Brian Keith, CEO in Tommy Boy (as he points towards his new assembly line): Now, Gentleman, let me really show you something,"

Company CFO (cynically): Well, then, let me go off to my cubby hole with my fellow nerds.

Reporter to King Abdulaziz's Treasurer: Can you explain to me how this system works?

Two kinds of individuals typically become CFOs: those dying to have the job and those stuck with it when they fail to win election to a more exciting or less onerous job.

If you come from the former category, you'll undoubtedly take a lot of offense at the statement by the CEO and CFO in Tommy Boy. The finances of the Company depend upon the deft work of the CFO. He, alone, knows the true financial status of the Company; ignoring him amounts to ignoring the Company doctor. These CFOs will undoubtedly also worry a lot about Abdulaziz's rather scary system of accounting mentioned above.

If you fit into the latter category, you may find the quotes rather heartening. A lot of the CFO's job does entail crawling off into a hole with the other nerds, less interaction with folks, and more time with figures. You may also find the Treasurer's system in the second quote as one you yourself might use...if no one watched too closely.

Either way, the Company needs a CFO, and it elected you as its best choice. If you relish this job, you will undoubtedly stay up nights reading accounts books, refiguring equations, and making ad hoc reports! Fortunately, if you despise this job, you can still probably learn enough to do it pretty effectively.

For both groups, it would benefit to give some basic introduction to accounting before discussing specific tasks of the CFO.

Accounting sometimes maintains an aura of mystery much akin to an odd form of magic. One might expect Harry Potter to study Accounting along with Predestination, Potions, and Levitation. It need not remain so obscure. In fact, accounting uses some very logical policies and principals. The trick lies in the fact that the more complex the Company and processes mirrored in accounting equations, the more detailed the accounting system, not necessarily the more difficult.

To make an analogy, if a biology student needed to divide all of five animals into two categories, he might easily choose invertebrates and vertebrates, particularly if his collection included a worm and a dog. If that same student needed to divide a hundred different animals, obviously, he might use 15 different categories, but the same basic distinction between invertebrates and vertebrates would still, undoubtedly, find an important place in such a system. The better accountant does not necessarily work with a more difficult, complex system but more effectively produces the numbers needed by the Company.

Needless to say, the purpose of all accounting lies in just that: producing the numbers needed as required as well as, obviously, keeping track of money.

B. Assets, Liabilities, and Owner's Equity

A business needs to concern itself with three basic accounting categories: Assets, Liabilities, and Owner's Equity (OE). Owner's Equity represents the owner(s) stake in the company. A business that needed no money whatsoever to start would have only assets (positive +) and liabilities (negatives -). It should seem logical to suppose that the "economic status" of the Company finds its expression in the following equation:

Economic Status = Assets minus Liabilities

The "economic status" of that Company, however, belongs to its owners. One can think of this in terms of your own bank account. If you owe 50KD in checks but you have 70KD in the account, you can express the balance of the account as:

Balance (20kd) = Assets (70kd) minus Liabilities (50kd).

In accounting and in business the "balance" belongs to the owners of the Company, i.e., Owner's Equity. In any K-Business company, this ownership belongs to the stockholders. Their "equity" then equals the following equation:

Owner's Equity [OE] = Assets - Liabilities

At various times during the year, but especially during the final Liquidation of the Company, the Accountant will use this exact equation above. At the midyear point, and probably at other times, the CFO may want to use a slight variation of this equation:

Owner's Equity/ shares outstanding = Assets - Liabilities

The "shares outstanding" of course represents the number of shares. In other words, this formula gives the current (or final) value PER SHARE of the company. This is also called the BOOK VALUE of a share. One entire school of investing the "Fundamentalists school" looks very closely at this "book value" because they believe that the value of share on the market should closely reflect this book value. A fundamentalist investor will typically buy a share IF he finds the market value below that of the book value. In other words, he considers the sale price a "bargain." Not every investors agrees with this theory and logic. However, your shareholders will certainly want to KNOW this value, no matter how much or little they value this information. Similarly, you undoubtedly want to periodically know the balance in your bank account whether you intend to buy a car or not.

