Is Corporate Cash Hoarding a Lack of Corporate Social Responsibility

Corporate social responsibility is not a high priority for U.S. organizations. A viable alternative to raising taxes on the wealthy and corporations is available to the American economy.

However, there is an alternative that can restore funds to the federal and state governments and decrease the U.S. unemployment rates. It may take courage, but exercising this alternative can result in a win-win situation for the American economy. And it is as simple as fulfilling corporate social responsibility.

Harvard's corporate social responsibility initiative defines corporate social responsibility as encompassing "not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm."

Fulfilling corporate social responsibility helps keep capitalism in check. Harvard's initiative places economic success in part on the organizations that benefit from that success. Currently, American organizations are stockpiling cash, while the American economy is experiencing joblessness and a decline in disposable income. I don't know what they're doing with all that cash. It sits on the balance sheet as a current liquid asset, yielding insignificant returns. Are these stockpiles a shirking of American corporate social responsibility? The echo from the depths of the economy might say yes.

Seeing all that unproductive cash, I wondered how organizations were obtaining so much money in a shrinking economy. The average American household's disposable income has decreased, making consumer spending an unlikely significant factor. Digging deeper, I realized that many of these American corporations are offshoring jobs and increasing automation in their processes. According to the U.S. Department of Labor, "Cost-cutting by U.S. industries in almost every sector of the economy will continue to change the workforce. To reduce labor costs, some jobs are being sent offshore while others are being replaced by technology or are being filled with lower-cost workers."

This has real implications for the U.S. economy. As an accountant, I wanted to see the impacts, so I decided to do a little analysis on an American organization I was familiar with. Using the annual 10-K reports filed from 2007 through 2011 for this U.S. organization, I found that the organization increased its net earnings by 36.5% over the five years. During this same period, the organization experienced only a 10% increase in cost of goods, and a 25% increase in G&A This same organization, during these five years, has offshored a significant portion of its back office finance and product production equating to a shift in payroll dollars of approximately $803 million.

Could this organization be remiss in managing its economic, social, and environmental impacts, as well as its relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm?

The impact of the payroll shift for this one organization on the U.S. economy equates to a 32% loss of federal revenue (individual states of residence also lose taxes). For example, the shift of $803 million in wages and salaries to offshore locations results in a loss of $200 million in individual federal payroll tax, $50 million in Social Security tax, and $12 million in Medicare tax to the federal government.

While the economy is composed of many factors, consider changing just this one factor in the U.S. If American corporations could loosen their grip on cash and exercise their corporate social responsibility, these organizations could infuse the U.S. economy with the jobs that currently exist offshore. Additionally, as a side note, the organization analyzed in the above example experienced a 17.9% decline in basic earnings per share over the five years.

Benefits of Unit Cost Analysis

I worked for Monsanto in the Agricultural Division as a young accounting assistant. I was transferred from corporate to agricultural, entering a whole new world. At that time, the agricultural division was the most profitable part of the organization. What made it a new world for me was that there were no computers within this accounting department.

My first responsibility was to compose the domestic gross profit statement. I asked where to find the computer so I could begin setting up the spreadsheet. My boss laughed and handed me a columnar pad with thirteen columns and a calculator.

Each month, I used a 20-pound report for each product and transferred the respective product's gross sales, freight, quantity sold, and cost-related expenses onto my paper. I calculated the sales and cost units by product, compiled all the information, and generated a gross profit statement. During this process, I needed to explain why any sales or cost unit deviated from the budget by $.005.

I realized I was the computer. In this accounting environment, the belief was that computers are good, but people are more intelligent. A spreadsheet can't tell you why. To know why, you must understand the nature and components of unit cost.

A unit cost reflects the costs incurred to produce, store, and sell one unit of a particular product. Unit costs include:

· Fixed costs - depreciation, monthly rents, organizational cost allocations, and any cost incurred, whether or not production occurs; and
· Variable costs - labor, materials, electricity, any cost that increases or decreases depending on the output produced.

