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e-ccounting
July 2008

in this issue

Business Scenario
- Buying versus leasing

Answer

Accounting Tip

Did You Know ?

Definition

Sandy's Recommendations

Next Issue - Paying yourself (as a business owner)


 

about e-ccounting

e-ccounting is a monthly newsletter focusing on accounting tips and solutions. Our mission is to educate our clients, students and readers by offering these resources in response to your ongoing questions.

It is our objective to gather information and provide easy access for your current and future needs.
Back-issues are available on the accountrain website.

These tips are not complete answers to complex questions. We therefore recommend, when in doubt, contact the professionals or government agency.

about accountrain

accountrain simplifies the client / accountant relationship.

accountrain offers a unique combination of knowledge and people-skills to solve all your accounting needs.

accountrain specializes in the how's and why's of accounting.

Is accountrain the right accounting team for you? Find out more....


Pass It On !

Please forward this to anyone you feel may benefit from some free accounting tips. They'll be glad you did.



Sandy's Question Corner

Do you have an accounting question? Send it to us at accountrain@magma.ca



Workshops:

accountrain is now offering a series of three workshops. Take one, two or all three and save as you learn. The informative and interactive format guarantees a comfortable and fun learning environment. The topics:

1. Understanding How to Read Financial Statements

  • Who's interested in your reports and why
  • Why there's more to the Income Statement than just the "bottom line"
  • What's so important about the Balance Sheet, and
  • Key accounts, definitions, ratios and samples to review.
2008 dates: Sept 23rd, Nov 13th

2. Accounting 101 - for new and small business

  • Review of common questions, including GST, incorporating and many more
  • Choices for maintaining bookkeeping
  • Understanding government requirements
  • Shortcuts, tips and organizing all that paper!
2008 dates: Oct 6th, Nov 13th

3. Year-end Prep & New Year Planning

  • It's never too late to get organized
  • Understand what's different including: depreciation, accruals, deferred revenue and prepaids
  • How to choose accounting help
  • Preparing for an audit, and how about avoiding an audit!
  • Learn to streamline your bookkeeping methods to save time and money.
2008 date: Nov 25th


Fall dates have been scheduled. For more information or to register, email accountrain@magma.ca


  • Business Scenario
    - Buying versus leasing
  • When you own a business, what's the best way to purchase a big ticket item, ie a vehicle or office equipment, like a photocopier?

  • Answer
  • Although buying versus leasing can apply to many items, the focus for this newsletter will be on vehicles as this is the item we are asked about the most.

    The quick and dirty answer depends on how much you use your vehicle.

    If you buy it and the loan is for four to five years, you can expense a portion (or all) of it until it is paid off.

    However, most people would continue to use the vehicle for at least one or more years. Therefore for any additional years there would be nothing to expense.

  • Accounting Tip
  • Know what you get in the end:

  • If you own it, you have built equity.
  • If you lease it, you don't have anything to show for it, however you can expense the payment for every month. Also, you don't have to try and sell it.


  • If you choose to buy it out, understand what the costs include:
  • Are there extra costs, ie mileage? (A normal lease offers 2,000 km per month.)
  • As well as repair costs, who is responsible for the upkeep, extended warranties and anything considered "excessive" damages (and what is "excessive")?


  • Ensure you are clear on all these aspects before finalizing your purchase .

  • Did You Know ?
  • Monthly payments are typically higher for a leased car, as loans can be spread out for several years and at very low financing.

    You can reduce your monthly lease payments by paying a down payment, although one is not necessary.

    For more Did You Knows?
  • Definition
  • Capital Cost (also known as Fixed Asset)

    Or, in layman terms, a big ticket item.

    If you purchase an expensive item, ie a car, you must capitalize it when you record the purchase.

    What does that mean?
    You can not expense the entire value in the year you bought it. There are many categories, ie equipment, computer, furniture, vehicle and software.

    Each category has it's own rule on how much can be expensed (depreciated / amortized) per year. For example a car is 30% per year (with exception to the first year, which is always 1/2, therefore 15%).


    For more definitions ...
  • Sandy's Recommendations
  • Get an opinion from whoever helps you with your accounting. They will know your situation best. In other words, do not let the car dealership make suggestions.

    Many dealerships will have literature on the options, make sure you understand all aspects before making your decision.

    True story:

    I had a client who leased a car without referring to me first, and after realizing it was not the best scenario for the company, returned the car after six months. In the end, it was a costly mistake.

  • Next Issue - Paying yourself (as a business owner)
  • Learn:

  • Different ways to pay yourself based on how the business is doing
  • Pros and cons of each
  • What deductions are necessary
  • How to defer the taxes
  • 613-789-2623