How such a situation may arise is when you know what you’ve delivered and you recognize revenue based on that, however, not all invoices from your suppliers, subcontractors etc. have reached you.
What to do in such a situation? Continue reading
Author Archives: Karl
One very important ratio to follow
Guess what’s a very important ratio to follow in your everyday business? It’s not so much a ratio, but a number. It is equally important however and ensures you will not run out of funds to manage your business.
It’s your planned net cash flow. Obviously it should be positive, right? Well, if it is negative, there’s also the possibility it will turn black once you get a considerable receivable collected. Continue reading
When is negative working capital okay?
Negative working capital is a mathematical result when comparing current assets with current liabilities and the latter exceeds the first in number. That is you’ve got more liabilities than you’ve got assets to cover those liabilities in the next coming 12 months.
When thinking about it, negative is never a good thing. At least that’s how you’d normally go about that. However, there are situations when negative working capital isn’t necessarily bad: Continue reading
Does confirming a balance confirm also its collectability?
Yes and no I would say. It confirms you have a balance due from the client, so that’s something, but whether the client is able or willing to pay, is another story.
What a confirmation gives you is grounds to have the balance in the first place so there’s that. You have the right to recognize the receivable balance and it’s something you’re owed to. By all accounts your client should therefore also pay up, i.e. it’s collectable. You have an asset you have the right to in your accounts and rightfully so. Continue reading
What can be considered as “slow” moving goods?
“Slow” is such a subjective term in nature so the question of what can be considered as slow moving goods is actually quite relevant.
Normally something you’d assess is whether the goods have moved out at all during the reporting period or other relevant period, i.e. quarter. If they have not, I would say they’re “non-movers” so more than likely they will need a provision to cover for future expenses when they’re finally either sold or scrapped or whatever depending on the industry. Continue reading
It turns out you sold something below its cost after period end
So you sold something with below their cost and earned a loss because of it. Does it affect your prior year or prior period results?
Most probably you’re saying “no”, however, to be correct, if your prior period results are still open and had you known you’d make a loss, you would have recognized the loss as a provision on the balance sheet at the time (expense at the end as well), you should correct the prior periods. Continue reading
Sales bonuses based on revenue – consider delaying their payment
If you’re paying bonuses to your sales personnel based on the revenue they bring in, i.e. new contracts, price increases etc. you ought to think about the risks such bonuses inherently include within.
The highest risk would be fictitious sales. In this case sales are being manipulated with and falsely created in accounting to earn bonus. Normally such a thing requires cooperation. Continue reading