Separation of Duties – The Accounting Safeguard

Separation of duties. Every good accountant knows and understands the importance of this phrase. Unfortunately, not as many business owners do. Occasionally, a business suffers the consequences that result from not having this safeguard in place. That consequence? Embezzlement.

Separation of duties, refers to dividing the responsibilities related to a businesses’ cash accounts between two or more people. In a very small company, this may just be the owner and the accountant or bookkeeper. In a larger company, it may include two or more accounting staff.

Having one person who issues checks, records deposits and reconciles the bank statements, puts too much control over the cash accounts in the hands of one person. Separating these duties among two or more individuals creates a cross-check where unusual activity is more likely to be noticed.
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Are Insurance Premiums an Asset or Expense?

You just made your first quarterly premium payment on your business insurance policy. Obviously, insurance is an operating expense for your business so that’s where those costs should be recorded, correct? The answer to that is ‘Yes’ and ‘No’.

Yes, your insurance premiums should be recorded as an operating expense, but no, your quarterly insurance premium should not be recorded as an expense. Huh? How does that work?

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Excess Materials: Inventory or Direct Costs?

If your business tracks inventory and operates a business using material and labor to complete its projects, (a remodeling company or other construction related business, would be a good example), then you have probably had to deal with this accounting issue.

The project is completed and you have several material items that have not been used on the job. They can not be returned to the supplier, so you place them in the warehouse with other inventory items. When the invoice was paid, the costs were booked to your direct costs or cost of goods sold for that project. Is that where the costs should remain, or should the value of these items be removed from your direct costs and added to your inventory account?

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During and After the Sales and Use Tax Audit

A Decision Tree to Weigh Investment Decisions

Running a business sometimes requires decisions to be made about what you should invest in. Do you invest in the new equipment to create Product X more efficiently? Or do you invest in the new equipment that will allow you to build a completely new line of products (“Product Y”)? If you can only invest in one of those options right now, which one is the better option?

A decision tree is handy here. I’ll give you a simple example to show you what a decision tree looks like:

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