Before leaving this equation, we need to note two other items of future interest: revenue and expenses. Revenue comes primarily from selling product, and we could consider it an addition to the assets of the firm. On the other hand, expenses cost the firm money, and we can consider them as additions to the liabilities. Typically, the accountant will lump them together as they both occur in terms of producing and selling goods. Thus:

Owner's Equity = [Assets + revenue] - [Liabilities + Expenses]

More commonly this is regrouped as:

Owner's equity = Assets - Liabilities + [Revenue - Expenses]

C. The Accounting Equation

At this point, accounting starts to take on a form easier to record and monitor. From the initial equation, accountants regroup to put assets on the left side. They do this by either adding "liabilities" to both sides or subtracting "assets" from the right and "owner's equity" from the left and then multiplying by negative 1. In either case, one ends up with the following "classic" equation:

Assets = Liabilities + Owner's Equity

Classic accounting spreadsheets, such as the General Ledger always arrange columns in this same fashion. This should make a fair degree of logical and recording sense. The accountant can readily survey his assets. They include his cash on his hand, his bank account balances, etc., but the other side looks a bit murkier. For example, the firm will typically make its purchases by check. The raw materials, then, would appear on the right hand side, but the check, not yet charged to the Company would appear on the right. Again, the OE represents whatever remains if we compare assets to liabilities. Thus, by looking at something we can easily count, the assets, and calculating on paper something more difficult, the liabilities, we can arrive at the owner's equity, the difference. To, again, compare to this to a checking account, if you simply put your account into your machine and ask for the balance, you will get a pretty poor picture of your financial state (as a later section will demonstrate). The accounting equation allows a truer picture.

As the company alters its position, it will add revenue and pay additional expenses, and this addition effects both sides of the equation. In fact, though, one can think of the current assets, the company's money on hand, bank balances as ALREADY reflecting the effect of these additional sales and costs. Thus, one can write the modified equation as follows, the typical method for expressing this equation.

Assets = Liabilities + Owner's Equity + [Revenue - Expenses]

When the company goes out of business, the latter part of this equation will equal zero since the company will pay off all of its expenses and collect all of its revenue. As a final step, it will pay off its outstanding debts, leaving assets equal to Owner's Equity, i.e. what's left at liquidation belongs to the stockholders. If the company makes more profits on the goods that it sells [revenue minus expenses], the company's assets will increase, and, thus, its value to its owners. To most companies, the idea of going out of business seems like a nightmare, while accurately accessing the financial health of the firm's holds high importance. Since a K-Business firm WILL liquidate in May, it will follow the very steps listed above.

All forms of financial reporting use the equation above. They differentiate primarily in what they include and exclude and how to record various entries. Thus, the accountant or CFO effectively reshuffles the data to suit the Company's needs. As a matter of historical interest, large companies expressed almost no interest in microcomputers until one programmer found a way to make a spreadsheet one could run on a PC; sales to businesses rocketed. The program, "Visi-Calc," allowed firms to do exactly what they wanted to do, use a spreadsheet to reflect the accounting equation. Firms started buying computers like crazy.

D. Accounting "Identities"

At this point, it makes some sense to use a little bit of algebra. This section will explain how accountants can shuffle around numbers on paper without "creating money." If the CFO does not understand this section, it does not mean he cannot do his books. However, many will wonder as to how they can fill in transactions without doing something mathematically suspect.

Given the above equation, two different kinds of transactions might alter the totals of the equation without actually altering the equality. To show this, let's replace the variables above with numbers.

Imagine the firm records its weekly sales and materials expenses on the same items, i.e., the resources to make the product along with the resulting sales. Unless the Company leadership has some serious mental problems, the sales of these items should bring in more revenue than they cost in expenses. Suppose that the revenue equals 15 (for 10 items) and the material cost for the same items equals 10. First, try adding these items just to the right side since, after all, these items come as a result of adding R-E.

