Category: Home office

Home office can be defined as a specific area in a place of residence that is used as an office in which the occupant(s) activities are geared toward the achievement of certain commercial goaals and objectives.

About Business Investing and Financing


An important portion of the statement of cash flow reports the investments your company made during the reporting year. New investments are signs of growing or upgrading the production and distribution facilities and capacity of the business. Disposing of long-term assets or divesting itself of a major part of its business can be good or bad news, depending on what’s driving those activities.

A business generally disposes of some of its fixed assets every year because they reached the end of their useful lives and will not be used any longer. These fixed assets are disposed of, sold or traded in on new fixed assets. The value of a fixed asset at the end of its useful life is called its salvage value. The proceeds from selling fixed assets are reported as a source of cash in the investing activities section of the statement of cash flows.

Usually these are very small amounts, but like individuals, companies at times have to finance its acquisitions when its internal cash flow isn’t enough to finance business growth. financing refers to a business raising capital from debt and equity sources, by borrowing money from banks and other sources willing to loan money to the business and by its owners putting additional money in the business.

The term also includes the other side, making payments on debt and returning capital to owners. It includes cash distributions by the business from profit to its owners. Most businesses borrow money for both short terms and long terms. Most cash flow statements report only the net increase or decrease in short-term debt, not the total amounts borrowed and total payments on the debt.

When reporting long-term debt, however, both the total amounts and the repayments on long-term debt during a year are generally reported in the statement of cash flows. These are reported as gross figures, rather than net; but, putting aside the fact that every business needs to make investments and secure financing in order to maintain a healthy economic life, one thing that must be understood is the cash flow of a business should be fluid.

 

Depreciation Accounting and Reporting Methods


In an accountant’s reporting systems, depreciation of a business’ fixed assets such as its buildings, equipment, computers, etc. is not recorded as a cash outlay. When an accountant measures profit on the accrual basis of accounting, s/he counts depreciation as an expense. Buildings, machinery, tools, vehicles and furniture all have a limited useful life.

All fixed assets, except for actual land, have a limited lifetime of usefulness to a business. Depreciation is the method of accounting that allocates the total cost of fixed assets to each year of their use in helping the business generate revenue. Part of the total sales revenue of a business includes recovering of cost invested in its fixed assets.

In a real sense a business sells some of its fixed assets in the sales prices that it charges it customers. For example, when you go to a grocery store, a small portion of the price you pay for eggs…

…or bread goes toward the cost of the buildings, the machinery, bread ovens, etc. Each reporting period, a business recoups part of the cost invested in its fixed assets.

It’s not enough for the accountant to add back depreciation for the year to bottom-line profit. The changes in other assets, as well as the changes in liabilities, also affect cash flow from profit. The competent accountant will factor in all the changes that determine cash flow from profit. Depreciation is only one of many adjustments to the net income of a business to determine cash flow from operating activities.

Amortization of intangible assets is another expense that is recorded against a business’ assets for the fiscal year of that business. This is different in that it does not require a cash outlay in the year being charged with the expense. That occurred when the business invested in those tangible assets in prior years. Depreciation is not necessarily limited to a business, but can be used on personally owned investment real estate.