USA Equipment off books until due and payable


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We sell construction equipment. The manufacturer generates and invoice at the time the equipment is shipped to us. We have 6 month terms for payment of this equipment.

If I enter the invoice at the time of receipt, the AP/AR doesn't look to good for the next few months because it shows we owe a few hundred thousand more than we have sold so the ratio of AP/AR is ugly.

Is there any way to account for this machine other than not putting in the AP invoice until it is due?
 

kirby

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No, if you keep your books on accrual basis.
Ugly is a relative term. For folks who practice good cash mgmt that ratio is beautiful.
Brings up another question, if it takes 6 months to sell then is that a reflection on the sales force?
 
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Brings up another question, if it takes 6 months to sell then is that a reflection on the sales force?
Ha Ha, good one. No, it doesn't often take the six months for one of these to sell. But those are the manufacturers terms for us and I thought it would best illustrate my concern.

I was hoping there was a way to show it on the balance sheet some how.

Thanks for the help!
 
J

John Baker

Every enterprise operates within norms of it's industry and the market they exist in. If your business is selling commercial snow grooming equipment and operating in Death Valley, well, you get the idea - that's not the norm of being in business in Death Valley.
However, you're in this business because the ownership saw an opportunity and a need for products of this kind - so here you are. Also,
this business of yours has certain traits and happenstance that are expected, by banks, financial factor agents, credit reporting agencies,
governmental authorities - Fed, state and local. So showing something that pops up with a dollar amount that just screams of money, only
to be satisfied a few days later... just begs for flurry of questions from those you don't want asking questions.
Here's another consideration - when this property is received by your company, a person of your employ signs for it. Being on your property
has certain baggage. Insurance and liability claims are an important consideration when damages are incurred and your insurance carrier
finds out that your have no record on your books that supports that value. See where I'm going with this?
Also, trying to make you company look better that what it is by creative bookkeeping is outright fraud and can subject the one signing off
on misrepresentation open to all kinds of legal problems.
My suggestion to you is this- report the AP as you normally would like any other purchase. State this value (AP) at cost plus a all associated
acquisition costs as specified by your standards for the business that you're in.
Finally, I'd be very careful asking "around" of how to be creative.
 
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bklynboy

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Not sure AP/AR ratio makes much sense anyway. What do you learn from this? Turnover ratios I can see.
 

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