-to-date accounting records is a critical part of being a business owner. Your books hold a wealth of information about the financial state of your business that you can use to make savvy decisions.

Accounting reports take the data stored in your books and present it in an easy-to-understand format. There are different types of reports that each serve an unique purpose. In this blog post, we’ll learn about the Balance Sheet.

What is a Balance Sheet?

A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.

Assets

An asset is anything owned by your business that has a monetary value. This section of the balance sheet will outline the value of each of your business’s assets. Some examples include:

  • Cash – The funds your business possesses, including the cash in your back account.

  • Accounts Receivable – Outstanding invoices your business is awaiting payment for.

  • Inventory – Items your business resells in its effort to generate revenue.

  • Equipment & supplies – Tangible items used in your business operations.

  • Reimbursable expenses – Expenses incurred by your business that will be paid back by another party.

  • Property – Building or land owned by your business and used in its operations.

  • Prepaid insurance – Current policies that have been fully paid for.

The purpose of this section is to calculate the total value of your business’s assets.

Liabilities

A liability is any debt owed by your business. The liability section of the balance sheet will include the total amount of debt your business owes. Some examples include:

  • Accounts Payable – Funds owed by your business to other parties, not including loans.

  • Taxes Payable – Money owed to the government for taxes.

  • Payroll Payable – Funds that are to be paid to employees for the wages they’ve earned.

  • Loans Payable – The balance of any loans from a bank or investor that needs to be paid back.

  • Credit Card Payable – The balance of any credit cards your business or employees use.

The purpose of this section is to calculate the total value of your business’s liabilities.
 

Owner/Shareholder Equity

Owner/shareholder equity is the value of assets that remain after the total value of liabilities has been deducted. It’s generally considered the source of the company’s assets. Some examples include:

  • Owner/Shareholder Capital – Investments made into the company. Including net income earned, minus withdrawals made.

  • Retained earnings – Net income that stays in the business, instead of being paid out in dividends or as payment to the owner.

What if your Balance Sheet doesn’t balance?

In the simplest terms, a balance sheet is Liabilities + Owner/Shareholder Equity = Assets. Like the name implies, this equation needs to balance in the end. If it doesn’t, you likely misrecorded a number, listed something in the wrong section, or left it off altogether. Here are some tips that can help you avoid mistakes:

  • Always review your entries for accuracy.

  • Make sure all withdrawals made by ownership are included in the equity section.

  • Use automated financial software to avoid human error.

  • Have a professional prepare your Balance Sheet.

Accounting reports shine a light on the different financial areas of your business. BookKeeping Express (BKE) can ensure your books are always updated and accurate and generate the financial reports you need to make smart business decisions. See how we can handle your bookkeeping needs so you can focus on what you do best.

 

Accounting Reports: What is an Income Statement?

Accounting.png

Keeping detailed accounting records for your business is important for many different reasons. For one, your books hold a wealth of information about the financial state of your business. You can learn a lot about your operations and make smart decisions by looking at the right data.

Accounting reports provide an overview of important financial information in an easy to understand format. There are different types of accounting records that each tell different stories about your business. In this blog post, we’ll learn why an Income Statement (or Profit and Loss Statement, as it’s also known) is important and what information it includes.

What is an income statement?

An income statement outlines your business’s profits or losses during a specific period of time (i.e. a month, quarter, or year). It breaks down your revenue and expenses so you can understand everything that influences profitability.

What is an income statement used for?

You can use an income statement to get a thorough idea of how your business’s money is earned and spent. You can analyze your expenses and find out if there are any costs that are exceeding the budget you set. You can also learn where your business is excelling by looking at your different revenue sources.

What’s to include in an Income Statement?

Income statements consist of various sections that outline expenses, revenue, and income. The exact categories might differ from business to business but here is what is included in a typical income statement:

  • Sales - Your total revenue for the given time period, organized by sales channel

  • Cost of Goods Sold (COGs) - Any costs your business incurs while creating the products or services it offers for sale. COGs can include the cost of raw materials, labor, or service-related expenditures (often referred to as Cost of Sales). You can learn more about Cost of Goods Sold in this blog post.

