Author Archives: Karl

What to look out for and consider when having goods in stock that you can return to the supplier?

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.
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Supplier agreements – what to get included within them?

When negotiating agreements with suppliers, you usually argue over prices, payment terms, delivery conditions etc. What we have seen being ignored however, are the return rights. When we say “return rights”, we don’t mean situations where the goods have been damaged or are simply malfunctioning. This is something that should come as a default right.

It’s always handy to include into the agreement however the right to return the goods in a specified timeframe regardless of the reason. Yes, it requires negotiation with the supplier and as such may definitely not be easy. However, it’s worth having it in there as you may never know if the goods satisfy your needs, is enough etc. Why not get it in there?
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Contracts ledger – in addition to physical management

Although you have ensured all your contracts are safely stored and only authorized personnel has access to them, you still may struggle with finding the right contract fast enough. And in addition it may be hard to keep track on all contracts in place, still effective, already terminated etc.

The thing that helps you with this is a contracts ledger or listing. Either way you want to call it, the idea stays the same. Essentially it’s a ledger which holds all relevant information about all contracts agreed by the company.

To ensure this listing works though, the very first thing you need to do, is number all your agreements in a manner they are easily identifiable, you are able to sort them by types (i.e. keeping supplier contracts with one similar coding and employer contracts under different referencing) and obviously find them from the very listing itself.

Essentially you can put whatever information you find useful to the list, however the things which usually are registered are as follows:
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Managing contracts – their physical security

When you sign off a contract you want to make sure it is safely put away. We doubt that you will leave it lying around somewhere for any third parties able to access it or even steal or copy it without any approval.

As a general rule and common practice all contracts are safely stored in a deemed location – either a safe or other similar locked container where only authorized personnel has access to. This access should always be monitored in a way to ensure only those with everyday and job description based need have access to them. For an example, the purchase manager should have access to supplier contracts whereas employee contracts should be accessible by human resources apartment and none other.
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Month closing is before month end – what to do?

Month closing is before month end In situations where the month closing has to be done before the month itself has actually ended, it is very difficult to make sure you have accounted for all expenses and even revenue. This is more complicated as in fact you do have to estimate the revenue as well and not just expenses. Normally those extremely tight reporting deadlines are applicable to groups, which report to stock exchanges and are also globally very big. “Very big” means that they have consolidated assets and revenues bigger than some country’s budgets.

But what should you as an accountant do when you have to meet those very short deadlines? Simply put you estimate everything. Normally expenses are easier as you more or less know your regular costs (i.e. rent, heating, electricity etc). One off charges as marketing, repairs etc is also something you know a bit in advance (you know about the campaign and estimated budget for it for an example).

As for revenue though, it depends on your business – if you sell goods, you can always base your estimation on month end revenues in recent months, pervious years or average daily sale. If you sell services, it can be based on month end sales or bookings made for your services.
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What’s the use of purchase orders (POs)?

In case you don’t know what exactly a purchase order or PO is, it’s a document and procedure done just before actually acquiring an asset or making an expense. With this a person responsible lets accountants and management know he or she is planning that kind of purchase and if built in, also asks for permission and approval.

Now, leaving this approval thing beside, another good thing that comes out of having this process, is estimating for accruals.

A PO should always have as a description the period this expense relates to, so essentially at the end of a reporting period when adding up all open purchase orders, you would be able to get a precise sum of what you should additionally expense for that certain period. Yes, the invoices have not yet been received, but you can estimate the expense and charge it as:
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Assets with no carrying value – what to do with them?

Fixed Assets no value As you know, property, plant and equipment (PPE) items are depreciated into expense over their useful life. In reality though the determined useful life is hardly exactly the time the asset is really going to be used. It’s rarely longer, but usually far more often shorter than the actual usage.

First and foremost, ensuring that the useful lives in fact represent the real usage as fairly as possible is something that should be done at all times. In practice, a company’s management should at least once a year review the useful lives to make sure the expense is spread out to the period the asset is being used.

Besides that however, what to do when the carrying value of an asset is already at zero? One suggestion we have, is just before year end make a list of all assets already at zero and about to get close to zero in next few months and review their useful lives – are they perhaps going to be kept longer than that? If they are, simply change the useful lives as if they had been changed from the beginning of the financial year. You can decrease the expense for the year and ensure the assets are depreciated over their actual usage once more.
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