Key Benchmarks to Measure the Effectiveness of your Accounts Payable

by Brian Edgmon @ ACOM Solutions Inc.

Thu Nov 09 09:16:09 PST 2017

Over 40 years ago, renowned management consultant Peter Drucker said, “What gets measured gets improved.” That concept is still true today, and it applies to accounts payable processing. The questions for CFOs and Controllers are, “What do I measure?” and “How do I know if my numbers are great or just okay?” The key to […]

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Transform Your Invoice Process with ACOM’s AP Automation

by Brian Edgmon @ ACOM Solutions Inc.

Fri Nov 03 15:49:04 PDT 2017

By now, most businesses are capitalizing on improved automation solutions for their AP processes. From processing invoices all the way to paying vendors, the AP department faces a lot of challenges that can be solved through innovative automation solutions. But what exactly does this mean? Streamlining processes through automation involves understanding organization needs and smoothly […]

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Turnover ratios

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 15:24:00 PDT 2018

A turnover ratio represents the amount of assets or liabilities that a company replaces in relation to its sales. The concept is useful for determining the efficiency with which a business utilizes its assets. In most cases, a high asset turnover ratio is considered good, since it implies that receivables are collected quickly, fixed assets are heavily utilized, and little excess inventory is kept on hand. This implies a minimal need for invested funds, and therefore a high return on investment.

Conversely, a low liability turnover ratio (usually in relation to accounts payable) is considered good, since it implies that a company is taking the longest possible amount of time in which to pay its suppliers, and so has use of its cash for a longer period of time.

Examples of turnover ratios are:

• Accounts receivable turnover ratio. Measures the time it takes to collect an average amount of accounts receivable. It can be impacted by the corporate credit policy, payment terms, the accuracy of billings, the activity level of the collections staff, the promptness of deduction processing, and a multitude of other factors.
• Inventory turnover ratio. Measures the amount of inventory that must be maintained to support a given amount of sales. It can be impacted by the type of production process flow system used, the presence of obsolete inventory, management's policy for filling orders, inventory record accuracy, the use of manufacturing outsourcing, and so on.
• Fixed asset turnover ratio. Measures the fixed asset investment needed to maintain a given amount of sales. It can be impacted by the use of throughput analysis, manufacturing outsourcing, capacity management, and other factors.
• Accounts payable turnover ratio. Measures the time period over which a company is allowed to hold trade payables before being obligated to pay suppliers. It is primarily impacted by the terms negotiated with suppliers and the presence of early payment discounts.

The turnover ratio concept is also used in relation to investment funds. In this context, it refers to the proportion of investment holdings that have been replaced in a given year. A low turnover ratio implies that the fund manager is not incurring many brokerage transaction fees to sell off and/or purchase securities. The turnover level for a fund is typically based on the investment strategy of the fund manager, so a buy-and-hold manager will experience a low turnover ratio, while a manager with a more active strategy will be more likely to experience a high turnover ratio and must generate greater returns in order to offset the increased transaction fees.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements 

Workday 30 Release a Success!

by jhoven @ Integrated Service Center

Tue Mar 20 13:39:00 PDT 2018

Over the weekend of March 10-11, Workday released their latest feature upgrades to the cloud-based HR/payroll system used by all UW employees. The scheduled, biannual maintenance (Workday performs major system upgrades twice a year) went smoothly, and though the expected downtime to accommodate the release was planned for Friday evening through Sunday evening, Workday was back up and running by Saturday morning at 11:00 am.

Cities and Municipalities Can Jump off the Invoice Processing Treadmill

by Brian Edgmon @ ACOM Solutions Inc.

Thu Mar 08 10:43:12 PST 2018

The accounts payable departments at cities and municipalities must feel like they are on a treadmill. Much of their day is spent on transaction processing such as: Keying invoice information Tracking down approvals Physically routing invoices Following up on approvals Resolving exceptions via back-and-forth e-mails and phone calls Keying information on approved invoices into an […]

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Stop Flying Blind with your Payments Reporting

by Brian Edgmon @ ACOM Solutions Inc.

Fri Feb 02 15:45:22 PST 2018

Analytics and reporting is all the rage in corporate boardrooms. Businesses want to know where they stand with their cash at any moment.  It is no wonder that more businesses are rethinking how they track and report on supplier payments.  A study published by Ardent Partners finds that 40 percent of businesses rank improving supplier […]

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New Report: R0013 Employee Degree Audit

by jhoven @ Integrated Service Center

Wed Mar 14 11:36:36 PDT 2018

Per campus request, the reporting team has developed R0013 Employee Degree Audit, a new report that provides the education background for Academic Personnel, as well as for employees who are eligible for Medical Centers’ BSN degree-based pay premiums. This report, available to administrators with elevated security roles, will include the worker’s school, degree, field of study and the year the degree was received.

