What is cash vs. non-cash? | Brian Feroldi posted on the topic | LinkedIn (2024)

Cash vs. Non-Cash Expenses 💴 What's the difference?In business, expenses can be categorized into two major buckets: Cash & Non-Cash.Here's the difference:Definitions: → Cash Expenses: Actual cash is paid out.→ Non-Cash Expenses: Recorded expenses without actual cash outflow.Examples:→ Cash Expenses: Buying raw materials, paying wages, utility bills.→ Non-Cash Expenses: Depreciation, amortization, stock-based compensation.Accounting Treatment:→ Cash Expenses: Recorded as an expense on the Income Statement & Cash Flow Statement when incurred, impacting cash and expense accounts.→ Non-Cash Expenses: Recorded as an expense on the Income Statement, but no actual cash changes hands.Impact on Cash Flow:→ Cash Expenses: Directly impacts cash flow due to cash outflow.→ Non-Cash Expenses: No direct impact on cash flow.COMMON NON-CASH EXPENSES:Depreciation & Amortization: Spreads the cost of tangible/intangible assets over their lives. 📉 Impact: Lowers profit, no direct cash impact.Stock-Based Compensation: Expenses from equity granted to employees. 📉 Impact: Increases expenses, reducing profit, no cash impact.Impairment Charges: Asset write-downs when market value dips below book value. 📉 Impact: One-time expense hit, no immediate cash impact.Depletion: Cost allocation for consumed natural resources. 📉 Impact: Reduces profit, no cash impact.Unrealized Gains/Losses: Changes in value of unsold investments. 📈📉 Impact: Can swing profit either way, no cash impact until sold.Provisions for Doubtful Debts: Reserving for expected bad debts. 📉 Impact: Increases expenses, no cash impact.Deferred Income Taxes: Income taxes recorded but deferred. 📉 Impact: May reduce current taxable income, no immediate cash impact.Non-Cash Charitable Contributions & In-Kind Contributions: Donations in non-cash forms. 📉 Impact: Raises expenses, no cash outflow.Was this helpful? Is anything confusing? Let me know below!Follow me Brian Stoffel for more content like this***P.S. Want to master the basics of accounting (for free)?📕 Grab our FREE accounting infographic ebook: → https://lnkd.in/geciS9nMIf you found this post useful, please repost ♻️ to share with your audience.

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Finance for Non-Financial Managers | (04)Financial ReportsFinancial reports are different forms of financial information. A financial report is a formal record of the financial activities and position of a business, organization, or individual. It provides a summary of key financial information over a specific period, typically covering aspects such as income, expenses, assets, liabilities, and equity. Financial reports are essential tools for stakeholders, including management, investors, creditors, and regulatory authorities, to assess the financial health and performance of an entity.Financial reports play a crucial role in decision-making, financial planning, and accountability. They are often prepared in accordance with accounting standards and regulatory requirements to ensure accuracy and consistency.Here are some common types of financial reports:1.Income Statement (Profit and Loss Statement): This report summarizes revenues, costs of goods sold, and expenses over a specific period to calculate net income or loss. ·Revenue – Amount of assets generated by business ·Expenses – Amount of assets consumed by business ·Net Income – Net Assets generated by business2.Balance Sheet: This report provides a snapshot of an entity's financial position at a specific point in time, listing its assets, liabilities, and equity. ·Asset - is something of value, such as cash, real estate, or property. (i)Current Assets (e.g., cash, accounts receivable) (ii)Fixed Assets (e.g., property, equipment) ·Liability - is a financial obligation, such as debt. Liabilities can be current or long-term. ·Equity – is the finance provided by the company’s owner. Owners can do it in two ways (i) Paid-In Capital (putting money from pocket) (ii)Retained Earnings (putting money from profits)A balance sheet should be balanced i.e. Assets = Liabilities + Equity (also called accounting equation)3.Cash Flow Statement: Cash flow is the movement of money into and out of a business or household. This report outlines the cash generated (cash-in) and used (cash-out) during a specific period, categorized into operating, investing, and financing activities. Cash flow is the movement of money into and out of a business or household. ·Operating Activities – daily activities within the business ·Investing Activities – occasional activities to enhance productive capacity of business ·Financing Activities – activities related to financial arrangements like Issuing or Repurchasing Stock, Issuing or Repurchasing Debt, Payments of Dividends etc. PS: If readers can add something, it will help to correct, improve or learn. Thanks!

