Recently I have had a situation where a sum of money has been paid in advance for expenses that are to be incurred in future periods by the company on behalf of a client.
When we received the cash, we definitely don’t want to recognize it as income nor do we want to recognize it only as an increase in assets. In reality it is neither an asset nor a liability and ultimately should have zero impact on the financial condition of the company.
I’m learning that when things are tough, when things aren’t going the way I’d like for them to, humility is not that hard to come by. I realize that I obviously don’t have everything under control, and I can’t solve every problem that comes my way. That’s humbling.
But I’m also learning that a funny thing happens inside of me when a little relief comes. Maybe a length of time has passed and I’m just overall less concerned or hurt. Maybe the problem isn’t as bad as I thought it was or somehow the problem has been made a little less burdensome. Or maybe I’ve just flat out forgotten about it and moved on.
Almost always, the relief comes from a place outside of me. I am not the one who brings about my own relief. God, in His mercy, time and time again, just takes care of it. And how do I respond in turn? I slowly but surely revert to my confidence in myself. My sorely misplaced confidence in myself.
So I talk to myself and say, “When relief comes, remain humble.”
Calling the same item by the same name every time is very important. Just like it is important to be consistent in your reporting, it is just as important to be consistent in what things are verbally described as. Call reports by the same name every time.
“P&L”is always “P & L”. Or “Profit and Loss Statement” or “Income Statement”.
Balance Sheet is always “Balance Sheet” or “Statement of Financial Position”
When dealing with your financials, change their presentation as little and as subtly as possible. For me, this is becoming part of the art of finance work.
Setting up revenue and expense accounts is not something that can be done on the fly. At least it can’t be done well. In order to be informative, understandable, and relevant it requires a deep level of understanding and at least some foresight into the future business operations, especially on the expense side.
Why is it so important to track expenses?
Capital accounts in quickbooks are not something you set up very often. The overarching idea with capital accounts is that you have a pool of investors that have all contributed specific and usually varying amounts of cash to a new startup. For tax, profit, and loss allocation purposes there needs to be detailed records of who has contributed what.
My goals are to work hard, have a nice family, and stay out of jail. That’s a rough cut of a line in a Harvard Business Review article that a colleague sent to me a few months back.
The idea that most intrigued me from this article, found here, (I have a pdf so let me know if you’re interested) is Marginal Cost Living. I’d just shorten it to Marginal Living. Christensen discusses how we all make one little decision after another and then we finally end up somewhere. Most of us then turn around and ask, “How did I get here?!” We make one seemingly unconscious decision and it moves the ball, but just a little bit. Lots of those put together and you end up with what Christensen says by, “My life has been one unending stream of extenuating circumstances.” How true this is.
