As we have mentioned already, every now and then it’s a must to send your excess cash to your bank. It’s this “cash in transit” – not yet arrived to bank, but already sent from your part.

Do it as regularly as needed to avoid any excess cash lying around. People have heightened temptations when it comes to cash and why first off give them that and secondly why not just avoid the trouble and risks. So try as often as possible to make sure the cash is transferred to your bank account.

Keep a good track record of how much money, when and by who was transferred and received. This way you can go back in time in case needed (i.e. in case of any dispute or something), you know at all times how much money should have been transferred to bank and how much actually was received and all in all it’s always good to have an overview of your assets and their movement.

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In a way it’s kind of like planning for stock count. There are teams, instructions and the time. While there isn’t much else to add, it’s just this one little thing to watch out for – temptation that money creates.

To kick it off you have to plan the time the count takes place – plan it as close to year-end as possible and make sure you have gotten rid of all excessive cash by that time. Make sure you have the people available for the time planned and inform them of this count as soon as practicable.

Another thing to watch out is the people themselves. When we say that money creates temptation, the first thing you have to consider, is the trustworthiness of them. Can you trust them with money?

With the time and people selected and planned, make sure your instructions are up-to-date and that they include everything that you want to be included. Are the instructions clear and not confusing? Make all those who are going to be counting aware of the instructions and make sure they have read and understood everything.

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The obvious answer to such a question is of course “all”. And as you might guess, it’s obviously the right answer, but there’s a little more to it. Whilst counting all is a “must”, surely you can see that for practical reasons the smaller the amount, the better.

When we say practical reasons, we mean the saving of time, resources (i.e. people and expenses to extra work time) and reducing any risks. Risks which arise are obvious – exposure to temptations that money creates, human error that occur when counting etc.

So to save all the hassle, make sure your risks are as minimal as possible, make sure the cash amount to be counted is as little as possible – transfer it to the bank, pay off creditors etc. Reduce the physical amount to as low as practicable to your business model (i.e. shops need certain amount of free cash for an example).

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In case you have loan contracts which include some sort of covenants, there are a few things you want to keep in mind. Since often times the loan liabilities are considerable, proper dealings are a “must”.

First and foremost you have to agree with the bank on how various covenants are measured, what is and isn’t included into the calculations and how exactly the bank understands one-off deals. You want to agree on this to ensure you’re both on the “same page”. Creating a situation where you would think that everything is okay and the bank is on a different opinion is not a place you want to be.

In case you are not meeting the agreed covenants, you do want to inform the bank as soon as you became aware of it and try to negotiate getting a waiver from the bank. A waiver usually means that the bank is not exercising its right to call back the loan in full.

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When taking a loan from a bank, the contract may or may not include special conditions named as covenants. Usually, when the loan taken is in a small amount and with minimal risks, the banks do not see the need to add any special covenants to conditions of the agreement. However, the bigger the amounts and risks go, the higher is the probability you will find covenants from the agreement.

Covenants are ratios the borrower’s financial statements have to meet. They are usually connected to the amount of assets, cash inflows, EBITDA (earnings before interest, tax, depreciation and amortization), net profit etc. Mind you that for every agreement those covenants are negotiated and agreed as reasonable and reachable. The bank just wants to make sure the borrower is able to fulfill its obligations and serve the loan.

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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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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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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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Just as you count your inventory on a regular basis, counting your property, plant and equipment (PPE) items should be on the agenda as well at least once a year. The asset list may be long; they may be physically spread out on a big area, between different departments etc., so how do you know they all exist?

As you might expect, making sure that all those assets do exist is something that has to be done. Ensuring that all your assets on the balance sheet exist in reality is something that’s obvious, but for some reason fixed assets are those which we considered as “once bought, I know it exists”.

Well, the reality and practices has shown something different. It’s especially so with smaller equipment, which gets lost, broken easily, switched etc.

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We have just received a phone bill for 150 at the start of the month. Usually they are not paid right away, but on the due date of the payment.

Accounting Entries

So first we have to “register” the phone bill. We are going to add 150 to expenses and accounts payable.

Now when you have paid for the phone bill, you have given money for it, you decrease accounts payable and cash for 150.

Reporting

When you receive a phone bill and you haven’t paid for it then you should add that under Current liabilities. In our example we are adding 150 under Current liabilities – Trade and other payables.

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