Accounting is probably a boring subject for many of you. But you need to understand the importance of accounting and at least a few basics if you are going to manage a successful money making business (or any other business). So if you are starting your money making online business, and you haven't thought about the mundane subject of accounting, you should keep reading.
Let's begin at the start. The first requirement is to record your income and expenses in the correct time period. Just make sure that they are recorded in the correct month and the rest will take care of itself. The best method for doing that is called the accrual method. All this means is that a sale is recorded in the month it is made, not the month is which you receive a promise to buy or receive payment. Likewise a current expense is recorded in the month incurred, not the month paid. (A couple of exceptions are discussed below.) The date incurred depends on the date you have an obligation to pay. This could be on the date you ordered an item or service, or the date received or some other date. It's the date on which you have incurred the obligation to pay.
There are some sales and expenses that need to be spread out over longer periods of time. It is, usually, easy to identify the date of sale for delivery of a simple sale of a program or package deal. However, the income from sale of a membership program or newsletter should probably be recorded in the month in which the program is active or the newsletter is delivered.
There are several examples of expenditures, which you would consider spreading out over more periods than the one in which you incurred the obligation to pay. The first one is inventory. You may not have a traditional inventory if you are in internet marketing. But to understand accounting it is worthwhile discussing inventory. Normally, if you buy books to sell, you would charge their cost to inventory and then charge your cost of sales expense each month for the cost of books you sold. However, if you have bought Private Label Rights (PLR) to an ebook, you probably would charge the cost directly to expense. This is because you don't know how many copies you might sell. You could sell a million copies or none. In another words you cannot reasonably determine a cost of each copy so you cannot determine your cost of sales each period. When your sales program is over, then you can calculate your profit on your ebook by deducting the cost of the ebook and any other related expenses against total sales. In the meantime you can always get an idea of how this project is doing by comparing total sales after current related expenses received from this ebook to date against your original cost.
Another example of expenses that need to be spread out is capital or fixed asset expenditures. These are assets that have a useful life of several years. Examples of this would be your computer and related equipment, an automobile, office renovations and other similar costs. You would set up these kinds of costs or expenditures in a fixed asset accounts and depreciate or write them off over the expected life time of each asset so that each time period reasonable reflects a share of the cost for that asset for that period.
When you are all done with this, each period you will calculate your profit form your money making online business by deducting the expenses you have determined belong to that period from the sales of that period.
This article only gives you a brief introduction to rudimentary accounting. The important thing for you is to recognize that accounting for your money making online business is critical to understanding your business. If you need assistance in setting up an accounting system, get help from an expert. Even email me with your problem and I will help you or point you in the right direction. But make sure you do it. And, of course, this is even more important as your making money online business begins to succeed and you need to report your money making online business results in your income tax return.
Let's begin at the start. The first requirement is to record your income and expenses in the correct time period. Just make sure that they are recorded in the correct month and the rest will take care of itself. The best method for doing that is called the accrual method. All this means is that a sale is recorded in the month it is made, not the month is which you receive a promise to buy or receive payment. Likewise a current expense is recorded in the month incurred, not the month paid. (A couple of exceptions are discussed below.) The date incurred depends on the date you have an obligation to pay. This could be on the date you ordered an item or service, or the date received or some other date. It's the date on which you have incurred the obligation to pay.
There are some sales and expenses that need to be spread out over longer periods of time. It is, usually, easy to identify the date of sale for delivery of a simple sale of a program or package deal. However, the income from sale of a membership program or newsletter should probably be recorded in the month in which the program is active or the newsletter is delivered.
There are several examples of expenditures, which you would consider spreading out over more periods than the one in which you incurred the obligation to pay. The first one is inventory. You may not have a traditional inventory if you are in internet marketing. But to understand accounting it is worthwhile discussing inventory. Normally, if you buy books to sell, you would charge their cost to inventory and then charge your cost of sales expense each month for the cost of books you sold. However, if you have bought Private Label Rights (PLR) to an ebook, you probably would charge the cost directly to expense. This is because you don't know how many copies you might sell. You could sell a million copies or none. In another words you cannot reasonably determine a cost of each copy so you cannot determine your cost of sales each period. When your sales program is over, then you can calculate your profit on your ebook by deducting the cost of the ebook and any other related expenses against total sales. In the meantime you can always get an idea of how this project is doing by comparing total sales after current related expenses received from this ebook to date against your original cost.
Another example of expenses that need to be spread out is capital or fixed asset expenditures. These are assets that have a useful life of several years. Examples of this would be your computer and related equipment, an automobile, office renovations and other similar costs. You would set up these kinds of costs or expenditures in a fixed asset accounts and depreciate or write them off over the expected life time of each asset so that each time period reasonable reflects a share of the cost for that asset for that period.
When you are all done with this, each period you will calculate your profit form your money making online business by deducting the expenses you have determined belong to that period from the sales of that period.
This article only gives you a brief introduction to rudimentary accounting. The important thing for you is to recognize that accounting for your money making online business is critical to understanding your business. If you need assistance in setting up an accounting system, get help from an expert. Even email me with your problem and I will help you or point you in the right direction. But make sure you do it. And, of course, this is even more important as your making money online business begins to succeed and you need to report your money making online business results in your income tax return.
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