A Financial Poise column dedicated to the reality that if you don’t understand your numbers, you don’t understand your business.
If you don’t understand your equity numbers, you don’t understand your business.
By definition, the word “defer” means “to put off or postpone.” How exactly does this apply to the accounting for your business? Well, “The Deferreds” refer to the deferred assets and liabilities you may need to record under GAAP. There are several common categories of deferred liabilities: Deferred revenue, Deferred rent, Deferred compensation, and Deferred tax.
If you ever read (and I mean read, not just signed) a bank loan or revolving credit agreement, then you know the document can be a little overwhelming.
Many balance sheets have a line called “Commitments and Contingencies” between the liability and equity sections. The strange part is there are no dollar amounts listed. So, what the heck are commitments and contingencies?
Accrued expenses, sometimes called accrued liabilities, are costs incurred by the business without an invoice. Transactions like these are not recorded right away.
AP can be broken down into two categories – trade payables and expense payables. Trade payables are generally for the purchase of goods that are included in inventory and subsequently sold (liquor and beer). Expense payables include goods or services that are expensed such as supplies, utilities and cleaning services.
An intangible asset is an asset that is not physical in nature. Examples include non-compete agreements, customer lists, goodwill, and corporate intellectual property such as patents, trademarks, copyrights, trade secrets and domain names.
PP&E, or Property, Plant and Equipment (okay, this is definitely more than one word), is a vital component in the operation of your business. And for many businesses, PP&E can be one of the largest numbers on the balance sheet. PP&E may consist of land, building, equipment, furniture, computers… the list can (and does) go on and on. So what do you need to know about PP&E? Well, you need these fixed assets, so you buy them…the end. Oh, if it was only that simple.
Managing inventory will determine if the your business is profitable or will soon be going out of business. The goal is to find a balance between having too much inventory (you’re renting extra space just to store the inventory and now you have no cash for payroll) versus not having enough inventory and missing out on valuable sales.
A guy walks into a bar and asks the bartender for a drink. The bartender gives him the drink and tells him how much he owes him and the guy says, “Put it on my tab.” And this brings us to our next scary word: “Accounts Receivable” (wait; that’s two words). Accounts Receivable or “AR” (now it’s one word and not so scary) is exactly that, “the tab.” It is the money owed to a business by its customers in exchange for goods received or services provided.