Obviously, the equation above makes no sense! In reality, when the firm records these sales and their expense, it will likely put the money to some account, such as cash, on the asset, LEFT, side of the equation also. Thus, more reasonably

This equation would certainly calm Ms. Fayrouz a bit. This better reflects what really happened in terms of the firm's value, i.e. OE. If this company liquidated immediately, it would divide 9 KD among its owner because if subtracted its liabilities of 8 from its assets of 17, 9 would remain. Prior to this week's sales, it could've only liquidated and divided 4 KD. This means what you probably intuitively believe, the firm became more valuable through these transactions. The CFO's task lies merely in putting the numbers into the right accounts. Further, note that if he only makes one entry, this will cause an error.

Another example will provide a transition into the next section. Imagine that the firm borrowed KD 4 from the bank. As you intuitively guess, this doesn't really make the firm more valuable. Look at the example below. In borrowing, it increased its assets on the left side. On the other hand, it now owes 4 to the bank, an increase in liabilities. Therefore:

Sure enough, if it liquidated tomorrow, it would still return its owner's only KD4. However, something did happen. Money moved between accountants, and the accountant needs to record this movement so that the Company can find the funds. This transaction did not "create money," but it did move money to different places, and the Company needs to know where it lies and, of course, that it needs to repay the bank.

To use one final example suppose that the Firm transfers money between accounts on the same side of the equation. For example, suppose that the firm bought back two shares of its stock. Obviously, it needed to get that money from somewhere to finance the transaction. Either it (a) sold off some assets or (b) borrowed money to finance this purchase. The former would effect the left side of equation decreasing assets and the right side by decreasing OE; the latter would effect only the right side of the equation, increasing liabilities and decreasing . As shown below:

Mathematically, these have the similar effects in that, in both cases, the left side equals the right (of course). Further, note that though the liquidation value remains the same [2], the account balances differ. Particularly, though, look at the right equation. Adding a both a positive and a negative of the same number has no effect on the equation. Money did not "emerge from thin air," nor does the larger asset total [12 versus 10] make the firm on the right "richer." Thus, we can move money between accounts all we want and not claim to have changed the value of the equation, or the Company. By the way, Enron's CFO did something rather similar to the transactions on right, claiming to have increased stock value; he's in jail now. Apparently, the government's lawyers understood basic algebra! Again, if you don't totally understand the preceding sections, this does not mean you can't do the CFOs books.

This background information should prepare the accountant to enter the world of double-entry accounting.

All "true" accounting systems use a special form of "check and balance" known as double-entry accounting. Double entry accounting assumes that every entry an accountant makes represents something "good" and something "bad," i.e., a "debit" and a "credit." At the end of each accounting period, usually termed a "cycle," whether monthly or yearly, the accounting officer totals all of the columns. The debits MUST equal the credits. This follows from the demonstration just concluded. The primary purpose in this double entry lies in making sure that accountants do not "create" money from air and record entries. Thankfully, due to the computer revolution, many accounting systems will automatically make a second entry and may even automatically check credits versus debits. A spreadsheet, even without any automation, will allow quick and easy totaling of columns; a CFO can even set up his spreadsheet to double-check each entry.

Students familiar with introductory economics remember the system of "T accounts." The name comes from the "T" made to form the account. For example, a bank's T account may show a deposit as follows:

The bank's reserves increase by 100. On the other hand, they're "liable" (owe) the 100 so deposited. The "good thing" on the left balances the "bad" thing on the right. A company's accounting system uses considerably more accounts than this, but the principals do not change. Further, the accounts follow the listing in accounting equation. One can think of the Company's entire collection accounts, often called a "General Ledger" as a giant "T" account with assets on the left and all other accounts on the right:

___________________________________________________________

Assets | Liabilities + OE +Rev -Exp

Thus, mathematically, any time an entry effects both sides, it does not change the accounting equation, the equality, but it will alter the totals. A demonstration of this occurs above in the example about recording income and expenses. The fact that the two sides of the equation must balance provides a means for the CFO to check his entries.

The five categories above leave room for at least five different kind of accounts. In addition, each account must have a "credit" and a "debit column." As you can realize, any economic action can take two different kinds of activity, all one side of the equation, i.e. all assets, or divided on the two sides. Further, each entry contains a credit and debit.