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Some beautiful finance terms for you to have your hands on-Net Finance ExpenseNet Financial Expense means the result of subtracting (i) the interests accrued by the Financial Debt during the relevant calculation period, minus (ii) the interests accrued by provisions made during the calculation period.Underlying profitUnderlying profit is a calculation made internally by a company to show what it believes is a more accurate reflection of how much money it generates. The number focuses on regular accounting cycle events and often excludes one-time charges or infrequent occurrences.Net profitNet profit is the amount of money that is left after you subtract your total business expenses from your total revenue. In other words, it is a calculation that includes almost all financial transactions in your business.ARPUAverage revenue per user (ARPU), sometimes known as average revenue per unit, is a measure used primarily by consumer communications, digital media, and networking companies, defined as the total revenue divided by the number of subscribers.Key comparableComparable company analysis is the process of comparing companies based on similar metrics to determine their enterprise value. A company's valuation ratio determines whether it is overvalued or undervalued. If the ratio is high, then it is overvalued. If it is low, then the company is undervalued.Valuation ratiosA valuation ratio shows the relationship between the market value of a company or its equity and some fundamental financial metric (e.g., earnings). The point of a valuation ratio is to show the price you are paying for some stream of earnings, revenue, or cash flow (or other financial metric).Operating revenueOperating revenue is the revenue generated from a company's primary business activities. For example, a retailer produces revenue through merchandise sales, and a physician derives revenue from the medical services he/she provides.Operating expenseAn operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and developmentEBITDAA company's Earnings Before Interest, Taxes, Depreciation, and Amortization is an accounting measure calculated using a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company's current operating profitability.EBITDA MarginsEBITDA margin is a measure of a company's operating profit as a percentage of its revenue. Knowing the EBITDA margin allows for a comparison of one company's real performance to others in its industry.

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Please take a glance.Some of the most confused Finance Topics we frequently encounter while dealing with business.

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Profit and Loss Statements (P&L): A Guide for Non-Finance EmployeesThe Profit and Loss (P&L) is the central tool for understanding your company's performance and making informed decisions about its future.Key Components of a P&L Statement📈 Revenue: This is the total income your company generates from sales of goods or services. It includes income from both regular customers and one-off transactions.📈 Cost of Goods Sold (COGS): This is the direct expenses incurred in producing or acquiring the goods or services your company sells. It includes costs like raw materials, labor, and manufacturing overhead.📈 Gross Profit: This is calculated by subtracting COGS from revenue. It represents the money your company has left after covering the direct costs of producing or acquiring its goods or services.📈 Operating Expenses: These are the indirect expenses incurred in running your company's day-to-day operations. They include costs like rent, utilities, salaries, and marketing.📈 Operating Income: It represents the profit your company generates before considering interest and taxes.📈 Interest Expense: This represents the amount of money your company pays in interest on loans or other debts.📈 Earnings Before Income Tax (EBIT): This is calculated by subtracting interest expense from operating income. It represents the profit your company generates before accounting for income taxes.📈 Income Tax Expense: This represents the amount of money your company pays in income taxes.📈 Net Profit (Loss): This is the final figure on the P&L statement and represents the overall profit or loss your company has made after considering all revenues, expenses, and taxes.Analyzing Your P&L StatementRegularly reviewing your P&L statement can help you:💡 Identify Profitable Areas: Track your revenue sources to determine which products or services are generating the most profit.💡 Control Expenses: Monitor your operating expenses to identify areas where you can reduce spending.💡 Track Financial Performance: Compare your P&L statements over time to assess your company's financial progress and identify trends.Actionable Insights for Operational EmployeesAs an operational employee, understanding the P&L statement can help you:➡ Contribute to Profitability: Identify opportunities to improve efficiency and reduce costs within your department.➡ Support Informed Decisions: Provide insights to management that can inform strategic decisions about pricing, marketing, and resource allocation.➡ Demonstrate Value: Showcase your understanding of the company's financial performance and contribute to its overall success.By understanding the key components and analyzing your company's P&L, you can play a significant role in contributing to your company's success.#Finance #Business #ProfitAndLoss #PNLStatement #FinancialAnalysis #OperationalExcellence #CostControl #Profitability #InformedDecisions #VirtualCFO #VietnamCFO #FractionalCFO