Total cost/total output equals unit cost. Total cost and total output are typically derived from a budget or forecast and can change on an annual, quarterly, or monthly basis. The static unit cost is a "best guess" based on past results, used to analyze the variance between the static unit cost and the actual unit cost. This variance analysis creates awareness of input costs, planned output, and planned productivity.

Input costs refer to the products and services used to produce output. Examples of variances are:
· Increase/decrease in the cost of material,
· Increase/decrease in freight in,
· Loss of vendor discounts,
· Missed vendor discounts.

Planned output is the estimated number of units. Examples of variances are:
· Material shortages,
· decrease in available labor,
· Equipment breakdown,
· Raw materials spillage,
· production for a customer who later canceled the order,
· Over-production based on incorrect scheduling,
· Overtime required due to unscheduled production,
· Overtime required due to a labor shortage,
· Increase/decrease in labor benefits,
· Increase in hourly wage.

Planned productivity refers to the number of units produced by current employees. Examples of variances are:
· Acquisition of new machinery that is less labor-intensive,
· Improvements in the production process.

A change in fixed costs can also contribute to the variance. For example,
· Change in fixed cost allocations,
· Increase/decrease in support staff costs,
· Change in monthly depreciation or rents.

Unit cost variance analysis can reveal these changes. Sometimes, poor communication results in an over- or understated standard cost unit. These variances also alert management to changes that can be addressed quickly before the end of the next monthly cycle, such as negotiating discounts with vendors or identifying new suppliers to provide materials at a lower cost. A monthly cost variance analysis completed within the short closing cycle can increase profit and efficiency.

QuickBooks Customer Credit/Refund Processing

There are instances when the accountant must apply a credit to a customer's account. Understanding customer credit/refund processing in QuickBooks is critical to maintaining the general ledger account balances and easing the burden of bank reconciliation. QuickBooks accounting software has built-in options to handle these situations. Understanding how to utilize these options will ensure that the correct general ledger accounts are used. 

1. Retain credit on the customer account for use when paying another invoice.
2. Issue a refund by check or credit card, and
3. Apply the credit to an outstanding invoice on the customer account.

The customer requests a credit and rebill of a previous invoice.

This is an example of 3-Apply the credit to an outstanding invoice, and also how to create the new invoice (rebill)

• Using the disputed invoice as a 'model,' choose 'Refund/Credit' from the ribbon menu to create a credit for the current period and apply it to the disputed invoice.
• To issue the rebill, choose 'Create a copy' using the disputed invoice from the ribbon menu. This will assign a new invoice number and a new date. The original invoice date can be used if the rebilled invoice is from the same period. The latest period date is used if the disputed invoice is from a prior period. Make the requested corrections and save the invoice.

This will ensure the credit memo and the reissue invoice are recorded in the same period. 

The new credit memo will be applied to the disputed invoice, reducing the amount due on the customer account. 

Retain a credit on the customer account.

When a customer returns a product for which they have already been invoiced and paid, use the original paid invoice as a model. Choose 'Refund/Credit' from the ribbon menu to create and save a new credit memo for the customer to use in future payments.

Issue a refund by check or credit card.

. Access the paid original invoice and create the credit memo. Since the invoice has been previously paid, choose 'use credit to give a refund'. 

In the Account section of the refund, choose the checking or credit card account to issue the payment.

Utilizing credit memos for customer credit processing ensures the original transaction is properly reversed to the accounts receivable, inventory, income, and cost of goods general ledger accounts. 

Workarounds don't work.

 

Some organizations want to circumvent the accounts receivable refund process by setting the customer up as a vendor and issuing a refund check through the check-writing option. Reimbursing a customer by writing a vendor check does not reduce the income incurred through the original invoice. This procedure leaves income overstated by the amount of the refund. If the customer's refund check does not use the item tab, the inventory will not reflect the return of the product.