  • Gross Profit - Subtract COGs from sales to calculate your Gross Profit.

  • Operating Expenses - Common expenses incurred in the daily operation of your business. This might include payroll, marketing/advertising, utilities, rent, depreciation, insurance, and other overhead costs. This section can be broken down by category so you can easily analyze your expenses.

  • Total Expenses - The sum of all your business’s expenses.

  • Net Income (Before Taxes) - Subtract your operating expenses from gross profit to calculate your business’s total income before taxes.

  • Taxes - The total income tax your business owes for the given time period.

  • Net Income - Your business’s total income after paying taxes.

An income statement is crucial to understanding everything that influences your business’s bottom line. The key to generating this accounting report, or any other, is to maintain accurate books.

Learn how BookKeeping Express (BKE) can help your business keep accurate and up-to-date financial records.

 

 

How to Set the Right Menu Prices in Your Restaurant

Restaurants.png

The general principle for running a profitable business is simple. Generate more revenue than you pay out in expenses. This can be accomplished by charging the correct amount for the goods or services your business offers.

However, if you own a restaurant, you know how difficult setting prices can be. Your goal is to provide customers with delicious food and a great experience but you also need to make sure every item on your menu helps recoup your operating costs and then some.

Setting just the right menu prices boils down to having a thorough grasp of your costs and understanding how customers perceive your restaurant.

Food Costs

Food costs are the total costs of each ingredient used to prepare a menu item. It includes everything from the main ingredient to minor items like seasoning, garnishes, and cooking oil.

To calculate food costs, you need to know the exact cost for each ingredient and follow a consistent recipe each time you prepare a dish. However, some food costs do fluctuate due to seasonality, availability, or other factors. Many restaurants use the highest possible ingredient cost when determining their prices or rotate menu items with seasons.

Once you have a solid understanding of each menu item’s total cost, you can start to work out the correct amount to charge. Food costs should be about 30-35 percent of your sales, depending on the type of restaurant you operate.

Other costs that factor into menu prices

Restaurants also incur a number of other costs that need to be covered by menu prices. Here are some common examples:

  • Labor costs – You need to account for the wages and benefits you pay your employees to prepare food, serve customers, and help operate your restaurant.

  • Preparation costs – Not all menu items take the same amount of time and effort. The ones that take more work merit a higher price.

  • Overhead expenses – Restaurants have a lot of overhead costs, such as rent, utilities, equipment, maintenance, marketing, and much more.

There will likely be other costs that are unique to your restaurant you’ll need to take into account. Just be sure you have insight into all your restaurant expenses, so nothing goes unaccounted for.

Determining your menu prices

Once you have all your costs worked out, you can finally set your menu prices.They’ll need to cover all your restaurant's costs and provide you with a profit. But you’re likely asking yourself how much of a profit is reasonable? You of course want to make as much money as possible but you don’t want to be labeled as an overpriced restaurant. Here are few factors to take into consideration:

  • What type of restaurant do you operate? – People expect a meal at a fine dining restaurant to be expensive and look for more value when eating at a fast-casual restaurant. Be sure that your menu prices align with your customer’s expectations.

  • What do your competitors charge? – Go around your community and see what similar restaurants are charging. It’s also an opportunity to learn what you can do better than your competitors so you can develop a loyal customer base.

  • What else makes your restaurant appealing? – Do you use local and organic ingredients? Are you located next to a famous landmark? Is there a beautiful view from your dining room? Is your restaurant historic or well-known? These small advantages that help attract customers allow you to have slightly higher menu prices.

Setting menu prices is a delicate balance and requires deep thought and cost analysis. But it’s an exercise that will set your restaurant up for long-term success so be sure to give your menu pricing the attention it deserves.

BookKeeping Express (BKE) can manage your restaurant’s books and give you insight into your expenses, revenue, and overall financial performance. Find out why so many restaurants love working with BKE.