How Innovations to Your Accounts Payable Department can Modernize Enterprise Planning for 2018

by Brian Edgmon @ ACOM Solutions Inc.

Mon Jan 22 17:02:57 PST 2018

Companies today are looking for ways to improve their ability to generate, analyze, and share data across their enterprise. Better metrics not only lead to overall cost reductions, but actually increase your productivity as well. There are countless technology solutions for every area in an organization – such as CRM software to manage customer service […]

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Skip a Loan Payment this November

by Admin @ MembersOwn Credit Union

Mon Oct 02 10:00:26 PDT 2017

MembersOwn offers you a way to skip a payment and put extra “jingle” in your pocket this holiday season. To skip your loan payment(s) this November, simply download the Skip-a-Loan Form then return it to MembersOwn two weeks prior to the due date of the loan(s) you want to skip.

The post Skip a Loan Payment this November appeared first on MembersOwn Credit Union.

Throughput definition

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 15:19:00 PDT 2018

Throughput is the number of units that pass through a process during a period of time. This general definition can be refined into the following two variations, which are:

• Operational perspective. Throughput is the number of units that can be produced by a production process within a certain period of time. For example, if 800 units can be produced during an eight-hour shift, then the production process generates throughput of 100 units per hour.
• Financial perspective. Throughput is the revenues generated by a production process, minus all completely variable expenses incurred by that process. In most cases, the only completely variable expenses are direct materials and sales commissions. Given the small number of expenses, throughput tends to be quite high, except for those situations in which prices are set only slightly higher than variable expenses.

For operations, throughput can be increased by enhancing the productivity of the bottleneck operation that is constraining production. For example, an additional machine can be purchased, or overtime can be authorized in order to run a machine for an extra shift. The key point is to focus attention on the productivity of the bottleneck operation. If other operations are improved, the overall throughput of the system will not increase, since the bottleneck operation has not been enhanced. This means that the key focus of investment in the production area should be on the bottleneck, not other operations.

For financial analysis, throughput can be increased by altering the mix of products being produced, to increase the priority on those products that have the highest throughput per minute of time required at the constrained resource. If a product has a smaller amount of throughput per minute, it can instead be routed to a third party for processing, rather than interfering with the bottleneck operation. As long as some positive throughput is gained by outsourcing, the result is an increased overall level of the throughput for the company as a whole.

Related Courses

Constraint Management 

Valuation account

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 13:57:00 PDT 2018

A valuation account is paired with an asset or liability account, and is used to offset the value of the assets or liabilities recorded in the account with which it is paired. The result of this account pairing is a net balance, which is the carrying amount of the underlying asset or liability. The "valuation account" term is a less-used phrase that has the same meaning as the contra account concept.

Examples of valuation accounts are:

• Allowance for doubtful accounts (paired with the trade accounts receivable account)
• Allowance for obsolete inventory (paired with the inventory account)
• Accumulated depreciation (paired with the various fixed asset accounts)
• Discount on bonds payable (paired with the bonds payable account)
• Premium on bonds payable (paired with the bonds payable account)

The valuation account concept is useful for estimating any possible reductions in the values of assets or liabilities prior to a more definitive transaction that firmly establishes a reduction.

Valuation accounts are only used in accrual basis accounting. They are not used in cash basis accounting.

Similar Terms

A valuation account is also known as a valuation reserve or contra account.

Related Courses

Bookkeeper Education Bundle 
Bookkeeping Guidebook 

Human resource accounting

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 16:21:00 PDT 2018

Human resource accounting involves the tracking of all costs related to employees in a separate report. These costs may include the following:

• Employee compensation
• Employee payroll taxes
• Employee benefits
• Employee training

Such an accounting system can be used to determine where human resources costs are especially heavy or light in an organization. This information can be used to redirect employees toward those activities to which they can bring the most value. Conversely, the report can be used to identify those areas in which employee costs are too high, which may lead to a reduction in force or a reallocation of staff away from those areas.

A more comprehensive human resource accounting system goes beyond the simple tracking of employee-related costs, and addresses the following two additional areas:

• Budgeting. An organization's annual budget includes a component, in which is concentrated all employee costs being incurred from across the organization. By concentrating cost information by its nature, management can more clearly see the total impact of human resource costs on the entity.
• Employee valuation. Rather than looking at employees as costs, the system is redirected toward viewing them as assets. This can involve the assignment of values to employees based on their experience, education, innovativeness, leadership, and so forth. This can be a difficult area in which to achieve a verifiable level of quantification, and so may have limited value from a management perspective.

