Author Archives: Karl

Optimize the stock levels

Companies with stock struggle daily with appropriate stock levels – they need to ensure enough items are in stock to satisfy the customers and on the other hand make sure any article isn’t just piling up and ageing in the warehouse. The stock levels need to be optimized, but how to best achieve this?

There are two things we have found to work best in practice – regular review and responsibility.

What we mean with ‘regular review’ is really a weekly or a monthly (essentially as often as needed and reasonable in your industry) meeting where the stock levels are compared with sales, new minimum stock levels determined, action plans decided for slow moving goods etc. With this the stock levels are under a constant monitoring and provided that warehouse responsible personnel as well as sales and management team is involved, proper actions are decided and taken.
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Appropriate access rights

When it comes to means of data protection, most people can only think of passwords. Yes, they prevent any third party access obviously and are essentially as important as any other security measure, one thing often overlooked however are the access rights.

We say ‘access rights’ in terms of what data and actions the user is allowed to view and perform in the system. You don’t want everyone to be able to do everything now, do you?
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When is a password good?

There is a saying that you simply cannot repeat some things enough. One of those areas is security. Whilst physical security in terms of alarms, locked doors etc is as important, with this post we are focusing on data protection and namely passwords.

It has come across in our practice, that there are programs with no password at all or it is simply this week that it is essentially useless. When asked ‘why even bother with the password then if it is the same for everyone and (to make things worse) is only comprising of two characters?’ you usually don’t get a reasonable answer.

Since most accounting software programs and similar or supporting applications let you customize the password settings, it is best to make use of this.
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Bonus reserve

There are essentially two types of bonuses – those that are given from year to year and those which are decided ad hoc and given only on certain exceptional occasions. Whilst there are a few differences when it comes to accounting for them, in essence they are fairly the same. Both need to be recognized on the balance sheet and income statement just when it has become apparent that they will be paid and people have reason to be expecting them.

As for the year to year bonuses (whether paid on monthly, quarterly or annual basis), the expense should be spread out over the period the bonus relates to. When it is not so much of an issue when it comes to monthly bonuses obviously (though keep in mind posting them into the month the bonus is for), it is highly recommended to spread the expense more or less evenly over the months when it comes to annual bonuses. The reason behind this is simple fact that your monthly expenses stay on stabile levels instead fluctuating significantly at year end or at the end of each quarter.
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Vacation pay reserve

When people go on a vacation, they depending on local regulation may have to be paid up front before leaving or the payment shall continue as regular monthly salary, however the rule is that people do have to get paid when they are on vacation. Fact of the matter is that they can go on a holiday even with short notice and you have to be prepared to make the upfront payment to them if so required by local law.

In fact, as a general rule, your balance sheet should always reflect the liability you owe to your employees when it comes to vacations. For an example, when an employee decides to leave the post for good, he or she is entitled to all those vacation days and also respective payment.

So what some companies do is simply accruing a certain percentage of monthly salaries to vacation pay reserve account every month. If let’s say the employees are allowed to take 28 days off with full pay, the reserve should essentially be in the amount of one month’s payroll expense more or less depending of course on the days people have to receive. As an example, when accruing for the reserve in December, if you have all the employees having their vacation in summer and all of them have give or take 14 days on their reserve in mentioned December, the reserve amount on the balance sheet should be in the amount of roughly half of the monthly salary expense.
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Best practices when it comes to confirmation letters

When in essence the confirmation letter procedure isn’t seemingly that difficult – you write a balance and ask if the other party agrees with it – there are however a few things we suggest to keep in mind when it comes to confirming accounts payable and receivable balances.

First off as for the letter itself, you make sure you have the right address, right balance and all the other information like contact where to send all questions and replies etc; however, there is one thing you may want to avoid when preparing those letters. Avoid the clause ‘In case of no reply from you, we deem our balance correct’ like sentence on the confirmation letter. The reason behind this is fairly obvious; the counterparty may simply have not received the letter due to various reasons or needs a bit more time or convincing to actually reply to your request. With this sentence you have no way of knowing whether they actually agree with the balance or not.
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Confirming balances – accounts payable and receivable

During the normal course of business you buy and sell goods or services and as a byproduct, before the cash really moves, you have payables and receivables with their due dates on the balance sheet. When the balances are settled, they are as a result gone from the balance sheet. Balances come and go during the course of business; however, there should be a way to make sure they are all fairly presented.

Essentially the accounting system should have a ledger to keep record of all balances by supplier and costumer. However, most businesses have numerous suppliers and / or customers meaning a human or systematic error may happen very easily – either double entry, entries to wrong supplier or customer, mistyped balances etc.
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