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.

Balance Sheet – A Snapshot of What you Own, and What You Owe

Photo by Adam Wilson on Unsplash

To lovers of Rock N Roll, standing on the corner in Winslow, Arizona has a special meaning. Jackson Browne first hung out there with the girl in a flatbed Ford and is now joined by his old buddy, Glenn Frey. Jackson wrote the song, but it was Glen and the Eagles that made “Take it Easy” recognizable by folks worldwide. Any savvy driver that operates a tour bus through the southwest keeps this corner in his sightseeing toolbox.

But what if you are a nerd, and an extreme nerd that becomes a CPA, what is your culture’s famous corner? Would you believe Dubrovnik, Croatia? Read on. You see, there is this formula, a core of double entry accounting: Assets = Liabilities + Owners’ Equity.  This is the magic that makes accounting and the Balance Sheet work. It is like E = mc2 for scientists! The other core is debits = credits, but one lesson at a time.

The Balance Sheet is like a financial snapshot in time and it is important to know what it tells you. In simple terms, what you own is reported under the heading Assets; what you owe is reported as Liabilities. The difference is the accumulation of profits and investments made into the business by the owners, also known as Equity. Accuracy of balance sheet account balances is important to telling your financial story.

Some of the most common balance sheet accounts are listed below by type of account.

ASSETS 

  • Cash
  • Accounts Receivables
  • Prepaid Expenses
  • Inventory
  • Property and Equipment

= LIABILITIES

  • Accounts Payable
  • Lines of Credit
  • Notes Payable

+ OWNERS’ EQUITY

  • Capital Stock
  • Additional Paid in capital
  • Retained Earnings
  • Partners’ Capital

Any accountant that is worth their salt will insist that everything balances. Additionally, and what many in house preparations miss, is the accuracy of the accounts. During a reviewed compilation a CPA will review and reconcile the underlying information such as:

  • cash bank statements
  • accounts receivable detail balances
  • inventory counts
  • prepaid schedules
  • detailed fixed asset schedules for buses and other equipment
  • accounts payable detail
  • loan statements and amortization schedules
  • stock certificates issued and capital accumulation schedules
  • retained earnings

This process regularly ensures that your “financial snapshot” tells your story accurately. By using a CPA, and especially one that understands the nuances of your industry, this tedious process is completed for you.

But you ask, “so what? We have some money in the bank and we no longer struggle to make payroll or bus payments.” Our answer to you is congratulations! You must have worked hard and long to get there. Nonetheless, are you satisfied with this level of success or do you want to maximize your company’s potential? Do you know what that potential is? Do you have the correct data necessary to plan, assess the risk and make smart financial decisions? Accurate financial statements are first in an operator’s financial toolbox. Understanding what they mean is the second. Let us at BUSBooks help you plan for the future.

Why Dubrovnik? I can explain further and also expand on the history of double entry accounting, but you will be better entertained by clicking Steve Mariotti of the Huffington Post.

Someday I am going to stand in that same square, perhaps even on a corner, and give reverence to my profession’s founder. I will wear my finest bean counter hat, tip it, and count my blessings.

Our next Nerd News will discuss the Income Statement – Your Bottom Line.

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

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

What makes CPA prepared statements differ from my internal reports?

My first bus show was the UBOA Expo in Tucson, 1989. The United Bus Owners of America was the predecessor to UMA and I am not sure it was even called an Expo. The show’s featured new technology was passenger video and Jake brakes. Ashtrays built into seat armrests were still seat options.

Our bold plan was to buy our second new bus, which would bust out our fleet to three! To tell you the truth, I am not sure what we had for financial statements. Our books were prepared by a local accounting firm who was given the daunting task of deciphering our check stubs and receipts. I probably received a yearend balance sheet and income statement just before the tax return was due. What I can tell you is that GE Capital, the father of all modern bus lenders, was not too excited about our financial performance, and the thought of a second loan was risky business at best. But there was our stalwart Eagle bus salesman pushing Mike Denny to make the deal. In the end our passion, enthusiasm, and the fact that we had our three month old daughter with us, made us just too cute a family to deny its dream.

Move ahead 29 years to the present and that cozy scenario doesn’t fly. Today’s lenders require a loan package that includes tax returns, financial statements, fleet lists, top customers, company history and a darn good explanation as to why you need a new bus. And that is just for the business. Add personal tax returns and financial statements for each of the owners and loan guarantors. This is a big task for operators already dealing with an extremely full plate. Our professional team can take care of this for you.

Your bank representative is a salesperson selling you his bank’s money. To get you that money the rep needs to sell you to his underwriter. The underwriter determines if you qualify and at what terms. The process begins with your financials, for which the completion, accuracy and form matter.

Most in house accounting programs, like Quicken, produce Balance Sheets and Income Statement reports. Those two reports, by themselves, do not tell the entire story of your company. CPA prepared financial statements include:

  • Balance Sheet
  • Statement of Income
  • Statement of Retained Earnings
  • Statement of Cash Flows
  • Supplemental Information
  • Disclosures

Multiple enterprises can be presented in one set of reports through consolidation, a valuable procedure for operators that own property, have multiple terminals, operate within multiple states, or run additional businesses unrelated to the motorcoach industry. In addition, CPA issued financial statements are issued by an accounting professional trained in generally accepted accounting principles and their application pertinent to your business. A CPA is also independent of your business, has no equity position in the business, and makes no management decisions.

A CPA offers three levels of assurance when issuing financial statements.

The lowest level offers no assurance at all and is referred to as compiled financial statements. A CPA prepared compilation is a standardized presentation that provides additional information useful to management, creditors, and investors. Included will be short and long term debt schedules, current fleet lists, and key revenue sources. Comments and disclosures can include risks associated with the debt, payables, receivables, and revenue sources, to name a few. This compilation presents a clear financial picture to its intended audience.

Reviewed financial statements offer limited assurance. There is limited assurance that the issued statements do not included any material misstatements from generally accepted accounting principles. Reviewed statements require your accountant to dig deeper, requesting more information and access to your numbers, building on the level of assurance that the numbers are correct.

Audited financial statements offer the highest assurance that there are no material misstatements from generally accepted accounting principles and the most commonly prepared for publicly traded companies. Audited statements provide the ultimate assurance by conducting a formal examination of the company’s accounts.

Expo 2018 featured an abundance of technology requiring operators to evaluate the new and exciting options. To most observers, financial reporting is boring, yet successful operators know how important the process is. Getting there sounds complicated, but doesn’t need to be. Let an industry CPA do it for you. Contact us so we can help you through it, and you will have time to focus on all that new and fun technology!

Our next Nerd News will discuss the Balance Sheet – a snapshot of what you own, and what you owe.

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

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