From an accounting perspective, the expense-based view of human resources is quite easy - employee costs from the various departments are simply aggregated into a report. The employee valuation approach is not a tenable concept for the accountant, since this is an internally-generated intangible asset, and so cannot be recorded in the accounting system.

Related Courses

Human Resources Guidebook 
Payroll Management 

7 Ways Electronic Payments Save Businesses Money

by Brian Edgmon @ ACOM Solutions Inc.

Wed Jan 31 12:21:25 PST 2018

Across the corporate enterprise, departments are always looking for ways to reduce costs.  This is especially true in accounts payable, as reducing costs is among the top priorities of most accounts payable departments. Ardent Partners finds: One way to achieve this objective is pay suppliers electronically, instead of with a paper check.  In fact, some […]

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Understanding the Invoice Process and its Challenges

by Brian Edgmon @ ACOM Solutions Inc.

Thu Feb 08 10:07:58 PST 2018

Receiving an invoice is the first step in the AP department payment process, but many people do not understand all the steps necessary in receiving, verifying, and tracking those invoices. It can be a complicated process and involves many steps that are crucial in maintaining accurate financial records. Manual invoice processes can present challenges to […]

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Turning AP into a Strategic Partner to the Enterprise

by Brian Edgmon @ ACOM Solutions Inc.

Wed Feb 21 10:28:53 PST 2018

The accounts payable function is eager to shed its image as a tactical back-office function. Most accounts payable professionals predict that their department will be “slightly” or “significantly” more strategic in the eyes of senior management within the next five years, per the Institute of Financial Management’s (IOFM) The Future of Accounts Payable survey conducted […]

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Types of financial analysis

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 14:44:00 PDT 2018

Financial analysis involves the review of an organization's financial information in order to arrive at business decisions. This analysis can take several forms, with each one intended for a different use. The types of financial analysis are:

• Horizontal analysis. This involves the side-by-side comparison of the financial results of an organization for a number of consecutive reporting periods. The intent is to discern any spikes or declines in the data that could be used as the basis for a more detailed examination of financial results.
• Vertical analysis. This is a proportional analysis of the various expenses on the income statement, measured as a percentage of net sales. The same analysis can be used for the balance sheet. These proportions should be consistent over time; if not, one can investigate further into the reasons for a percentage change.
• Short term analysis. This is a detailed review of working capital, involving the calculation of turnover rates for accounts receivable, inventory, and accounts payable. Any differences from the long-term average turnover rate are worth investigating further, since working capital is a key user of cash.
• Multi-company comparison. This involves the calculation and comparison of the key financial ratios of two organizations, usually within the same industry. The intent is to determine the comparative financial strengths and weaknesses of the two firms, based on their financial statements.
• Industry comparison. This is similar to the multi-company comparison, except that the comparison is between the results of a specific business and the average results of an entire industry. The intent is to see if there are any unusual results in comparison to the average method of doing business.

Related Courses

Business Ratios Guidebook 
Financial Analysis 
The Interpretation of Financial Statements 

The difference between an invoice and a statement

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 16:21:00 PDT 2018

A customer may receive an invoice and a statement from a supplier. What is the difference between these two documents? When a seller issues an invoice to a buyer, the invoice is related to a specific sale transaction where goods or services were provided to the buyer. Since the invoice relates to a specific sale transaction, it itemizes all of the information the buyer needs to know in order to pay the seller, including:

• Invoice number
• Invoice date
• Item description
• Item price
• Shipping and handling charges
• Sales tax
• Total amount payable
• Remit to address
• Payment terms and early payment discount terms (if any)

The intent of an invoice is either to collect payment from the buyer, or to create evidence of the sale (if payment was made in advance or in cash). If payment was made at the time of sale, the invoice is stamped "Paid" before issuing it to the buyer.

When a seller issues a statement, the document itemizes all invoices that have not yet been paid by the buyer, as well as partial payments. In this case, the intent is to remind the buyer that it has an obligation to pay the seller. Since the statement is more aggregated than an invoice, it provides less detailed information at the invoice level. It typically includes the following items:

• Statement date
• Invoice numbers
• Invoice dates
• Invoice totals

A more sophisticated statement will aggregate invoice totals by time bucket, so that overdue invoices are clearly shown.

