What is a Bank Transaction Receipt and its Benefits for Your Business

Whenever you visit a bank and make a monetary transaction, such as a deposit or withdrawal, the bank will provide you with a bank transaction receipt. This is how banks keep an accurate and up-to-date record of all financial transactions conducted at a given location by various account holders. 

Since this financial term is used in many situations in daily life, it’s good to have a basic understanding of bank transaction receipts and how your business can benefit from them. 

What is a bank transaction receipt?

A bank transaction receipt (also known as a bank receipt) is a standard form of documentation for most financial transactions. Customers who go to banks or other financial institutions to conduct any monetary transactions should expect to receive a bank receipt for these transactions. 

Besides transactions involving deposit accounts, these receipts are also sent to customers who make loan payments, credit card payments, and conduct other similar types of transactions. Bank transaction receipts are also given to businesses that conduct financial transactions at a given bank or financial institution. 

Banks also keep their own copies of bank transaction receipts. This ensures thorough record-keeping for all financial transactions for each of their various account holders. These receipts are also a form of collateral. If a customer makes a request, the bank will have a detailed record of the transaction to refer back to. Whether a bank employee makes an error or an account holder miscalculates a portion of the transaction, bank transaction receipts make it much easier to resolve disputes. 

In the past, bank transaction receipts were paper slips. However, in recent years, many banks have begun to offer digital copies of receipts (by email,  text message, or other methods). 

Using digital receipts rather than paper receipts enables the bank to save on printing costs. Digital receipts also provide convenience for account holders as they no longer have to keep track of numerous paper receipts. 

Bank transaction receipt details

A bank transaction receipt contains detailed information about a financial transaction conducted at a particular bank. The form of the receipt may vary by bank or institution, but all bank transaction receipts must include these essential details: 

  • Bank account numbers
  • Account holder name(s)
  • Date of transaction
  • The total amount of the transaction

Sometimes a bank transaction receipt will even include detailed information such as the employee number of the bank employee who conducted your transaction. 

How to use bank transaction receipts for bookkeeping

Given the importance of bank receipts to businesses, you can make use of these documents and turn them into a helpful tool for your bookkeeping practices, either for personal or business expenses. In fact, many banks and other financial institutions recommend balancing your account books on a monthly basis and referring to your bank transaction receipts throughout the process. It’s common to go over monthly bank statements and cross-check this information with all of your bank transaction receipts that you have collected for a given month. 

Even if you hire a professional accountant to track your personal or business finances, they will request a copy of your bank transaction receipts. Bookkeepers use this information to track your income, expenses, and other financial transactions impacting your cash flow. This financial data helps keep an accurate and real-time record of your financial activities. 

Bookkeepers also use bank transaction receipts for data entry purposes to track your credit card payments, which can help you control your spending. Bank transaction receipts can even help you improve your credit score over time with good bookkeeping practices

Some people prefer to use receipt tracking mobile apps that automatically track this information in real-time instead of working with an accountant. You’ll no longer have to keep a hard copy of your bank transaction receipts by using mobile apps, as this information is readily available on your mobile device. You only need to make sure that you store these physical copies of your bank receipts before uploading them into a cloud-based system. After scanning your documents with a versatile mobile app, you can free your desk and drawers from piles of paper receipts and keep them for years!

See more: 5 Best Receipt Scanner and Organizer Apps for Small Businesses in 2021.

How to use bank transaction receipts for taxes

Bank transaction receipts can be very beneficial when preparing for tax season. To work on the tax reduction process, first, you need to collect all proof of purchases for your business expenses. Next, you need to find the right tax form and fill in all the details. The last step is to submit the form and then you’re good to go. 

Business owners can use their bank transaction receipts to balance their accounts. You can do this by reviewing the monthly bank statement and comparing the amount and transaction dates of items listed on the statement with their bank receipts. 

Typically, businesses will keep their bank receipts until the end of the year for tax preparation purposes. Individuals who claim tax deductions for certain types of expenses must also keep copies of bank transaction receipts to prove that they qualify for deductions related to banking transactions, such as interest charges or mortgages.

The bottom line

Bank transaction receipts, along with business plans, marketing strategies, and financial reports, are essential documents for all businesses. Keeping and managing these documents properly can help track your business’s financial performance, solve disputes, keep the bookkeeping up to date and even claim tax deductions with ease. A simple yet effective way to achieve this is to digitally scan and store your important documents. 

