Tuesday, January 5, 2010

Who's minding your business?

I made a follow up call to one of our customers today. The system was implemented about a year ago, and as is our normal practice, we call to inquire if everything is okay.

The answer I got was, as in an alarmingly large number of cases, something similar to "I will check with the accounts clerk and come back to you."

Although I have to a certain degree become immune to such responses, I felt compelled to write about the apathy business owners have towards their business.

How does a business owner run her or his business without concrete information about the business? Putting aside all the other analytical reports that a business owner needs, pertinent information such as:

  1. Am I making a profit, breaking even or worse still making a loss?

  2. Where is the money going? Are certain expenses too high in proportion to sales?

  3. Who owes me money?

  4. Who do I owe money to?

If as a business owner you have the answer to these questions, not necessarily at your fingertips, but accessible to you periodically on a timely basis, then it goes without saying that whatever system you have is working for you.

So, when a business owner responds with an answer like the one above, it generally is an indication of "I don't know, and frankly I don't care". Well, maybe not so drastic, but it borders on that.

Which in turn means that your accounts clerk is minding your business, and that's a dangerous proposition whichever way you look at it.


Anonymous said...

I am accounting students and bet $20 with my friend on one Journal entry
for sole proprietor.

ABC Enterprise paid Petrol $100 on Jan 2010.

Journal entry:

Dr Petrol expense 100
Cr Petty Cash 100

My friend said in real world the Journal entry will be: Sole proprietor
do not use petty cash account.

Dr Petrol Expense 100
Cr Drawing 100

Above 2 Journal entries, which one is correct??

Thank a lot. Thanks in advance.


DeltaTech said...

The answer could be one of both.

However, to say that sole proprietorships do not maintain or use petty cash accounts would be wrong. Some do, some don't.

It all boils down to how it was paid for.

Did the sole proprietor pay for the petrol from her/his own pocket and then claims it as a business expense? Your friend's journal entry would, therefore, be correct.

Or perhaps the petrol was for a company vehicle, and the driver claimed $100.00 from petty cash, which is handled by the sole proprietorship's accounts clerk? Then, your journal entry would be correct.

www.ANISEConsulting.com said...

Great article - and so true.