Interest received, Repayments of loans granted, Repayments of loans received etc. – how are they reached? Considering that the period for which the statement is prepared is long and the company has various transactions going through its bank account, manually picking interest received may not be an option. But how should you do it then?
The logic is fairly simple and is similar to the one we already explained in the post How to reach those “paid” amounts on the statement of cash flows? Your beginning or brought forward balance is something you would expect to have received during the current period. In addition, you have current period income, which you’d again expect that part is already received during the period. So you simply add them up. To bring you an example:
Read the rest of this entry
On the statement of cash flows there are line items including “paid” within them. Considering that the period for which the statement is prepared for is long and your company does various transactions over the year, picking out for an example all interest payments from the bank account abstract isn’t really efficient. But then how do you reach to for an example “paid interest” amount?
The logic is fairly simple when you think about it. Your beginning or brought forward balance is something you would expect to pay during the current period. In addition, you have current period expense as well, from which you’d again expect that part is already paid during the period. So you simply add them up. To bring you an example:
Read the rest of this entry
The statement of cash flows could always be just a list of various cash flow items all randomly one after each other. However, it wouldn’t be of much use that way. Hence, as a business in involved in 3 types of activities – operating its business, investing into assets and financing its activities –, those are the groups also the cash flows are presented for.
Now to give a little bit more insight to those 3 groups let’s start with operating cash flows. Those are the cash flows generated through normal course of business – selling, buying and producing. What sometimes is also included within this group, are the interest paid. It’s simply because financing is usually received for keeping or supporting main operations so it’s more suitable to have them as a part of operating activities. However, note that the financing itself, i.e. loans, are never part of operating.
Read the rest of this entry
The statement of cash flows is something that simply put reflects company’s net flows of cash. If negative, the company is spending more than it earns from operations or gets through financing and if positive, company has generated more cash than it has managed to spend on its activities and investing.
The statement itself is all about actual cash movement – the number one and key question at all times when preparing cash flows is did the cash actually move? It’s often forgotten and the amounts shown don’t always reflect the real cash movement. Always follow the money!
Read the rest of this entry
As we have mentioned already, every now and then it’s a must to send your excess cash to your bank. It’s this “cash in transit” – not yet arrived to bank, but already sent from your part.
Do it as regularly as needed to avoid any excess cash lying around. People have heightened temptations when it comes to cash and why first off give them that and secondly why not just avoid the trouble and risks. So try as often as possible to make sure the cash is transferred to your bank account.
Keep a good track record of how much money, when and by who was transferred and received. This way you can go back in time in case needed (i.e. in case of any dispute or something), you know at all times how much money should have been transferred to bank and how much actually was received and all in all it’s always good to have an overview of your assets and their movement.
Read the rest of this entry
In a way it’s kind of like planning for stock count. There are teams, instructions and the time. While there isn’t much else to add, it’s just this one little thing to watch out for – temptation that money creates.
To kick it off you have to plan the time the count takes place – plan it as close to year-end as possible and make sure you have gotten rid of all excessive cash by that time. Make sure you have the people available for the time planned and inform them of this count as soon as practicable.
Another thing to watch out is the people themselves. When we say that money creates temptation, the first thing you have to consider, is the trustworthiness of them. Can you trust them with money?
With the time and people selected and planned, make sure your instructions are up-to-date and that they include everything that you want to be included. Are the instructions clear and not confusing? Make all those who are going to be counting aware of the instructions and make sure they have read and understood everything.
Read the rest of this entry
The obvious answer to such a question is of course “all”. And as you might guess, it’s obviously the right answer, but there’s a little more to it. Whilst counting all is a “must”, surely you can see that for practical reasons the smaller the amount, the better.
When we say practical reasons, we mean the saving of time, resources (i.e. people and expenses to extra work time) and reducing any risks. Risks which arise are obvious – exposure to temptations that money creates, human error that occur when counting etc.
So to save all the hassle, make sure your risks are as minimal as possible, make sure the cash amount to be counted is as little as possible – transfer it to the bank, pay off creditors etc. Reduce the physical amount to as low as practicable to your business model (i.e. shops need certain amount of free cash for an example).
Read the rest of this entry
In case you have loan contracts which include some sort of covenants, there are a few things you want to keep in mind. Since often times the loan liabilities are considerable, proper dealings are a “must”.
First and foremost you have to agree with the bank on how various covenants are measured, what is and isn’t included into the calculations and how exactly the bank understands one-off deals. You want to agree on this to ensure you’re both on the “same page”. Creating a situation where you would think that everything is okay and the bank is on a different opinion is not a place you want to be.
In case you are not meeting the agreed covenants, you do want to inform the bank as soon as you became aware of it and try to negotiate getting a waiver from the bank. A waiver usually means that the bank is not exercising its right to call back the loan in full.
Read the rest of this entry
When taking a loan from a bank, the contract may or may not include special conditions named as covenants. Usually, when the loan taken is in a small amount and with minimal risks, the banks do not see the need to add any special covenants to conditions of the agreement. However, the bigger the amounts and risks go, the higher is the probability you will find covenants from the agreement.
Covenants are ratios the borrower’s financial statements have to meet. They are usually connected to the amount of assets, cash inflows, EBITDA (earnings before interest, tax, depreciation and amortization), net profit etc. Mind you that for every agreement those covenants are negotiated and agreed as reasonable and reachable. The bank just wants to make sure the borrower is able to fulfill its obligations and serve the loan.
Read the rest of this entry
If you have managed to get a clause of having the right to return the goods to the supplier at the end of the period and having to pay only for those you actually sold, there are a couple of things you might want to consider.
For starters, there is no need to have those goods piled up on inventory taking. It’s best to have them being counted and shipped off to the suppliers well before the stock take date to ensure you have as less to count as possible.
You always need to make sure those goods are either kept separately in stock, labeled uniquely or otherwise there are means to separate them from other supplier goods. You don’t want them to get all mixed up with goods you have no right to return.
Read the rest of this entry