Shoeboxed is a painless receipt-scanning and organizing solution for freelancers and small business owners. After scanning your receipts with the Shoeboxed app, our OCR engine will automatically extract the most important data points and automatically categorize them by vendor, total spent, date, and payment type. After that, our staff will double-check to ensure that all of your data is human-verified, categorized, organized, fully searchable, and available on any device. Shoeboxed keeps your bank transaction receipts in a safe place with high accessibility. 

See also: How To Scan A Receipt Digitally With The Shoeboxed App.

The Shoeboxed app is available on iOS and Android. You can try Shoeboxed for free before choosing the perfect plan for your purposes!

5 Tips to Control Your Business’ Expenses

“You have to spend money to make money”, that’s undeniable. Before a business can gain profit, it must first invest in designing your office space, equipment, etc. Unless you’re a fully remote business otherwise, you also have to spend money to rent an office and hire employees. There are budgets for marketing and sales campaigns too. 

Expenses are a necessary part of any business. But if you don’t control your expenses, chances are you’re likely to run out of funds. Worst case scenario, your company is deep in debt. That’s why it’s always important to have some plans in place to control your expenses. 

Do you know what exactly business expenses are and how to control them? If you have to think about it for more than a minute, it seems like you don’t really have a good grasp on it. No worries. We’re here to give you insight into business expenses and tips to control expenses better. 

What are business expenses?

Business expenses are costs required to run a business. It could be anything from the money you pay to rent an office to the funds for your employees’ training courses. Knowing types of expenses allows you to classify your expenses into the right group and manage them better. 

Typically, these expenses are categorized into three groups: fixed, variable, and periodic expenses. Fixed expenses are costs that remain constant for a period of time, such as rental, employee salaries, or interest charges. Variable expenses, on the other hand, are costs that fluctuate over a period depending on the situation. Examples of variable expenses are raw material and direct labor costs. Periodic expenses incur less frequently than fixed or variable expenses. They’re payments for some special occasions such as education fees or travel expenses. 

5 tips to control your expenses better

1. Make plans and stick to the budget

Doing business is like a running marathon, not sprinting. Aim for long-term progress, and don’t expect sudden good luck to carry you through. You need to understand your company’s mission and vision, evaluate where your business is now and where you want to take it in the future. 

A thought-out road map is essential to forecast expenses and allows you to stay within budget. For example, if you want to expand your business to other countries in the next year, you’ll need a plan with clear goals and budgeted expenses. 

2. Manage fixed expenses

Fixed expenses are costs that remain constant throughout a particular period. The reason why these expenses stay unchanged is that they are not directly associated with manufacturing or the business’s performance. As a result, fixed expenses are considered to be indirect costs. 

To determine the fixed costs, think of the expenses you have to pay whether or not your company operates. For example, due to the outbreak of the Covid-19, many companies are being forced to shut down their operation temporarily. Though there are no operating activities, businesses still have to pay for fixed costs such as rent and interest charges. It’s important for business owners to understand the incurred expenses to manage and control them effectively. 

Fixed costs are more controllable than variable costs. As a result, managing those expenses is less stressful and you can be more flexible if anything happens. Because fixed costs such as rent are established by contract agreements, if the landlord wants to charge higher rents in the future, they will have to notify you in advance. You’ll be aware of this change quite some time before it happens, thus coming up with different plans to deal with it. 

3. Manage variable expenses

Variable expenses are costs that fluctuate from month to month. The payments you make in a given month could be different from your earlier bills or ones you’ll make in the future. Managing variable costs is no easy game for business owners. Therefore they have to understand the dynamics of these costs to stay competitive. 

Variable expenses are costs that are associated directly with business activities. These costs are also known as manufacturing costs. They include raw materials, inventory, and direct labor costs. 

Manufacturing costs rise either when the production goes up or costs of material rise. If manufacturing expenses and production volume go hand in hand and increase simultaneously, the business is more likely to witness a profit. On the other hand, if manufacturing expenses climb as a result of surged material costs, they are sure to hurt the business’s profitability. 

To control variable expenses better, make sure you have at least three to five vendors for a particular material. It’s a poor bet to rely only on one supplier. Imagine if your sole supplier goes out of business suddenly, and you have no other suppliers to turn to; that’s horrible. 