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Running a business needs a decent knowledge on finance. Start learning of it with small steps

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Learning

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Mistakes Business Owners Commonly Make With Their Finances1. Poor Cash Flow ManagementMistake: Many business owners fail to monitor and manage their cash flow effectively. This can lead to a situation where the business runs out of cash, even if it is profitable on paper.Tip: Implement a cash flow management system that includes regular cash flow forecasting. Track all incoming and outgoing cash to ensure you always have enough liquidity to cover your expenses. Consider using financial software to automate and streamline this process.2. Mixing Personal and Business FinancesMistake: Combining personal and business finances is a common error that can lead to accounting confusion and legal complications. This practice can obscure the true financial health of your business and complicate tax filings.Tip: Open separate bank accounts and credit cards for your business. Ensure all business transactions are conducted through these accounts. Maintain clear and distinct financial records for personal and business finances to simplify bookkeeping and tax reporting.3. Neglecting to Plan for TaxesMistake: Failing to plan for taxes can result in unexpected tax liabilities, penalties, and interest. Many business owners do not set aside enough funds to cover their tax obligations or overlook tax deductions and credits.Tip: Work with a tax professional to develop a tax planning strategy. Estimate your tax liability throughout the year and set aside funds accordingly. Keep detailed records of all expenses and seek advice on available tax deductions and credits to reduce your tax burden.4. Inadequate Budgeting and ForecastingMistake: Not creating or sticking to a budget can lead to overspending and financial instability. Without a budget, it's challenging to make informed decisions and plan for future growth.Tip: Develop a detailed budget that outlines expected income and expenses. Regularly review and adjust your budget to reflect changes in your business environment. Use financial forecasting to anticipate future financial needs and identify potential challenges early.5. Ignoring Financial Statements and MetricsMistake: Many business owners do not regularly review their financial statements or track key financial metrics. This oversight can prevent them from identifying issues early and making informed decisions.Tip: Familiarize yourself with your financial statements, including the balance sheet, income statement, and cash flow statement. Regularly review these documents to monitor your business's financial health. Track key metrics such as profit margins, return on investment (ROI), and debt-to-equity ratio to gain insights into your business performance and make data-driven decisions.By avoiding these mistakes, business owners can ensure better financial health, improve decision-making, and enhance the success of their business. Let us help you achieve financial stability and growth!#hasaccountingandtax #financialliteracy #tax

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🤔 Cash vs. Non-Cash Expenses 💴 What's the difference?In business, expenses can be categorized into two major buckets: Cash & Non-Cash.Here's the difference:Definitions: → Cash Expenses: Actual cash is paid out.→ Non-Cash Expenses: Recorded expenses without actual cash outflow.Examples:→ Cash Expenses: Buying raw materials, paying wages, utility bills.→ Non-Cash Expenses: Depreciation, amortization, stock-based compensation.Accounting Treatment:→ Cash Expenses: Recorded as an expense on the Income Statement & Cash Flow Statement when incurred, impacting cash and expense accounts.→ Non-Cash Expenses: Recorded as an expense on the Income Statement, but no actual cash changes hands.Impact on Cash Flow:→ Cash Expenses: Directly impacts cash flow due to cash outflow.→ Non-Cash Expenses: No direct impact on cash flow.COMMON NON-CASH EXPENSES:Depreciation & Amortization: Spreads the cost of tangible/intangible assets over their lives. 📉 Impact: Lowers profit, no direct cash impact.Stock-Based Compensation: Expenses from equity granted to employees. 📉 Impact: Increases expenses, reducing profit, no cash impact.Impairment Charges: Asset write-downs when market value dips below book value. 📉 Impact: One-time expense hit, no immediate cash impact.Depletion: Cost allocation for consumed natural resources. 📉 Impact: Reduces profit, no cash impact.Unrealized Gains/Losses: Changes in value of unsold investments. 📈📉 Impact: Can swing profit either way, no cash impact until sold.Provisions for Doubtful Debts: Reserving for expected bad debts. 📉 Impact: Increases expenses, no cash impact.Deferred Income Taxes: Income taxes recorded but deferred. 📉 Impact: May reduce current taxable income, no immediate cash impact.Non-Cash Charitable Contributions & In-Kind Contributions: Donations in non-cash forms. 📉 Impact: Raises expenses, no cash outflow.

