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If you’re paying the balance due on your vendor invoices and statements with the assumption that they have billed you correctly, you may be costing yourself money without knowing it.
This is not to imply that your vendors may be dishonest or trying to cheat you in any way. It simply is based upon the fact that people do make mistakes. That is why it is important to review both individual invoices and monthly statements as they come in.
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If your business tracks inventory and operates a business using material and labor to complete its projects, (a remodeling company or other construction related business, would be a good example), then you have probably had to deal with this accounting issue.
The project is completed and you have several material items that have not been used on the job. They can not be returned to the supplier, so you place them in the warehouse with other inventory items. When the invoice was paid, the costs were booked to your direct costs or cost of goods sold for that project. Is that where the costs should remain, or should the value of these items be removed from your direct costs and added to your inventory account?
Your business’ most basic numbers are revenue, expenses and profit and most people just pay attention to those. That might work at a basic level but “revenue minus expenses equals profit” is too simple. Business owners need to know how various expenses impact their business. In this 4-part series, we’ll break open the income statement so you can see how different elements work together and what each one means to you.
The first part of the income statement is the Revenue section. This is all the money that comes into your business. Gross Sales is counted here (which is all the money you get paid) and returns and discounts are taken off. At the end of this section is Net Sales.
In the first blog post in this series I introduced you to the 3 key spreadsheets that every business needs and I gave you a really quick-and-dirty way to set up the three spreadsheets in one Excel file. In the second blog post in this series, I talked about the relationship between all three spreadsheets.
I’m realistic enough to realize that financial statements can seem complex and unwieldy at the best of times, which I’ve been walking you slowly through the details that I felt you needed to know. And I was planning to show you how to build the three spreadsheets yourself. But I’ve got good news for you: In the last blog post of this series, I’m going to make it really easy for you! I’m going to link you to one free file that you can download that will GIVE you all three spreadsheets in a single Excel file. Here’s how to get it and use it:
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