Also, once you have several suppliers, review them regularly. It’s standard practice to make an annual or semi-annual review of all your key vendors. It allows you to track which vendors are doing more business with you or who offer you the best price. 

4. Manage periodic expenses

As its name suggests, this type of expense doesn’t occur monthly or annually like fixed or variable expenses. You’ll be surprised to know that these expenses are not associated with operating activities or manufacturing activities. However, there are some occasions that you’ll need these expenses, so you have to be aware of this and make a budget for them.

Periodic expenses include education expenses, networking expenses, travel expenses, etc. Is it necessary for your marketing team to update their knowledge and technical skills? Absolutely! A collection of skillful marketers will develop and execute strategies more effectively, which maximizes profits for the company. It sounds like a good idea to invest in a training course for your team. Or do you want to expand your contacts to gain more opportunities for your business? Then you have to go to a conference or a seminar and network. It’s the company’s responsibility to pay for such expenses like this. 

5. Track expenses 

Tracking expenses allows you to control them better. When an expense occurs, bookkeepers keep the receipt and record it into the account book. By doing so, bookkeepers can calculate how much a business spends in a month and create a report on spending habits. 

A business generates hundreds of documents per month including receipts, invoices, proposals, etc. It’s a labor-intensive task to categorize and record those documents manually. 

Gone are the days when bookkeepers had to do everything manually. In this technological era, bookkeepers use software to manage their work more efficiently and cut away many tedious tasks. Shoeboxed is a cloud-based software that helps businesses turn their massive paper receipts into digital data. You can get your receipts scanned, stored, and organized by your mobile app. It’s simple to install and easy to use. Start using Shoeboxed today!

The bottom line

Expenses are a necessary part of any business. They can make or break your business’s profitability. That’s why expense control is so important to every business. For those who’re looking for tips to manage their expenses better, following the advice you read in this article will be just what you need.

Capital Expenditure: An Ultimate Guideline For Small Businesses

As a business owner, you already understand how vital it is to closely monitor your costs to keep your accounting in order, manage cash flow, and generally run your operations smoothly.

Having low expenditures is the simplest approach to increase your company’s profitability and keep the door open for future growth. But, as you know, not all expenses are the same. Each type of expenditure impacts your profitability in different ways. 

This article will look at capital expenditure in particular – its definition & roles in business finance, ways to differentiate it from operational expenditure, and best practices to manage it efficiently.  

What is capital expenditure? 

Capital expenditure, also known as CapEx, is the money a company spends on acquiring, upgrading, and maintaining long-term assets. Long-term or fixed assets refer to assets with a useful life of more than a year. 

A capital expense can be tangible, such as a building, or intangible, like a patent. So, capital expenditures can include the purchase of new property, plant & equipment (PP&E), the renovation of a building to enhance its longevity, or a software upgrade for new functionalities.    

Simply put, CapEx is used to make investments or add extra value to existing assets, increasing operational efficiency and profit in the long run. That’s why capital expenses might not look good for your business income now but are necessary for generating revenue and future expansion of the business.

As a result, investors and financial analysts consider CapEx a critical indicator of how much a company is spending for further progress and potential growth. 

What are some examples of capital expenditure? 

Listed below are the most typical examples of CapEx, which can vary depending on the nature of your business model & industry. 

  • Property (including any costs incurred to extend the useful life)
  • Computer/Server equipment
  • Equipment upgrades (that increase the value beyond normal maintenance)
  • Furniture and fixtures
  • Machinery (including the shipping cost to its intended location and any required costs to use the machinery)
  • Office equipment
  • Real Estate (buildings, garages, etc.)
  • Software
  • Vehicles
  • Intellectual property 

What capital expenditure can tell you

CapEx can show how much a company invests in existing and new long-term assets to sustain or expand the business. Put it another way, CapEx is the expense that a company capitalizes or shows on its balance sheet as an investment, rather than on its income statement as expenses. By capitalizing on an asset, the company will need to spread the expenditure over the asset’s useful life. CapEx can also be found from investing activities in a company’s cash flow statement. Companies highlight CapEx in various ways, and an analyst or investor may see it listed as capital spending, purchases of property, plant, and equipment (PP&E), or acquisition expense.

The amount of capital expenditures vary from different industries due to their required infrastructure and machinery. Oil exploration and production, telecommunications, manufacturing, and utility industries are among the most capital-intensive businesses with the greatest capital expenditures. 

