A capital improvement is a renovation or addition to property that is recorded as a fixed asset itself. There are certain criteria that the improvements must meet to be categorized as an asset. Let’s look at them here: The first consideration is your business’s policy for capitalization (categorizing a cost as an asset instead of …
Goodwill is that intangible asset you pay for when buying a used business. It’s that thing you pay for that isn’t a tangible asset*. The good reputation of the business, brand recognition, licenses, or intellectual property are all examples of goodwill. (*click here to learn about assets) What is the dollar value of goodwill? It’s …
Did you loan your employee money? You can deduct the payments from their paycheck. But be careful to record it all properly. Set up the employee loan first. The loan account will be a current asset. Let’s just call it employee loan. To record the initial payment of funds to the employee you would debit …
Revenue is the total income from business operations. So, If I sell a book for $100, that’s my revenue: $100. But does that really answer the question, “How much profit did I make?” Probably not. When we ask ourselves how much we made, we’re usually looking for the profit. That is, the amount of money …
COGS (cost of goods sold), cost of sales, direct cost, or job cost all mean the same thing. Although it is usually self-explanatory, sometimes COGS is mislabeled as expense. So, let’s take a closer look. We say anything the customer takes with them or that we leave with the customer is COGS. Inventory is the …
Your profit margin is the percentage of revenue that is left after expenses. It varies greatly by industry; and you should know how yours compares to the average in your industry. There are two types. The gross profit margin is the percentage of revenue left after deducting COGS (Cost of Goods Sold) or Cost of …