Business Income Tax Returns and Ratio Analysis
Q: Why are "accrued Liabilities" included in the A/P turnover ratio? I never include this category.
A: If an accrued liabilities balance is sufficiently large, movements in it can have a considerable cash flow impact. Consequently, we included it with accounts payable in computing accounts payable days – or, more appropriately – accrued obligations days – since the balance at $426,710 in 2014 has considerable and should be measured and tracked in some fashion. This was a simple way to do so.
As an alternative we could have constructed an accrued liability days ratio using accrued liabilities and operating expense, i.e., ((Accrued Liabilities) / (Operating Expenses excluding Non-Cash Charges)) x 365.
Q: For Poll question 4, aren't charitable contributions and non-deductible expenses "cash charges" or do these amounts represent expenses paid for by the shareholder?
A: Yes, charitable contributions and non-deductible expenses are cash expenses incurred by the company. John Benson will report the $12.430 of charitable expenses on his Schedule A, which is a non-cash expense to him. Further, the $9,939 of non-deductible expense is a cash expense incurred by the company, but John Benson will not report it on his personal income tax returns but, rather, it is used to reduce his “basis” in the company.
Q: Did you all calculate a UCA on this? I came up with ($707,274) in Business Cash Income. Just curious.
A: We did, and we’ll do so in Session 7 in some depth. Our Business Cash Income differs from yours by a very slight $3,338, which is the long-term debt balance in 2013. But congratulations! Very well done.