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𝗪𝗵𝘆 𝗶𝘀 𝗬𝗼𝘂𝗿 𝗟𝗼𝗮𝗻 𝗦𝗵𝗼𝘄𝗶𝗻𝗴 𝗮 𝗡𝗲𝗴𝗮𝘁𝗶𝘃𝗲 𝗕𝗮𝗹𝗮𝗻𝗰𝗲 𝗶𝗻 𝗤𝘂𝗶𝗰𝗸𝗕𝗼𝗼𝗸𝘀?A negative loan balance in QuickBooks typically indicates one of the following:𝟭.𝗢𝘃𝗲𝗿𝗽𝗮𝘆𝗺𝗲𝗻𝘁: You've made payments in excess of the loan principal and interest.𝟮.𝗜𝗻𝗰𝗼𝗿𝗿𝗲𝗰𝘁𝗹𝘆 𝗥𝗲𝗰𝗼𝗿𝗱𝗲𝗱 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀: You may have recorded payments to the wrong account or entered incorrect amounts.𝟯.𝗥𝗲𝗽𝗮𝘆𝗺𝗲𝗻𝘁 𝗼𝗳 𝗣𝗿𝗶𝗻𝗰𝗶𝗽𝗮𝗹 𝗮𝗻𝗱 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁: If you've fully repaid the loan, including interest, the balance should be zero. A negative balance might suggest an error in recording the final payment.𝟰.𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗔𝗰𝗰𝗿𝘂𝗮𝗹: If interest accrues on the loan, and you haven't recorded it, the balance might appear negative.𝗧𝗼 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲 𝘁𝗵𝗲 𝗲𝘅𝗮𝗰𝘁 𝗰𝗮𝘂𝘀𝗲, 𝗳𝗼𝗹𝗹𝗼𝘄 𝘁𝗵𝗲𝘀𝗲 𝘀𝘁𝗲𝗽𝘀:𝟭.𝗥𝗲𝘃𝗶𝗲𝘄 𝗬𝗼𝘂𝗿 𝗟𝗼𝗮𝗻 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀:oCheck the dates, amounts, and reference numbers of all payments made.oEnsure they're correctly applied to the loan account.𝟮.𝗩𝗲𝗿𝗶𝗳𝘆 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗔𝗰𝗰𝗿𝘂𝗮𝗹:oIf interest accrues, confirm that it's been recorded.oUse QuickBooks' interest accrual features to calculate and record interest.𝟯.𝗖𝗵𝗲𝗰𝗸 𝗳𝗼𝗿 𝗘𝗿𝗿𝗼𝗿𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗟𝗼𝗮𝗻 𝗔𝗰𝗰𝗼𝘂𝗻𝘁:oEnsure the loan account is set up correctly.oVerify that there are no errors in the account's opening balance or transactions.𝟰.𝗖𝗼𝗻𝘀𝘂𝗹𝘁 𝘄𝗶𝘁𝗵 𝗮𝗻 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝗮𝗻𝘁:oIf you're still unsure, consult with a professional accountant and bookkeeper. They can help you identify the issue and correct it.If you've overpaid the loan, you may need to create a journal entry to correct the balance. This typically involves debiting the loan account and crediting an asset account, such as cash or a prepaid expense.Remember to always consult with a financial professional or accountant for specific advice based on your unique situation.Would you like to provide more details about your loan and the transactions you've recorded? This will help me give you a more tailored answer.#bookkeepingforsmallbusinesses #bookkeeper #freelancing #quickbooksonline #QuickBooksSolutionProvider #quickbooksproadvisor #xero #xeroaccounting #wave #balancesheet #nonprofit #profitandloss

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