(608) 221-2332
Inventory Accounting & Valuation Methods

Inventory Accounting & Valuation Methods

If you keep inventory in stock, it’s important to ensure that it’s accounted for properly. Inventory can affect your company in many ways, impacting cash flow, cost of goods sold, and your profit. Today, we’re diving into two popular inventory accounting methods and the ways you can value your inventory or assets.   What is Inventory Accounting Inventory accounting values and accounts for changes in the inventory a company holds during a given period. It determines the value of assets during the three stages of production: raw goods, in-progress goods, and finished goods ready for sale.  Each item in stock has a value recorded separately.  In manufacturing processes, the value of an item can change depending on the stage of production. The sum total of all inventory item values is recorded as a company asset.  The accounting method you choose has a direct impact on the cost of goods sold calculation for the accounting period, and on net income earned. Companies use cost of goods sold (COGS) to determine the direct cost of producing the goods sold without taking overhead costs into account, and generally includes only direct materials and labor costs.  To calculate the cost of goods sold, add the beginning inventory and purchases, then deduct the ending inventory from that number in the following way:  Cost of goods sold = beginning inventory + purchases – ending inventory.  Accounting Methods The method businesses use to cost their inventory directly guides the income and inventory value they report on their financial statements. Two popular methods to compute the cost of goods sold and ending inventory for a period are First...
Quick Guide: Accrual vs Cash-Based Accounting

Quick Guide: Accrual vs Cash-Based Accounting

As a small business owner, there are many decisions to be made, particularly when you’re just starting out, to ensure everything runs smoothly and efficiently. One important decision to make is selecting an appropriate accounting method for your business. Accounting methods are simply the rules your business will follow when reporting revenues and expenses. Today, we’ll dive into the two primary accounting methods — accrual vs cash-based accounting — what they mean, and how to choose between the two when setting up your business.   Before we get started, it’s important to note the IRS requires taxpayers to choose an accounting method that accurately reflects their income and to be consistent with their choice of accounting method from year to year. This is because switching between methods could potentially allow a company to manipulate its revenue to minimize its tax burdens. To change your accounting method, you must receive approval from the IRS, typically with Form 3115. It’s important to choose your method carefully; if you’re unsure which method would work best for you, consult with a tax advisor before launching your business.   Cash-Based Accounting Method  We will start with the cash-based accounting method, as it is the method most used by many small businesses. Cash-based accounting recognizes revenue when cash is received and when expenses are paid. For example, when you receive a bill from a vendor that is due next month, that expense is not recognized until it is paid. This is a simpler method because there is no need for accounts like Accounts Receivable or Accounts Payable – only cash accounts are required. This option is...
Client Spotlight: Linda Kudrna of Learning Ladder

Client Spotlight: Linda Kudrna of Learning Ladder

Linda Kudrna opened Learning Ladder in 1994 to provide the “highest quality of care to the children in the Cottage Grove community.” And for the past 30 years, she and her team have continued to do just that. The Learning Ladder hosts infant, toddler, preschool, and school-age programs for children ages 6 weeks through 12 years old. Their philosophy combines planned themes and emergent lessons to create hands-on environments that are safe and innovative and encourages learning through play, inquiry, and exploration. “The most rewarding part of my job has been being a part of an industry that is finally being recognized as a valuable service for the education of young children and for the economy,” said Kudrna. The facility has expanded twice since opening in 1994; once in 2005 when 8 classrooms were added and again in 2008 to accommodate a partnership with Monona Grove School District to offer 4k programs and wrap-around care, which begins before school hours and continues after school for families who need it. In 2014, Learning Ladder earned national accreditation from the National Accreditation Commission and received a 5-Star rating from Wisconsin’s YoungStar program. During the COVID pandemic, Learning Ladder only closed for two weeks and was able to implement additional cleaning, child health checks, and procedures that allowed them to adapt and stay open to support children in-person and virtually. Kudrna said the pandemic highlighted the importance of Early Care and Education, which she also advocates for as a board member of the Wisconsin Child Care Administrators Association. “Currently, there is a teacher shortage in childcare across the state of Wisconsin. It...
IRS Tax Audits: What You Can Expect

