This is a problem that came up in regard to the financial management of the bushiban where I used to work. I wonder if anyone with expertise in accounting can offer some coherent analysis?
In terms of instituting a “profit sharing plan” for certain key employees, it is obviously necessary to have a firm grasp of income and expenses. Let’s consider the situation for July and August, for example, which were our busiest months. Often as not, certain utility bills are paid on a two month cycle. In such an instance, the July/August water, electricity, etc. bills might be received and paid in September, or perhaps even October. However, these are clearly “July/August expenses”, and so I maintained that they should be entered in the accounting records for July/August.
However, our accounting personnel said that was too troublesome, and just entered them in the accounting records when they were actually paid.
In my opinion, using this latter method distorts the true picture of July/August expenses. In terms of overall financial management, how can you do future planning, (or how can you institute any sort of profit sharing plan) when you do not have a firm grasp of current and past financial data, or if the records are “out of synch”??