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In calculus class you learned that imaginary numbers are real.  They are used to find the square root of negative numbers.  Of course, those same mathematicians say it is infinity to any specific point on a line.  Well in the accounting world, imaginary numbers are used on the income statement to account for depreciation expense.  Those same imaginary numbers are then used on the balance sheet as accumulated depreciation.

Scenario one:  A business owner borrows his working capital from financial institutions.  Scenario two:  A business owner self-finances.  Before I go any farther, let me remind you, life is not fair.  Everyone has their own special advantages.  Your competitor will use his advantages to his benefit, you have to do the same.  Some people’s advantage is simply, they are willing to work harder.  Money is a big advantage in the business world.  People that are able to self-finance have an advantage over those who have to borrow.  

In scenario one, Larry Leverage, financed all of his hay equipment from John Deere Credit.  His annually note is $60,000.  In scenario two, Richie Wells, purchased all of his hay equipment outright.  Both men started their perspective hay businesses with all new equipment worth $400,000.

Larry leases a ranch with 100 acres of prime hay fields.  Richie owns 300 acres of prime hay fields. 

Tax time again for most of us. We all know you are taxed on your income past a certain amount. You may not realize you are not taxed on all of the money you received from the sale of a fixed asset. Only the gains on the sale of fixed assets are taxed! Most of the time the sale of a fixed asset results in a loss, which is deductible.

Remember, money put into the bank is not always income!

When you pull out you Visa card to make a purchase, It most certainly is an increase to your liability account, but it may be an asset as well. If the purchase is to maintain a business through the purchase of a repair & maintenance item, that is an expense. If the purchase is to add a fixed asset to your business, that is an asset.

Spending money is not always a bad thing. Expenses are a fact of life. Expenses take you backwards. Assets take you forward. Assets can be better than cash. The tool you purchased with your Visa card should make you money. The lunch you paid for with your Visa card lowered your net worth.

When you log your purchases into your register, it is easy to lose track if the transaction is an asset or expense. Purchases to build or raise something you will sell later, are assets. Your check register or Visa register has know idea if the transaction is positive or negative. Registers treat all transactions as negative.

That is why it is so important to have QuickBooks.

Brett Bickham, 1/12/2020

Clifton, TX