Account Organization – Making more sense of your numbers

The Chart of Accounts…YAWN!  BORING!  WHO CARES? Could we discuss anything that puts us to sleep faster?!

While this topic may not keep you awake at night, paying attention to how your general ledger chart of accounts are setup and organized can go a long way in getting more meaningful information from your financial reports. Think of your chart of accounts as a system of buckets to hold specific information, each bucket and the proper placement of them making it easier to understand how your company is performing.  For instance, combining fuel and maintenance costs into one bucket do not allow you to track how much each may be costing you individually.  Therefore, it is important to account for these expenses in separate buckets, or general ledger accounts.

Use of a standard chart of accounts from an accounting software results in an alphabetical listing of accounts by account category. As a result, your expense account listing looks something like this:

Expenses

Accounting

Administrative Wages

Bank Charges

Bus Insurance

Depreciation

Driver Wages

Fuel

Interest Expense

Office Supplies

Office Wages

Payroll Taxes

Registration Fees

Repairs and Maintenance

Software Expenses

Workers Compensation

But wouldn’t it be better if similar expenses were grouped together?  Would that make it easier to evaluate the company’s performance?

Expenses

Administrative Expenses – All

Accounting

Bank Charges

Office Supplies and Expenses

Software Expenses

Payroll and Related Expenses – All

Administrative Wages

Driver Wages

Office Wages

Payroll Taxes

Workers Compensation

Revenue Vehicle Operating Expenses – All

Fuel Expense

Registration Fees

Revenue Vehicle Fixed Expenses – All

Depreciation Expense

Interest Expense

Insurance Expense

Revenue Vehicle Repairs and Maintenance – All

Repairs Expense

Scheduled Maintenance Expense

There are many variations for grouping accounts, the above being a simple example. What matters to your company is to understand how the various accounts relate to each other. Generally, all payroll is best grouped together, allowing for key functions to track separately, such as shop, cleaner, driver, dispatch, sales, etc. Revenue vehicle maintenance costs are grouped separately from the costs of operating the vehicles. The point is to be better able to use your financial data to pinpoint what areas of your operation need attention.

A thoughtful expansion of general ledger accounts and the subsequent meaningful groupings of those accounts can help you monitor the overall trends of your company’s performance. Also, the implementation of an industry specific chart of accounts will assist management in preparing, monitoring and evaluating the company budget. (See the previous post about budgeting.) As is with most accounting modifications to your business, it is best to update your chart of accounts in preparation for your next annual accounting cycle.

Let us at BUSBooks help you develop your chart of accounts to get more out of your internal financial reports! Together we can make accounting more meaningful, and certainly not boring!

The next Nerd News will discuss Asset Depreciation.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Cash: Do you know where it comes from? Where it goes?

Your new salesperson just landed a new client. Happy days! However, she promised the customer two new buses to be used exclusively for the account. For a young company this creates a bittersweet emotion. The potential income is exciting, but can you afford the payments? Looking at last year’s income statement you determine that you are profitable enough to afford a 10% down payment and the monthly payments. It is close, but you are willing to take the risk. So you eagerly order the buses and prepare to make more money!

You are crushed and confused when the lender, who was so eager to take your business, only approves you for one bus. How can that be? He tells you that you will not generate enough cash to make the payments on two buses.

He explains that when you figured your net income to pay for the new buses, you did not subtract the annual debt portion of your existing bus loans, your property mortgage, and the money you owe your original angel investor. Even when you add back the depreciation expense you are short.

Disgruntled, you leave with “I am making money, but I don’t have enough cash!” We have heard this any number of times. Well, “making money” or “being in the black” is interchangeable with making a profit. However, having a profitable enterprise does not always correspond with positive cash flow. Conversely, businesses showing a loss can generate cash.

Many times your numbers are just this close. An industry CPA understands this and will prepare you for such expansion requests so that you can plan accordingly and without surprises. Are you ready for the expansion? How much can you afford to borrow? What will the expansion do to your operation? Perhaps this new opportunity and the expected revenue will generate enough additional cash to make the new payments. Was this figured into the loan request? Did you prepare a proposed income statement adding in the new revenue and expenses attributed to the new opportunity?

The Statement of Cash Flows is just one of the basic financial statements provided in CPA prepared financial statements. This is one of the reports that you really can’t get through QuickBooks without significant analysis and manipulation. Let’s look at the components that determine cash generation and uses.

Transactions that PROVIDE or BRING IN CASH include the following:

  • Cash sales
  • Accounts receivable collections
  • Borrowing cash
  • Cash sales of owned equipment
  • Expense refunds
  • Income tax refunds

Transactions that USE CASH include the following:

  • Maintenance payments
  • Sales refunds
  • Cash used for bus purchases
  • Taxes paid
  • Fuel payments
  • Debt and interest payments
  • Wages paid
  • Insurance payments

Common income statement items that DO NOT PROVIDE OR USE CASH:

  • Credit sales
  • Fuel and other expense accruals
  • Taxes accrued
  • Depreciation and amortization expense
  • Unrealized gains or losses

Let us at BUSBooks help you learn where your cash comes from and where it goes! Together we can move you forward.

The next Nerd News will discuss Budgets – Why are they an invaluable tool for your continued success.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Income Statement – Your Bottom Line

Black Friday Sale! Wow, some stores are even opening Thursday evening.  But how did the term come to be? “Black Friday“ refers to the day after Thanksgiving and is purported to be the day many retailers transition from having a loss to a profit for the year, from the red to the black. We all want to operate in the black! After all, we are all in business to make money in our way and in our space.  The report we rely upon to measure that is the income statement and in general, it reports revenues, cost of goods sold, and expenses to arrive at the “bottom line,” preferably a profit, or net income.

Years ago, we called this report a “Profit and Loss Statement.” That is still the title it holds within the standard QuickBooks report listing. This report is useful for both management and outside users such as lenders. The focus for each group differs some, but both types of users want accurate reports on which to base decisions.

Accuracy includes proper and consistent recording of information and relevant account usage. Your accounts should be set up to provide meaningful information to manage the business operations and ease compliance reporting issues. To that end, knowing what the key areas of financial success for a motorcoach company is critical. Segregating key costs into their own accounts for evaluating and monitoring can be the difference between understanding why you are or are not achieving your financial goals.

Take a good look at your income statement.

  • Does it give you the information necessary to evaluate and monitor key areas of revenue and/or expenses?
  • Is it designed to give you sufficient detail?
  • Can you easily determine if your fuel and maintenance costs are within reason?
  • How about driver wages?
  • Sales wages?
  • How about your revenues? Are they growing each year? Shrinking?
  • Is your customer base changing?

How your accounts are set up can go a long way in helping you evaluate these and other questions. A CPA who understands your business can help you design a chart of accounts and report format that makes these questions easier and quicker to answer.

Various users of the income statement will want to see different levels of detailed information. Managers will generally need more detail to evaluate and monitor operations to help guide the company to the owner’s financial goals. Lenders and governmental agencies look at a more macro scale. Lenders look for key indicators for future cash flows to support new lending activity.  BUSBooks can help provide the information in either format to make each user’s evaluation more efficient.

Preparation of financial reports, and their interpretation, can help guide your business into the black far before the last Friday of November. Contact BUSBooks today.

My next Nerd News will discuss Cash – Do you know where it comes from? Do you know where it goes?

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.