Author Archives: Karl

One way to change the useful lives of assets

As you know, useful life on an asset is an estimate (unless you made a mistake saying that for an example a computer should be used say for 25 years, which obviously cannot be true). So it’s an estimate based on the information available at the time you are making it.

Subject to changing condition, changing business and changing technology and innovation, some assets tend to either be in use for a shorter or for a longer period than initially determined. As you no doubt can guess, in such a situation, the useful life, the period you show in your accounting you are going to be using the asset and spread the expenses over, should reflect the actual usage. That is the useful life should respectively either be short or longer than you’ve got it right now.  Continue reading →

Is it better to pay just part of the balance to the supplier or wait until full payment can be made

You have irregular cash flows and as such, you don’t always make the amounts for the due dates. Needless to say that it’s possibly poor cash flow management from your part, but it also begs to question which would make more sense – to pay up partly or wait until you can make a full payment to your supplier.

First things first, I would make it clear with the supplier who is the counterparty why such a situation arises in the first place, if it’s a permanent situation and how do you plan to ensure they will still get the money. It’s not just letting them know, but also agreeing that it’s acceptable for them aswell. It’s about agreeing on the situation and provided you’re interested in the services and / or goods, you do really want to do that.  Continue reading →

An asset with a very specific use for type of service or production

Let’s first define this “specific use”. Specific use is determined so that once this client relationship ends, you’re no longer producing a type of good etc., this asset is no longer being used and it cannot be used without significant alterations for another type of service or production process. An asset in this case be both physical and non-physical, i.e. a software solution.

Such an asset that’s taken away from active usage and cannot be used for anything else without modifications should not be carried on the balance sheet. At least not with a carrying value above zero. It has no value for the company as it is and as such, it shouldn’t be carried as an asset with value.  Continue reading →

Accruing for sales bonuses regularly

Sales bonuses are something not everyone is giving to their customers, but when you do, there are a few considerations to be kept in mind.

For one, do you issue credit invoices or does the customer itself issue invoices to you? Why is it important? Besides the obvious, defining obligations, it’s also a question of who does the initial measuring of the bonus and who has the opportunity to check if the calculation is accurate.  Continue reading →

Why make some entries each month instead of once a year?

Indeed, why would you? One could also ask, why make entries at all in each month and why not just do your accounting and bookkeeping once a year.

The answer to this question should depend on your need really. It’s about what information you’d like to have about your company’s performance regularly. Is it important to you to regularly monitor and have an overview of how your company is performing or is it okay to once a year calculate and add up all your income, your expenses and then see if you earned a profit or a loss. Even excluding some expenses or revenues from your regular accounting routines and just doing them once a year means you may end up with an unexpected result at period end. It is really up to you if you want it or not.  Continue reading →