Archive for the 'Accounting 201' Category

How do you know if you are successful if you do not understand your numbers?

August 25, 2016

Many entrepreneurs run their business on a cash basis; however, just because you have cash in the bank doesn’t necessarily mean you are successful – what about bills that you have not yet paid, or even received yet? Many entrepreneurs are soo busy they fall behind in billing their clients. If they haven’t billed you, you can’t pay them, but you are obligated to. (Also, if you haven’t billed them they can’t pay you, but still owe you)

Some run on an accrual basis and have great sales (you keep up on your billing) but are growing a large amount of receivables (your clients are not paying you timely enough) you may not have the cash needed to pay your bills even though you are “successful”. In order to keep your vendors happy you have to borrow money incurring additional expenses.

Knowing what is behind the numbers… what they actually mean… is critical in making sound business decisions.

Where are your weaknesses in the business, where are your strengths. Focus on your strengths and get help on the weaknesses. It is not a failure to get professional help from someone who knows the subject better than you do. (I assume you take your car to a specialist to keep it in top shape, why wouldn’t you do the same for your business!)

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Internal Controls… AGAIN

March 24, 2016

I originally posted this in April 2014 and I truly believe it is still very relevant and so I decided to recycle it; enjoy…

Internal Controls are really quite simple; for example, in just looking at an accounting department – preparing a well documented departmental SOP (Standard Operating Procedures) detailing each area’s (Accounts Payable AP, Accounts Receivable AR, Payroll PR, General Ledger GL) duties so that anyone could pretty much step in and do the job and then simply utilizing a “Month End Checklist” that has all the pertinent tasks on each row (bank reconciliation, GL account analysis, payroll reporting, etc.) and a column each for the initials & date of the person performing the task & the person performing the review will result in providing assurance that everyone’s work not only has a second set of eyes at some point but that they actually document the fact.

For most companies this would be a simple one sheet form that they could print off each month to fill our or fill it out online; of course you would want to have this document in your month end file for later review by the auditors. Now everyone – the company, the auditors & any other stakeholder’s – can be more confident that the Company’s financial information is accurate and reliable as can be; because, let’s face it, we all make mistakes.

This process should then be duplicated for each department in the Company and the net result is having a very good set of Internal Controls detailed through Departmental SOPs; which are then “audited” by the “Internal Audit” department for compliance. Non-compliance is not a failure but an opportunity to learn & grow by identifying outdated procedures and to change to what is actually working. So next time the “dreaded” auditors come, embrace them with a “How can you help me streamline while preserving the integrity of my work”. It’s a Win-Win situation!

I love having a second set of eyes on my work, you get so caught up in the minutia that you need that second set of eyes and that second set of perceptions. Since I am self-employed, I usually am performing that first review but I love it when I can send it to someone else & ask for a quick review (nothing worse than having a typo or a column of numbers that so clearly do not add up – it just diminishes your credibility.)

Internal Controls

April 23, 2014

They say everything comes full circle at least once in your life. When I graduated college my first position was as an Internal Auditor. While I loved the idea of helping people maintain controls I wasn’t particularly fond of being the dreaded auditor, as in “omg, the auditors” are coming. There needed to be a change in mindset on the part of for both employees – the operating department & the audit department – so everyone understood that the “auditors” were not simply trying to catch employees making mistakes, but trying to help strengthen the company’s core.

Fast forward through an 8 year stint in public accounting and then back to corporate accounting for 15 years and finally entrepreneurial consulting for 8 years… I am once again performing Internal Audit work (on a contract basis) although this time around I am absolutely loving it. I am educating clients on how to mitigate lacking controls due to limited resources – i.e. very small staff.

It is really quite simple, for example, in just looking at an accounting department – preparing a well documented departmental SOP (Standard Operating Procedures) detailing each area’s (Accounts Payable AP, Accounts Receivable AR, Payroll PR, General Ledger GL) duties so that anyone could pretty much step in and do the job and then simply utilizing a “Month End Checklist” that has all the pertinent tasks on each row (bank reconciliation, GL account analysis, payroll reporting, etc.) and a column each for the initials & date of the person performing the task & the person performing the review will result in providing assurance that everyone’s work not only has a second set of eyes at some point but that they actually document the fact.

For most companies this would be a simple one sheet form that they could print off each month to fill our or fill it out online; of course you would want to have this document in your month end file for later review by the auditors. Now everyone – the company, the auditors & any other stakeholder’s – can be more confident that the Company’s financial information is accurate and reliable as can be; because, let’s face it, we all make mistakes.