In the bad old days of accounting, accountants lacked the tools to perform these methods of checking their entries. This meant periodic entire afternoons spent with a calculator checking every single entry until (a) the left and right side equaled and (b) credits equaled debits. These days, at the very least, a CFO can set up and quickly write a formula that adds all debits, another that adds all credits, and compare them after each entry. This allows eliminating one kind of error immediately during data entry. At least once a night, the CFO should also check the two sides of the equation. Eliminating errors now means fewer to correct later.

Large companies may have literally hundreds of accounts. However, all of them take the characteristics above. They either fit into the LEFT side (assets) or into the RIGHT side (liabilities + OE + [Rev - Exp] ). Further, each account needs a debit (left) side and a credit (right) side. The left side of the entire equation MUST equal the right. Further, the debits MUST equal the credits.

The accounting task in its most basic form always follows this model:

F. Accounts and Accounts

When bankers say the word "account," they automatically mean an account in the bank. Thus, when you open an "account," it exists as a separate entity with a number, government tax information, etc..

Accountants use the term "account" somewhat differently. An "account" equals a column in the accountant's records. Thus a "Capital Account," exists on paper as does a "Materials" account, not at the bank. On the other hand, the "Cash Account," physically exists. In this explanation, the term "account" will always refer to accounts in the sense used by accountants, not by bankers, unless otherwise specified.

II. The K-Business Accounts Model and the
Financial Records [General Ledger] Form

Thankfully, K-Businesses use a relatively small number of accounts. It makes some sense to briefly introduce each of them in turn. In the event that a Company needs MORE accounts, it may need to add additional columns to the fin_rec form. This explanation will first go over the accounts, explain the most important transactions, and finally explain their termination.

For convenience, Fin_rec spreadsheets have some columns in italics and others in normal writing. To make it simple, the credit columns appear in italics and the debits in normal print. Initially ANY entry in the credit columns should automatically appear in italics. CFOs are well-advised not to alter this setting.

You'll notice that some of these accounts LACK a second column. For some accounts the vast majority of entries fall into one category only; for example, the CFO records all Sales Income as credits. By omitting these extra columns, the spreadsheet becomes smaller in size, so the CFO can print it out more easily.

Occasionally, an entry will occur that SHOULD have occurred in that missing column. In accounting, they refer to such entry as a "reversal," and these entries violate the general rule that accountants will do almost anything to avoid negative numbers. Commonly accountants circle these transactions. While a K-Business CFO could do this, this would mean the CFO remembering to circle these entries anew each time he prints the spreadsheet and further remembering to alter his formulas to remember to subtract one square of the spreadsheet while adding all of the others. As an alternative, K-Business CFOs should enter a negative number and remove the italics on a credit column to regular writing and add italics to a debit column. Thus, if the CFO needs to return KD5 in Sales Income for a refund, he would enter into the square of the spreadsheet "=0-5" [note the syntax] and remove the italics from this entry only. If this becomes too confusing, the CFO can simply add another column to the spreadsheet, such as a debit column for Sales Income.

In order to save space, also, each transaction on the spreadsheet occurs as a number, not a name. Each time the CFO makes an entry he needs to add a corresponding note on the bottom as to what occurred. If the explanation takes more than one line at the bottom, the CFO should add more space and simply record fewer transactions rather than not understand the transaction.

The CFO needs to follow two other important guides:

(1) Each transaction takes its own line. Thus, if line 10 records the Sales Income for January 23rd, the CFO should not add in the commissions on the same line. Some hints below indicate ways in which to cut down on the number of transactions.

(2) Keep pieces of paper. This may become very annoying very quickly. Modern accountants typically scan receipts and keep them in one place on their computer. If no other idea occurs, create a separate physical file for them, punch them, and keep them in order. The CFO may want to put a transaction number on each piece of paper. In general, EVERY transaction needs a corresponding piece of paper.

