This post shares a handful of fundamental formulas for bookkeeping. Better yet, we also introduce examples to catalyze and save time and money on bookkeeping operations for your business.
The formula for calculating the net income of a company is as follows:
Net Income = Revenue – Expenses – Tax
Revenue = Sales – Returns and Allowances
Expenses = Cost of Goods Sold, Selling, General and Administrative Costs, Depreciation and Amortization, Interest Expense, Other Expense (Including Losses/Gain from Disposition of Assets), Nonrecurring Gains/Losses from Discontinued Operations
Tax = Income Tax Rate × (Income – Exemptions) + Taxes on Investment Income + Taxes on Other Sources of Earnings
How to Calculate Net Income (Formula and Examples)
Calculating and Subtracting Extra Expenses
Let’s take the example of a food company. The produce will be sold at a markup of 30 cents per pound. The selling, general, and administrative expenses will be $4 per pound sold, which amounts to approximately 32% of the cost of goods sold (CGS). The cost of goods sold is $7, and the company will have a gross profit of $3.
After recording the expenses and selling, general, and administrative expenses, we can subtract those amounts from the costs of goods sold to come up with net income. We can use a quick subtraction technique for this debit: Debit (D) – Expenses (E) – Cost of Goods (G) = Net Income.
In this example there will be no income tax to be deducted, so it is not necessary to calculate an income tax during the calculation process. Also, let’s assume that there are no withholding taxes on dividends or interest payments so it is not necessary to calculate any withholding taxes during this calculation process.
Benefits of a Bookkeeping Assistant
The example above is a simple case involving only two types of expenses. In real life, a business might have to deal with a variety of expenses, and depending on the complexity of these calculations, the company might need a bookkeeping assistant for this process. The role of the bookkeeping assistant is to take care of the complicated calculations involved in businesses on behalf of the business owners. The bookkeeper will normally be trained in accounting procedures and techniques, including calculating taxes and filing tax returns.
Now affordable – Virtual Bookkeeping Assistants:
A full-time bookkeeping assistant can offer a range of financial services to businesses, including invoicing, data entry, and bank reconciliations. To get your business working properly while keeping your financial situation under control, consider hiring a dedicated, virtual bookkeeper who can help with bookkeeping duties from their home office.
More than a bookkeeping assistant:
Since you have your virtual assistant full-time, you can also offload other administrative tasks in your business to your virtual assistant. For example, some companies want to streamline their administrative process and do not feel comfortable delegating all the work to their staff. Sometimes keeping things simple is better. In this case, your virtual assistant will handle the administrative portion of these tasks and you will focus on sales, marketing, customer service and other business operations for your company.
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See For Yourself: A Closer Look at Virtual Assistants
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