This process should then be duplicated for each department in the Company and the net result is having a very good set of Internal Controls detailed through Departmental SOPs; which are then “audited” by the “Internal Audit” department for compliance. Non-compliance is not a failure but an opportunity to learn & grow by identifying outdated procedures and to change to what is actually working. So next time the “dreaded” auditors come, embrace them with a “How can you help me streamline while preserving the integrity of my work”. It’s a Win-Win situation!

I love having a second set of eyes on my work, you get so caught up in the minutia that you need that second set of eyes and that second set of perceptions. Since I am self-employed, I usually am performing that first review but I love it when I can send it to someone else & ask for a quick review (nothing worse than having a typo or a column of numbers that so clearly do not add up – it just diminishes your credibility.)

 

Prepare for tax season… its never too late… or too early :-)

December 6, 2013

Annual December Posting…

Utilize simple recordkeeping software – quicken or MS money come preloaded on new computers

Categorize major expenses –

Home: mortgage, utilities, auto, contributions, taxes

Small business: office supplies, phone, advertising/marketing, dues…

Utilize the “Reconcile” feature and actually balance your checkbook on a monthly basis – catch errors when they happen rather than 6 months later…

Run “canned” reports on spending & actually look at them to see WHERE your money is going, looking for anything out of place, odd or unusual

Use a filing system – expandable folders, hanging folders, manila folders: Use Labels…

Personal

– Tax related documents – 1099s, W-2, real estate taxes, auto taxes, sales tax on major purchases, contribution receipts, purchase agreements

– Capital expenses – home improvements, major appliance purchases

– Other personal receipts that you need to keep – in order to return items or get service done

– Shred – To be shredded – wait at least 90 days before you shred just in case you need it later

Small Business

– AR Invoices sent –

Numerical copy kept in monthly folder or 3 ring binder
Copy kept with job/project information
– AR Checks received – copies attached to deposit slips

– AP Invoices received – folder by due date

– AP Invoices paid – alphabetically by vendor

– Capital equipment purchases – copies of AP invoices for depreciation purposes

– Bank reconciliations – folder for each account

– Credit card statement reconciliations – folder for each CC

– Advanced Accounting Issues:

Payroll records – whole system of PR / HR issues
AR aging reports – past due reports
AP aging reports – unpaid liability reports
Inventory – monthly counts / reconciliations
Depreciation spreadsheets
Prepaid expenses
Accrued expenses

Accounting 201: Strategic decisions are characterized by considerable risk and uncertainty.

September 19, 2012

Unpredictable environmental changes can quickly transform even the most well-conceived plans into ineffectual strategies. You need to clearly recognize this danger and learn to live with it.

Accounting 201: The purpose of forecasting is to plan for the future!

July 14, 2012

It is NOT to predict next year’s sales. The key word is planning – you attempt to reduce the uncertainty about the future

Forecasting is a process that lets managers plan what is necessary to be successful!

  • Sales growth requires planning!
  • Sales forecast is the starting point. Take the sales projection and show what the company must do to be successful!

Responsibility Accounting

June 3, 2012

– an accountability system where managers are held accountable for differences between budgeted and actual results on only those items they have actual control of.

Accounting 201: Real World Accounting

January 7, 2012

I originally posted this last year, but it bears repeating…

March 5, 2011

Managerial Accounting – accounting activities that provide information to managers for planning and control purposes and for making operating decisions.

Responsibility Accounting – an accountability system where managers are held accountable for differences between budgeted and actual results on only those items they have actual control of.

Pretty far out there, right!?! Seriously, using these accounting terms – really embracing the concepts and giving managers the tools to plan, manage and control and then holding them accountable for those decisions will have a real impact on your company.

Remember, when bonuses have no relation to what one does – when managers are held accountable for items not under their control, the bonus becomes meaningless. Think about it, if the reason you don’t get your bonus is because someone else didn’t do their job why should you be penalized. Why should you do your level best on your job if you can still lose your bonus due to factors beyond your control – Empower your employees and they will work harder for you!

Accounting 201: Real World Accounting

March 5, 2011

Managerial Accounting – accounting activities that provide information to managers for planning and control purposes and for making operating decisions.

Responsibility Accounting – an accountability system where managers are held accountable for differences between budgeted and actual results on only those items they have actual control of.

Pretty far out there, right!?! Seriously, using these accounting terms – really embracing the concepts and giving managers the tools to plan, manage and control and then holding them accountable for those decisions will have a real impact on your company.

Remember, when bonuses have no relation to what one does – when managers are held accountable for items not under their control, the bonus becomes meaningless. Think about it, if the reason you don’t get your bonus is because someone else didn’t do their job why should you be penalized. Why should you do your level best on your job if you can still lose your bonus due to factors beyond your control – Empower your employees and they will work harder for you!