Page 260 - Accounting Best Practices

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12–24 Conduct Daily Review of the Financial Statements
Exhibit 12.5 Sample Journal Entry Form for the Allocation of Occupancy Costs
Account Description Debit Credit
Rent Expense XXX
Utility Expense XXX
Building Maintenance Expense XXX
Accounting Department Occupancy Expense XXX
Engineering Department Occupancy Expense XXX
Logistics Department Occupancy Expense XXX
Marketing Department Occupancy Expense XXX
Production Department Occupancy Expense XXX
Sales Department Occupancy Expense XXX

Instead, the update can be completed at everyone’s leisure, since it does not have
to be ready until the next month’s financial statements are put together. In case
there are any concerns regarding the relationship between the previous month’s
allocation base and the current month’s expenses to be distributed, one can always
release a study that shows the (almost invariably) minor changes in the allocation
base from month to month. An alternative approach that may quash any fears of
this sort is to use a three-month averaging allocation so that any unusual variations
in the monthly allocation base can be spread out. The only remaining problem is
the outside auditors, who may insist on an allocation base that uses information
from the end of the year; if so, the allocation base can be updated for the final
month of the fiscal year, but the system can revert to a previous-month system for
all other months of the year. This is an easy way to shift some of the workload
away from the busy days immediately following the end of an accounting period.

Cost: Installation time:

12–24 CONDUCT DAILY REVIEW OF THE
FINANCIAL STATEMENTS

Sometimes the initial review of the period-end financial statements comes as
quite a shock—the revenues or expenses may be wildly off from expectations.
This results in a great deal of frantic research, while the controller investigates
possible causes, rapidly makes changes, and issues bland statements to the rest of
the management team that the financial statements might be issued a bit late this
month. If the financials are indeed substantially different from what management
has been led to expect, the blame may even be pinned on the controller, who may
lose his or her job as a result.