Invoices are issued whenever a sale has been completed, so they may be issued every day and in significant quantities. However, statements are usually only issued at regular intervals, such as once a month, as part of a company's collection activities.

From the perspective of the buyer, the receipt of an invoice triggers an accounting transaction, which is an account payable. Conversely, the receipt of a statement is strictly informational - it does not trigger the creation of an accounting transaction.

It can be unwise to treat a statement as an invoice and pay items listed on the statement, since it is possible that the buyer already paid for those items, but the payment has not yet been reflected in the seller's accounting system. A better alternative for the buyer is to make inquiries about any invoices that are listed on the statement, and obtain more detailed information before issuing a payment.

There can be some confusion between the invoice and statement terms when dealing with credit card providers, since they issue a "statement" that is actually an invoice.

Related Courses

Bookkeeping Guidebook 
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Cook the books

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 04:57:00 PDT 2018

To cook the books means that the managers of a business are deliberately falsifying certain aspects of its financial statements to give investors a false impression of the true state of the business. Alternatively, they engage in business practices to enhance financial results that are technically legal, but which will have a negative impact on the business over the long term. A number of techniques can be used to cook the books, such as the following:

Falsification activities

• Leaving the books open past the end of the month to record additional sales within the prior reporting period.
• Not recording expenses in the reporting period, even though they clearly reflect resource consumption in the period.
• Altering the terms of leasing arrangements so that the liability appears to be held by a third party, thereby keeping the liability off the entity's balance sheet.
• Falsely recording pension liabilities lower than is really the case.
• Setting up expense reserves, such as the allowance for doubtful accounts, that do not reflect the actual loss rate.
• Recording consignment sales as though they are actual sales.
• Taking a one-time charge that is set up as a "cookie jar," which can be used in subsequent periods to write off expenses and artificially inflate profits.

Business practices

• Engage in channel stuffing to sell more goods to customers than they can realistically use.
• Grant much higher credit levels to customers in order to boost sales, even though the customers may not be able to pay off the receivables.

Related Courses

Fraud Examination 
Fraud Schemes 
How to Audit for Fraud 

How AP Automation Can Simplify Your Bank Reconciliation Process

by Brian Edgmon @ ACOM Solutions Inc.

Tue Nov 07 06:07:39 PST 2017

Bank reconciliation is a necessary but often painful process that companies should regularly complete for cash management purposes. Without an accurate picture of your company’s financial state, you could end up bouncing payments, incurring late payment fees, or end up with insufficient fund charges.  Your staff should be diligent in their record keeping to maintain […]

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Exchange of nonmonetary assets

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 04:59:00 PDT 2018

An exchange of nonmonetary assets occurs when two entities swap nonfinancial assets. The accounting for a nonmonetary transaction is based on the fair values of the assets transferred. This results in the following set of alternatives for determining the recorded cost of a nonmonetary asset acquired in an exchange, in declining order of preference:

1. At the fair value of the asset transferred in exchange for it. Record a gain or loss on the exchange.
2. At the fair value of the asset received, if the fair value of this asset is more evident than the fair value of the asset transferred in exchange for it.
3. At the recorded amount of the surrendered asset, if no fair values are determinable or the transaction has no commercial substance.

There can be any number of variations on the nonmonetary exchange concept, including ones where some cash is exchanged, along with other nonmonetary assets. If there is a significant amount of monetary consideration paid (known as boot), the entire transaction is considered to be a monetary transaction. In GAAP, a significant amount of boot is considered to be 25% of the fair value of an exchange. Conversely, if the amount of boot is less than 25%, the following accounting applies:

• Payer. The party paying boot is not allowed to recognize a gain on the transaction (if any).
• Recipient. The receiver of the boot recognizes a gain to the extent that the monetary consideration is greater than a proportionate share of the carrying amount of the surrendered asset. This calculation is based on the percentage of monetary consideration received to either:
  • Total consideration received, or
  • The fair value of the nonmonetary asset received (if more clearly evident)
  • Nonmonetary exchanges of inventory should be recognized at the carrying amount of the inventory transferred (not their fair values).

• Related Courses

  Fixed Asset Accounting 
  How to Audit Fixed Assets 

Capture Early Pay Vendor Discounts with an Automated ePayables Solution

by Brian Edgmon @ ACOM Solutions Inc.

Mon Nov 13 13:47:51 PST 2017

If you are a B2B company, you know that processing payments efficiently is one of the best ways to maintain positive client relationships. You may also know about the high cost that can be associated with issuing payments efficiently, especially via paper checks, which is currently estimated to be $26 to $54 billion annually! This […]

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