As previously said, capital expenditures are essential in the growth of a business. In terms of long-term financial planning, CapEx analysis assists executives in determining if an asset delivers an appealing rate of return. Therefore, companies may strike a balance between preserving current equipment and property and having enough cash to engage in expansion.

How to calculate capital expenditure? 

You can also determine capital expenditures by using data from a company’s income statement and balance sheet (in case you don’t have the data available already).

To calculate CapEx, follow these four steps:

  1. Find the depreciation/amortization on the income statement.
  2. Locate the current property, plant, and equipment (PP&E) on the balance sheet.
  3. Locate the amount of PP&E from the prior period on the balance sheet.
  4. Plug the numbers in this formula:

CapEx = PP&E (Current period) – PP&E (prior period) + Depreciation expense

Example: Let’s say you own a paper company, and in 2020, you decided to spend money on new equipment and an expanded facility. You want to calculate your company’s capital expenditures for that year.

You have the following information:

  • Depreciation = $10,000
  • PP&E at the end of 2020 = $40,000
  • PP&E at the beginning of 2020 = $35,000

Now you can estimate your capital expenditure based on these figures. 

Begin by deducting the PP&E value at the start of 2020 ($35,000) from the PP&E value at the end of 2020 ($40,000). This results in a $5,000 change in PP&E. Next, add this value to the depreciation expense ($10,000). The result is the capital expenditure ($15,000) for the year 2020.

Differences between capital expenditure (CapEx) vs. operational expenditure (OpEx)

To many business owners, any money spent on the business is considered only as an expense. However, this is not the case from an accounting & managerial point of view. CapEx and OpEx are the perfect examples to prove just that. 

Here are five key differences between CapEx vs. OpEx so that you will never mix them up again!

  • Definition 

Whereas CapEx is used to obtain or upgrade assets that have a useful life beyond a year, OpEx is the day-to-day expenses to keep a business operating. Typical examples of operational expenditures are rent, payroll, office supplies, normal maintenance. 

  • Accounting treatment 

As CapEx acquires assets that have a useful life beyond the year they’re incurred, these expenses can’t be fully deducted right away, at one time. Instead, they’re amortized or depreciated over the life of the asset. 

However, a business can fully deduct operational expenses. As they are everyday operational expenditures rather than long-term assets, you do not need to account for depreciation like you would with CapEx. OpEx is subtracted from the revenue to calculate the profit/loss of the company.

  • Financial statements  

You will find CapEx presented in the Balance Sheet (Statement of Financial Position), while OpEx goes in the Income Statement (Profit or Loss). 

  • Approval process

Capital expenses must typically be authorized by multiple layers of administration (including executive management), which will halt purchase until the clearance is granted. On the other hand, OpEx items are generally an easier process, as long as the item is covered through and budgeted for in the operating expense budget.

  • Upfront cost 

CapEx is an upfront cost, which has a value that gradually reduces over time. In contrast, there’s no upfront cost for OpEx. OpEx is the spending money on services & products necessary for day-to-day business operation, and it’s usually billed monthly or annually. 

Can you write off capital expenditures for tax purposes right away? 

In short, no. Unlike operational expenses, the IRS mostly doesn’t allow capital expenditures to be immediately deducted from your business profit in the year it incurred. Instead, they are gradually deducted from your business profit throughout the asset’s lifespan. 

For example, let’s say your business purchases $3,600 equipment, and the depreciation rate for that is two years or 24 months. This means that your company would deduct $150 every month and $1800 in a fiscal year. 

There are specific regulations that decide the number of years over which an asset is to be depreciated. Computer hardware, for example, is commonly depreciated over five years, while it is over seven years for office furniture.

Challenges with capital expenditures

CapEx is extremely vital to the future development of a business. With that being said, determining how much and how to allocate CapEx is not an easy decision at all. Here’s why: 

CapEx is unpredictable  

Due to its nature, the impact of CapEx decisions often prolongs into the future. The variety of present business activities is mostly the outcome of CapEx in the past. Similarly, current CapEx decisions will have a significant effect on the company in many years to come. 

But, no one can be sure of what the future holds and what lies ahead. 

