4 Tips for Controlling Your Business Cash
Although bookkeepers typically are the ones who record what happens to your business's cash, they
aren't the only ones who control where that cash goes. Controlling your company's money is
important: A business's cash can be a tempting siren for employees who aren't accountable to the
right checks and balances.
Safeguard your company's money by following these suggestions to limit any one person's access to
cash:
Separate cash handlers from recordkeeping. Be sure that the person who accepts cash
isn't also recording the transaction.
Separate authorization responsibilities from cash handlers. Be sure that the person who
authorizes a payment isn't also signing the check or dispersing the cash.
Segregate the duties of your bookkeeping staff to ensure a good system of checks and
balances. Don't put too much trust in one person unless that one person is you.
Separate operational responsibility (actual day-to-day transactions) from recordkeeping responsibility (entering transactions in the books).
The Relationship between Cash Flow and Profit in Business
Making profit generates cash flow any business owner knows that. What may not be known,
however, is that the actual increase in cash during a given period is invariably lower or higher than
the profit number. Understanding how cash flow relates to profit is critical for business owners and
accountants.
The following points illustrate how cash flow relates to profit:
The amounts of cash flows during the period rarely are equal to the revenue and
expense numbers in the P&L (profit and loss) report for the period.
Actions that lower cash flow: Increasing accounts receivable and inventory; decreasing
accounts payable and accrued expenses payable.
Actions that raise cash flow: Decreasing accounts receivable and inventory; increasing
accounts payable and accrued expenses payable.
Depreciation expense isn't a cash outlay; neither is amortization expense. Unusual
losses recorded in the period may not involve cash outlay but rather be write-downs of assets
or write-ups of liabilities.
9 Must-Know Formulas for Cost Accounting
To reduce and eliminate costs in a business, you need to know the formulas that are most often used
in cost accounting. When you understand and use these foundational formulas, you'll be able to
analyze a product's price and increase profits.
Breakeven Formula:
Profit ($0) = Sales Variable costs Fixed costs
Target Net Income:
Target net income = Sales Variable costs Fixed costs
Gross Margin:
Gross margin = Sale price Cost of sales (material and labor)
Contribution Margin:
Contribution margin = Sales Variable costs
Pre-Tax Dollars Needed for Purchase:
Pre-tax dollars needed for purchase = Cost of item (1 Tax rate)
Price Variance:
Price variance = (Actual price Budgeted price) (Actual units sold)
Efficiency Variance:
Efficiency variance = (Actual quantity Budgeted quantity) (Standard price or rate)
Variable Overhead Variance:
Variable overhead variance = Spending variance + Efficiency variance
Ending Inventory:
Ending inventory = Beginning inventory + Purchases Cost of sales
13 Ways to Spot Fraud in Business Financial Statements
Financial statement fraud, commonly referred to as "cooking the books," involves deliberately
overstating assets, revenues, and profits and/or understating liabilities, expenses, and losses. When a
forensic accountant investigates business financial fraud, she looks for red flags or accounting
warning signs that indicate suspect business accounting practices.
These red flags include the following:
Aggressive revenue recognition practices, such as recognizing revenue in earlier periods
than when the product was sold or the service was delivered
Unusually high revenues and low expenses at period end that can't be attributed to
seasonality
Growth in inventory that doesn't match growth in sales
Improper capitalization of expenses in excess of industry norms
Reported earnings that are positive and growing but operating cash flow that's declining
Growth in revenues that's far greater than growth in other companies in the same industry or
peer group
Gross margin or operating margins out of line with peer companies
Extensive use of offbalance sheet entities based on relationships that aren't normal in the
industry
Sudden increases in gross margin or cash flow as compared with the company's prior
performance and with industry averages
Unusual increases in the book value of assets, such as inventory and receivables
Disclosure notes so complex that it's impossible to determine the actual nature of a particular
transaction
Invoices that go unrecorded in the company's financial books
Loans to executives or other related parties that are written off
A business that engages in such fraudulent practices stands to lose a tremendous amount of money
when penalties and fines, legal costs, the loss of investor confidence, and a tarnished reputation are
taken into account.
