We talk a lot about depreciation, however, as the situation may be, there are assets which don’t depreciate at all. Those are assets that you can technically use for as long as they exist and their value for your business wouldn’t change (unless their market value changes, which is another matter). Continue reading
Author Archives: Karl
Reconizing payments to suppliers
Recognizing payables to suppliers is crucial in ones’ business. It’s about understanding what you owe to someone else and trust me when I say that they will remind you of it. Regardless however it’s never a good sign if they have to remind you of the payment due and it doesn’t show in good light, never. Continue reading
Paying for inventories
Buying inventory items, i.e. goods to be resold, materials to be produced and manufactored into sellable goods is something businesses do every day. They buy what’s needed to keep the business running and keep track on stock in hand. The accounting entries one normally does for when acquiring inventory items is as follows (note here that we have ignored any tax effects): Continue reading
Purchasing and payables
Purchasing things for your company (i.e. materials, supplies or services) creates two types of entries within your company’s accounting – a reflection of what was bought (e.g. you increase your inventories or expenses) and a reflection of what you used to make the purchase. That is, you’re either going to pay for it later and hence you recognized a payable or you paid on spot and you simply recognize a credit entry onto your respective cash account. Continue reading
Managing cash flows
When we discuss payment terms and managing cash flows we are faced to deal with the needs of our customers. I have had experience with companies who say that their customers ask for 6 month payment terms. 6 months! Imagine trying to accommodate your own business within the same cash supply timeframe and producing, paying bills within the 6 month period. When I dag further I realized that those companies were themselves in a tight spot since they’re customers were enforcing longer payment terms and so on. It sounded like a vicious circle. Furthermore, there are countries that require certain taxes to be paid upfront for the whole year and the amounts are based on expected sales volumes and what not. Where does the money come from? It’s a cycle and at some point your company is going to part of it. Continue reading
Confirming certain measurable amounts or time spent on work
Once the measurable amounts are determined and have been agreed with the team, it’s one thing to know them and understand them, but another to ensure that they are met and correctly measured. Routines confirming the measurable amounts, time spent on certain activities is as essential as merely identifying and agreeing on something. Continue reading
Recognizing reversal of expenses
There are obviously times when you incur an expense, but what if at any given time you’ll be in a position where you would have to reverse the expense. Reversing an expense is something that’s quite a simple and straightforward action in a company’s accounting routine, however since such entries don’t come by as often as the regular expense entry, it’s worthwhile to explain how they would be done. Continue reading