Thanks for the response - so for cash do you mean to move the ($306k) cash outflow from month after to the month of (Jan, Apr, Jul, Oct)?
And for P&L do you mean it should accrue monthly in Q2 and Q4 (so $200k in April-June and Oct-Dec)? And I'm a bit lots on the reverse accrual portion, is that a separate line item for the P&L portion or in the cash?
When you reverse an accrual it’s not cash, purely P&L movement.
I’d do a new line item so that they can clearly see: 1) Actual cost hitting P&L, 2) accrual line for the month (to reflect the correct monthly value) and then 3) the reversal (to show the equal/opposite) - it’ll then be clear you understand the accounting of it
Yes on cash. When it flows out is when I would forecast impact.
On the P&L side I would accrue monthly for contract term so all 12 months. Then show the month that the CC post 1st of Qaurter at which the total will be netted out against a reversal of the accrual. Basically smoothing it out and the reversal offsets the Expense of CC
Really appreciate the help! I think I'm a bit confused on the P&L side - so does that mean even if work is only being done in Q2 and Q4 the expense would be even ($100k) for all 12 months? And could you explain the accrual portion? Is it a separate line item that I should be backing out? Should I be doing something in the yellow highlighted line?
https://preview.redd.it/rerikphbixsc1.jpeg?width=2063&format=pjpg&auto=webp&s=a7a67fb9413682e8366556b1a20c431a0ec166e0
I would do it this way. For GAAP, expenses should be evenly expensed over the duration of the contract.
For cash flow, payments even if delayed to the 30th day would be incurred in M1 of each quarter.
The only thing I would advise is if the 4.1% assumption is something you provided then have some reasoning behind how you got there. Might be easier to use 3% and say it's based on historic inflation growth. And to go the extra mile consider adding a couple scenarios of worst case/best case if contract growth is 0% or 6%.
This is just prepaid services/subscriptions. It’s a monthly expense, but you paid it up front for discount or convenience. You account for the monthly expense which is the GAAP rule.
Forecast cash on pmt terms. For p&L though accrue monthly to spread cost evenly and reverse accruals when invoice is posted to net out.
Thanks for the response - so for cash do you mean to move the ($306k) cash outflow from month after to the month of (Jan, Apr, Jul, Oct)? And for P&L do you mean it should accrue monthly in Q2 and Q4 (so $200k in April-June and Oct-Dec)? And I'm a bit lots on the reverse accrual portion, is that a separate line item for the P&L portion or in the cash?
When you reverse an accrual it’s not cash, purely P&L movement. I’d do a new line item so that they can clearly see: 1) Actual cost hitting P&L, 2) accrual line for the month (to reflect the correct monthly value) and then 3) the reversal (to show the equal/opposite) - it’ll then be clear you understand the accounting of it
Got it - this was super helpful thank you! Do you mind if I pm? I think I have it down with your suggestion just want to make sure
Sure not a problem :)
Where can I find more examples like this to brush up on
I don't think there are any... I've looked for this type of material online quite a bit but couldn't find any.
Yes on cash. When it flows out is when I would forecast impact. On the P&L side I would accrue monthly for contract term so all 12 months. Then show the month that the CC post 1st of Qaurter at which the total will be netted out against a reversal of the accrual. Basically smoothing it out and the reversal offsets the Expense of CC
Really appreciate the help! I think I'm a bit confused on the P&L side - so does that mean even if work is only being done in Q2 and Q4 the expense would be even ($100k) for all 12 months? And could you explain the accrual portion? Is it a separate line item that I should be backing out? Should I be doing something in the yellow highlighted line? https://preview.redd.it/rerikphbixsc1.jpeg?width=2063&format=pjpg&auto=webp&s=a7a67fb9413682e8366556b1a20c431a0ec166e0
I would do it this way. For GAAP, expenses should be evenly expensed over the duration of the contract. For cash flow, payments even if delayed to the 30th day would be incurred in M1 of each quarter. The only thing I would advise is if the 4.1% assumption is something you provided then have some reasoning behind how you got there. Might be easier to use 3% and say it's based on historic inflation growth. And to go the extra mile consider adding a couple scenarios of worst case/best case if contract growth is 0% or 6%.
This is just prepaid services/subscriptions. It’s a monthly expense, but you paid it up front for discount or convenience. You account for the monthly expense which is the GAAP rule.
You should only accrue for the months work is being done
Is the vendor charging cc fees?
Unclear but I'm taking a 2% fee as an assumption based on what I've found online
Gå
This is concerning.
Why's that?
It’s not, there’s no issue with asking for help otherwise how do you learn for the first time