Determining the Cost of an Asset

Copyright © 2006 Bookkeeping R Us

I am often asked by business owners why the market value of an asset is not
listed on their balance sheet. This is because in the bookkeeping and
accounting professions we are traditionally reluctant to accept market value as
the basis of asset measurement. Although assets such as cash or accounts
receivable are usually measured by their value, most other assets are measured
at cost. The reason is that it is difficult to verify the forecasts upon which
a generalized value measurement system would have to be based. For example,
should you purchase a building today at a certain cost, is it likely it’s value
would increase or decrease as time goes by? The answer may depend upon several
unknowns; the real estate market, the location and the changes in the value of
the location, for example. As a result, the balance sheet does not pretend to
show how much the company’s assets are worth; it shows how much the company has
invested in them.

The historical cost of an asset is the sum of all the expenditures the company
made to acquire it. This amount is not always easily measurable. If, for
example, a company has built a special-purpose machine in one of its own
factories for use in manufacturing other products, and the project required
logistical support from all parts of the factory organization, from purchasing
to quality control, then a good deal of judgment must be reflected in any
estimate of how much of the costs of these logistical activities should be
“capitalized” (i.e., placed on the balance sheet) as part of the cost of the
machine. Most commonly the determination is made by identifying all the costs
of the components that make an asset a useful item. A computer is not very
useful without a monitor; keyboard and operating system, therefore the cost of
all of these items would be included in the cost of the computer.
In summary the cost of a fixed asset (an item purchased that is expected to
have a useful life exceeding one year) is the actual cost plus any required
expenses to put that asset to work.

Financial Statements | No Comments »

Creative Uses of Office Equipment

Copyright © 2006 Bookkeeping R Us

I was trying to find filler for gift baskets and having no success at all when a light bulb idea appeared out of no where. Let’s see - what are most baskets filled with - why shredded paper of many colors. And I have a paper shredder. So I purchased a couple of packages of red and green tissue paper (these were Christmas baskets) and headed home. I emptied my shredder basket, made sure the blades were free of all the bills, junk mail, etc that I normally use my shredder for and placed a clean plastic bag into the basket. I lined up two sheets of tissue, one green and one red. Then folded them length wise to fit the opening of the shredder and then folded them in half. (My shredder handles up to 15 pages folded in half however most shredders should accommodate this thickness of paper easily since tissue paper is so thin). And then into the shredder the tissue went and out came beautiful basket filling. And you don’t have to be limited to tissue paper, wrapping paper would be fun also. Just think of all of those left over pieces you have waiting for a gift that might fit their reduced size. Put them into the shredder and you will have themed fillings for baskets, gift boxes or bags.

Also a friend of mine was making a doll house for her daughter and when it came to roofing it, she thought the roofing shingles were to rough for a three year old’s little hands. Her solution was to take fine sandpaper and use a paper cutter to make the shingles. A quick and easy fix for her project.

Do you have any unusual uses of office equipment that you would like to share? Join in the discussion with your creative ideas.

Bookkeeping Articles | No Comments »

Tis The Season

Copyright © 2006 Bookkeeping R Us

Listen to the sounds, see the ribbons, late nights abound - Year end is here.
The sounds of clicking calculators, the ribbons of tapes, late nights spent
meeting the deadlines - such a joyous time of year. Are you ready? Have you
ordered your 1099’s and W2’s? Don’t forget the envelopes. The ones you have
left over from last year might not fit the forms for this year. I swear the form
providers and the IRS are out to get us. Do print out samples prior to doing
your final run because you may have to adjust your templates. What am I saying
- you will have to adjust your template.

Now is the time to check your records to make sure your ID numbers, names, and
addresses are correct. Remember when it comes to 1099’s your vendors should
have provided you with a W9 form listing their correct business name, address
and the ID number that is associated with their business name. These forms are
available at www.IRS.gov

The deadlines for W2’s and 1099’s are as follows:

To the business or individual Mailed no later than January 31st following the
close of the calendar year.
To the Social Security Administration Mailed no later than February 28th
following the close of the calendar year
or the IRS

This is also the time you may want to investigate the convenience of using a
payroll service. Then next year at least the W2 part of this fun exercise will
be done by someone other than you. Both ADP and Intuit offer great service at
very reasonable cost. Check them out at www.payroll.com or
www.sbs.adp.com/products.

And don’t forget, besides doing your regular payroll quarterly tax reports (941,
state unemployment, state income and perhaps local) you also need to file your
end year 940 (Federal Unemployment) report.

All done - well now you can relax. But wait - what about the workers
compensation audit? And the closing out of the books? And the prep work for the
accountant? A bookkeeper’s work is never done

Bookkeeping Articles | 2 Comments »

Internal Audits of Financial Statements

Copyright © 2006 Bookkeeping R Us
With todays technology once the bills are entered, the checks printed, the
invoices posted and cash receipts are recorded, computer programs print out
financial statements with a click of the mouse. However, you can bring much
more to your company than data entry. A careful review of the books and
analysis of key accounts will assure that not only are your financial records
in balance, but also meet accounting standards.
Bank reconciliation is one of the most common examples of this approach. Your
bank reconciliation should agree with your computer records and your manual
checkbook. All cash accounts should be reconciled monthly including your petty
cash fund.

The next two accounts to be reconciled are Accounts Receivable and Accounts
Payable. The ending balances in these accounts should correspond to the
balances shown on your aging reports.
Accounts that often get overlooked when preparing an internal financial
statement are the Note Receivables or Note Payables. Do the general balances
match the statements provided by the bank?
If not, it is easier to locate the problem within the month the discrepancy
happened instead of waiting for year end. And of course if there is a variance,
either your books are wrong or the bank has made a mistake. Either way now is
the time to correct the problem.
Payroll reconciliation will ensure that your payroll and payroll taxes are
posted correctly. Ascertain that your payroll tax liability accounts are
showing the correct balance (the amounts withheld from employee paychecks plus
the companies share of payroll taxes that remain undeposited at the end of the
month). Also check the amounts posted to your labor accounts and payroll tax
expense accounts. Do you break out your labor costs to departments? Do you
break out vacation, sick, holiday, etc to separate general ledger accounts?
Reconcile your payroll records to those accounts using your outside payroll
service reports or your internal reports should your payroll be done in
house.

And lastly, take a look for reasonableness. Does it make sense that you spent
$10,000 on office supplies in one month? Depending on the size of your company,
that might make perfect sense, but then again maybe there is a posting error.
It is better to take a few minutes to review the financial statements before
you hand them to your boss, then to be questioned after the fact.

Taking these extra steps will build trust in your ability to produce accurate
financial statements which is after all, what we all strive for.

I have prepared a list of books that can be purchased at Amazon.com or asked for at your local library.

Financial Statements | No Comments »