 

In addition, organizations processing customer payments by credit card often misunderstand the flow of credit card receipts to the operating account. Customer credit card payments flow directly to the operating account for many organizations. When the customer's credit card payments are part of the operating account, the customer refund can be issued as if it were a check. This will be reflected in the credit card processing software maintained outside of QuickBooks. For example, a customer refund is issued to the credit card using the bank's credit card processing software. The customer refund must also be entered using the QuickBooks customer credit processing to ensure that cash and the customer account are correctly recorded. Issuing the customer credit in the credit card processing software only causes money and income to be overstated.

 

Circumventing the established QuickBooks process for handling customer refunds can cause cash to be overstated, income to be overstated, cost of goods to be underestimated, and inventory to be understated if the goods are returned. This also puts additional strain on the bank reconciliation process by increasing the time needed to reconcile the exceptions in the credit card processing and creating the journal entries required to reset the affected general ledger accounts, circumventing the process. 

QuickBooks Budgeting Tips

Using QuickBooks to create and monitor your annual budget is more straightforward than it appears. Because QuickBooks budgeting requires month-by-month entry for the annual budget, users often shy away from using the budget module. However, with a few simple changes, you can create a budget that works for your business, is easy to review, and is easy to change.

The Secret to a Painless Budget

The secret to a great budget is simplification. Do you really care about each detailed account when you review your organization's performance? Only if there is a question, and using the budget report can provide one-click details.

1. Review your chart of accounts, whether numeric or alpha. It's easier if you print a profit and loss statement and highlight the important results, such as total income, total cost of goods sold, total sales expense, and total general and administrative. The goal is to budget at a high level to make monitoring performance quicker.
2. For the accounts you marked as important, set up a parent account, such as payroll liabilities. The individual payroll liabilities, such as FICA, Federal, State, State Unemployment, Worker's Compensation, etc., will become subaccounts of this parent (this becomes clearer when viewing the chart of accounts in the hierarchical view).

 Reviewing Budget Reports in QuickBooks

QuickBooks supplies basic reports for reviewing budget performance. You can control how often you review and modify your budget by modifying the reports and saving them with a new name.

For example, using the basic QuickBooks budget report Profit & Loss Budget Performance run the report to the screen. Choose Modify Report from the menu bar. Several tabs will appear. On the Display tab, change the report range date to quarterly. To view the difference between actual and budget, on the Display tab choose show actuals and show dollar difference. To reduce the data in the report, select the advanced tab to show only rows and columns with budgets.

Entering the Budget in QuickBooks

The QuickBooks budget is set up for monthly entries. If your organization generates only annual budget amounts, take the annual budgeted amounts and divide them by twelve. Enter the monthly amount in the January field and choose "Carry this across."

To enter a budget based on quarters, individually divide each quarter by 3 and enter the correct amount for each month of the quarter.

Using QuickBooks budgeting helps businesses stay on track. You can easily see where you are compared to your budget and what you need to change. Using the budgeting module may seem like a lot of work, but it ultimately saves time and prevents surprises.

 

Accounting in Everyday Life

Whether you are managing a business or a home, accounting is an integral part of everyday life.

You look at your salary, pay the bills, and decide where else to spend your money. You also look at your pantry and take inventory of canned goods and other products before grocery shopping.

  

Two accounting statements, the balance sheet and the income statement, are valuable to understand and practice for business and personal use. These statements can help you know where your money is going and how to best use what you have.

The Balance Sheet is a statement of your assets and liabilities. Your home is an asset because it is worth something, and the amount you owe on it is a liability. After subtracting the cost of mortgage payments, the equity portion is what you have left in the home's value. The equity portion is also called your net worth.