Businesses making large investments in capital assets sometimes expect reliable & fruitful results. Such outcomes, however, are not guaranteed, and losses could occur. Both costs and profitability of CapEx are fraught with ambiguity. That’s why business owners should thoroughly account for risks during financial planning in order to reduce prospective losses, even though they cannot be totally eliminated.

CapEx is irreversible 

When a business wants to reverse capital expenditure, it will almost always suffer from losses. As much as capital equipment is tailored to an individual company’s requirements and demands, it’s difficult to resell, not to mention the paperwork process & time involved. 

For example, if your company buys new technology that rapidly becomes obsolete, you could hardly ‘undo’ that. Even worse, you might end up paying a big chunk of debt.

CapEx is difficult to measure  

The accounting process of realizing, measuring, and estimating capital expenditure may be extremely challenging. Some capital investment outcomes, such as boosting staff motivation and mental health, will not be shown on a balance sheet. Furthermore, calculating other related expenses is complicated, too. Let’s say your business is considering buying a brand new delivery van. You’d need to calculate the salary for a driver, insurance, fuel, along with other costs to determine the real cost of purchasing a new van.

Best practices to manage capital expenditure efficiently

Capital expenditures are often, because of their nature, significant in cost. Because of this, managing your CapEx properly and efficiently can save your business a lot of money and guarantee profitable and faster growth. 

Below are the five best practices for managing capital expenditure:   

  1. Be clear with your long-term business goals 

Once you’ve set defined, specific objectives for your business, you’ll have a solid framework to evaluate which CapEx proposals are worth investing in. If the scope of a CapEx project does not align with your long-term goals, the solution is simple: cancel it. 

When focusing on the big picture, consider where you want your company to be in five to ten years. Good capital expenditure planning & managing will offer a decade’s worth of value, helping you & your business achieve those long-term goals. 

  1. Standardize the approval process for CapEx requests

Regardless of your business size, every capital expenses request must undergo an evaluation process to get approval. However, sometimes this process can get lengthy or lack communication between departments, often leading to missing out on timely opportunities. 

Make sure to build a comprehensive guideline for your employees on the template of a CapEx request form, what analysis is required, or criteria to evaluate a project.

An efficient and systematic approval process will help you quickly determine if the CapEx is suitable with the company’s current portfolio or the return on investment (ROI) – weighed against both the costs and risks – is worthwhile.

  1.  Create a proper budget 

A solid budget will guarantee that you have the money to continue moving forward with capital projects while still having enough cash to run the business. As you plan your budget for the coming year, you must determine whether to use current cash to acquire capital or to incur debt on your balance sheet. 

It’s a good chance to figure out how your CapEx will influence your OpEx. For example, if you buy a new delivery van, be prepared to pay money on fuel and maintenance. You should also consider if it is financially wise to continue with CapEx. As manufacturing technologies continue to improve rapidly, leasing equipment or software (OpEx) may be more profitable than purchasing them.

  1. Carefully choosing financing options 

Your ultimate goal in financing CapEx should be to select the financing solution that will result in the most effective use of your working capital while also providing you with the most flexibility with asset ownership. Companies usually finance CapEx via two major methods:

  • Internal financing: the simplest way is to use your own cash. This also means you don’t need to pay any interest expenses. Yet, many companies don’t have enough cash on hand to pay for what they need. Also, you should consider the opportunity cost of paying large sums in a depreciating asset compared to other profitable ways to use that money.  
  • External financing: capital expenditures frequently necessitate the use of debt. Long-term debt comprises debt-servicing expenses such as interest, so companies must have enough income to cover their debts as well as their interest payments. While CapEx is a strong indicator for a business’s potential growth, too much debt can put the company in financial jeopardy.
  1. Use accounting software 

Using reliable & suitable accounting software to handle capital expenditures can reduce financial mistakes and errors. Failing to claim depreciation correctly can cost you much more than what it should be and might trigger an IRS audit

A great tool to support your accounting system and keep finances in order is Shoeboxed. Shoeboxed is a receipt scanner app that automatically digitizes & extracts important data from your receipts. This means your receipts are well-organized in the cloud, instead of taking up office space and your mind.

Conclusion

Capital expenditure (CapEx) refers to the funds for buying fixed assets or adding new value to the existing ones. It’s an essential driver in how a business develops and stays competitive in the market. 

Since managing CapEx is a highly complex process, fully understanding its nature or how to distinguish it from operational expenses is a must. 

Hopefully, this article has helped you do just that!