IRS Tax Audits: What You Can Expect

The word “audit” will make any business owner tense, especially when discussing or going through a tax audit from the IRS. However, there are strategies that taxpayers can use to help navigate an audit.   In this blog, we’ll break down the auditing process so that you understand what an audit is, why you may be audited, what happens, and what to expect during an IRS audit if you’re facing one in the coming year.  Let’s start with the basics. An audit is a review of your tax forms and financial documents. Its purpose is to double-check that you’ve properly filed your taxes and abided by tax laws. Audits do not happen every year. For example, only 0.4% of individual income tax returns were audited in 2019. The IRS selects randomly, through a computer screening, or when other related examinations have shown issues (such as the tax returns of a business partner or investor). Those issues can be as simple as a typo or mathematical error on a form, or as serious as failing to disclose taxable income or neglecting to report cryptocurrency transactions. (Using an accountant to file your tax returns can decrease your chances of simple computing errors.)  The IRS will only notify you by mail if you are selected for an audit. A legitimate IRS audit will be conducted by mail or through an in-person interview at an IRS office, at your home or place of business, or at your accountant’s office.   They will never call, text, or email. Any of the aforementioned communication methods are not legitimate, so if someone reaches out via these methods, do...
Top 4 Ways Outsourcing Payroll Can Benefit Your Business

Top 4 Ways Outsourcing Payroll Can Benefit Your Business

Payroll is one of the most important functions of your business, but it can be a daunting task to take on as a small business owner. Compliance with regulations, technology upgrades, and the detailed reporting requirements to Federal and state agencies is a lot for one person to perform, which is why many small businesses choose to outsource their payroll-related activities and reporting requirements to a third-party provider. Today, we’re covering four ways outsourcing your payroll can benefit your business.   Frees up your time and resources. Payroll requires a lot of time, energy, and attention to detail. As a business owner, your time is better spent on the core tasks of the business rather than compiling hourly and salaried payroll information, calculating withholding deductions, generating reports, preparing checks or check stubs, filing related tax forms, and paying the amounts due. Outsourcing payroll gives you back your time so you can focus on growing your business.   Reduces costs. By outsourcing payroll tasks, you can ensure they are managed seamlessly and in the most cost-efficient manner. You do not have to hire an employee to process your payroll and you can spend your time making your business more profitable instead of dealing with the details of payroll processing and reporting.  If you’re curious about our payroll rates, please reach out to us and one of our experts will be happy to assist.   Lowers risks. Many business owners struggle with complicated and often changing, payroll reporting requirements. At DMA, our team is well-versed and always up-to-date on payroll regulations and compliance mandates. Our goal is to help you avoid penalties for...
End of Year Tax Tips for Small Businesses

End of Year Tax Tips for Small Businesses

As the year comes to an end, we can look forward to schedules filled with holiday parties, time off to spend with loved ones, and finding ways to circle back on projects in the new year. One project that will be especially important for small business owners is preparing for tax season. Some of the tasks take time but developing good habits regarding your taxes can potentially save you some cash. Many tax planning moves that can help lower your taxes owed may need to be made before the end of the current year. With this in mind, we’ve outlined a few end of year tax tips that you can do to prepare for the tax year ahead. Review deductions, including the home-office deduction. The COVID pandemic caused many to embrace the work-from-home life, and for sole proprietors, single-member LLC business owners, and gig workers, the home office deduction could mean saving hundreds of dollars (or more). If you’re unsure, check with a tax professional to see if you qualify and what information is needed to claim the deduction. Catch up on the previous quarter’s financials and prepare bookkeeping ahead of tax time. You may be able to better plan for the final quarter by taking a look at the first 3 quarters of the year or last year’s fourth quarter. Taking the extra time to update your books before signing off for the holidays will also make the preparations feel easier in the new year and help determine if you need to adjust your fourth quarter 2021 estimated tax payment. For cash basis taxpayers, be proactive with your...