In the simplest terms, income statements represent the incoming and the outgoing. The incoming are your paychecks, customer payments, or dividend and interest income. The outgoing is what it costs you to maintain your home or business: the gas, the electricity, the groceries, and the supplies used to make the product you sell or use in the service you sell. When the incoming is less than the outgoing, you are "in the red." This means you are not making a profit and have a negative net worth.

The balance sheet and the income statement are dependent on each other. On the balance sheet, there is a liability called Accounts Payable. These are bills you have to pay. When you record accounts payable, you also record an expense. The Accounts Receivable is the money others owe you. When you record accounts receivable, you record Income.

Credits and debits can be best understood by understanding the Balance Sheet and the Income Statement. On the balance sheet, the assets are debits, and the liabilities are credits. Equity and net worth are also credits.

On the Income Statement, Income is credited (and the asset increases to Cash or Accounts Receivable), and expenses are debited (Cash is reduced and Accounts Payable are reduced). When you record your paycheck, you debit your checking account and an asset, and credit your Income. When you pay your bills, you credit your checking account and accounts payable and debit your expenses. When you balance your checkbook and have cash left over at the end of the month, this is your net worth.

Because you have cash left, the credit of the money coming in and the debit of the cash going out is a credit balance. This credit balance passes to the Balance Sheet Equity portion and reduces the liability portion. Hopefully, your assets equal liabilities, and you are "in balance."

Clear as mud?

Think of it as an X. At the top of the X, on the right and left sides, are the Assets (on the right) and the Liabilities/Net Worth (on the left). At the bottom of the X, horizontally to the left of the Asset line, is the income-credit to Asset. At the bottom of the X, horizontally to the right of the Liability/Net Worth are expenses (decrease to Accounts payable) and Equity (cash).

Assets increase cash and Accounts Receivable. Liabilities increase Accounts Payable and Equity (the net Income left over after all bills are paid). Income minus Expenses is Net Income. A positive net income is a credit balance that moves to the balance sheet. The Assets minus the Liabilities equal Net Equity or Net Worth.

Can't you hire someone to do this? Of course, but you need to know how much cash you have at the end of the day. When you apply for a loan, the bank looks at your net worth in this way. That is why they ask about how much you owe on your home, what investments you have, and what you owe. It helps, especially in today's economy, to understand what you have and do not have and how to manage the cash coming in to pay your expenses and have some left over.

What the payroll tax increase means to you

Now that the government has repealed the payroll tax cuts U.S. take home pay is cut by two percent. In addition, the IRS has restricted the federal income tax tables so middle-income folks may be subject to additional federal tax increases.


To reduce the strain on your income you may need to adjust your spending habits. Learn how to reduce your everyday spending with a minimal impact on your lifestyle.

Roll in the Dough with Rolling Forecasts

I am working on rolling forecasts, a good way to replace your annual budget process and position your business for future growth. Rolling forecasts are not new. Rolling forecasts have been in use for some time, and large organizations undertake these with some regularity.
As a small or mid-size business, rolling forecasts can give you real power to control your financial future. The concept is simple, and involves setting targets for where you want to be profit wise in, say, five years. Lets say you want your profit level to be at $5 million, or $500K. Either way set the target.
What you are going to do is make a plan. But, instead of setting a one-year plan and going through an exercise of sticking to that plan, you are going to set a plan that involves real time business operations. The plan will be set up by quarters, so you will be setting up the first five quarters, or the next 15 months.
Now, instead of nickel and diming your financial expenses set the main levels of production and inventory expense, sales and marketing expense, and administration.

Have patience and wait under the end of the first quarter. How did you do? Where did you fall short? Is there a product that needs to be marketed more? Or costs too much to be profitable? Are you paying too much?

After the first quarter is complete, decide how you will achieve your sales and profit again for the next 15 months. Redo the second through fifth quarter of your original rolling forecast, and add another. Second now is the first quarter, third is now the second, etc.

After you do this for a few quarters, you'll get the hang of it. And you will be able to see where your business is going, and decide where you want it to go.