B. Accounts, From Left to Right

1. Cash Account

This account corresponds to the physical cash present. Unlike some other accounts, the Cash Account contains a third column which subtracts credits from debits. Obviously, this balance must at least equal zero. When totaling all accounts, the CFO needs to exclude this balance column, which exists so that he can check to make sure his balances match his cash, as it represents neither credit nor debit.

This following point bears special emphasis: If the balance on the right hand says KD50, the CFO's cash box should contain KD50. This box should not contain "IOUs," promises, candy-wrappers, and it must match the total of that balance column. Further, it should remain under lock and key either in a file cabinet in Dr. Dan's room or in some other safe place. CFOs need to purchase a cash box immediately.

2. Accounts Payable

In real firms, this corresponds to an account of debts paid for in various manners. In K-Business, this will correspond to the firm's virtual account Checking Account (see explanation below). If the CFO writes a check, he needs to record this both on this form and on the checkbook file. The latter essentially allows for a fuller explanation of each check.

The Business Office has consented to act as our K-Business "virtual" account holder for the purpose of checking. So CFOs will, if needing to make a deposit or withdrawal walk over to the Business Office with a piece of paper recording the amount deposited or withdrawn. Furthermore, if requested, the Business Office will write a check for the K-Business company in the name of FAWSEC and make the appropriate differences in the balance.

Like the Cash Account, the Accounts Payable uses a balance column which the CFO should omit when adding debits and credits. In theory, this column should help making decisions about whether to write a check. In reality, it may take awhile for businesses to cash outstanding checks, the Business Office to process deposits, etc.. For that reason, the CFO needs to write checks with some caution. The Business Office WILL require an invoice to write any check, so the CFO needs also to require the same from the spending agent, whether VPoM or CIO and should not write the check without it. Further, he should keep a copy of the invoice as the Business Office will require a copy for its own records. If that means a day's delay in giving the VPoM or CIO a check, then the CFO should sacrifice the time in order to keep good records.

Due to the amount of time required to process such transactions, must companies will choose to use cash for most transactions. The virtual bank account will serve as a repository for large amounts of cash with about 4-6 withdrawal or deposits per year.

The next three columns represent accounts traditionally only recording credits. The first column will come into use when the firm sells its stock. After the third week, this column should have no action until final liquidation. The CS will give the CFO these deposits as one piece of cash and record the individual salesmen in his/her records.

The second column will take the vast majority of the firm's income. Each night, the CFO should record one entry to record the Sales Income. The VPoS will give the money to the CFO as one piece of cash and the CFO need not credit individual salesman.

The "Other Income" will probably fall into use if the firm sells some of its left-over equipment or capital at liquidation. T

4. Other debits: Materials, Employee Compensation, Other Debits

These last three columns represent accountant traditionally only recording credits. The CFO will use the first column to record fixed and variable expenses other than payroll. These may come from either (1) the VPoM, (2) the CIO, or (3) VPoS. While Purchasing or Marketing may make the actual purchases, the CFO should limit the receipt of receipts or requests for checks to VPoM, the CIO, or VPoS.

The Employee Compensation column will come from two sources, either the VPoS (commissions) or the monthly payroll from the VPoHR. Again, the VPoHR should present one amount of required compensation, and the CFO should present that amount with the individuals receiving it going into the VPoHR's books.

The last column should fit any other small purchase that does not fit into these other categories. In this column, the CFO should include the mandatory payment to the sponsors (KD100), the school for rent, etc..if charged.

C. Some Common Transactions

1. Selling stock

The CS will do this the first few weeks. He will give you the cash as one sum per night. The CFO will credit Capital Stock and debit Cash. Rebalance the Cash Account. Note that it remains the responsibility of the CS to get the right amounts and owners. However for the purpose of liquidation, if the CS gives only KD750, then the CFO only needs to divide the profit 75 ways. Actually who gets that money becomes the problem of the CS and his records, not the CFO, as the CFO signs it to the CS not the individual stockholders.

2. Recording Sales Income

The VPoS will give you one amount for each night. You will credit Sales Income and debit Cash. Rebalance the Cash Account. As in the case of the stock, crediting the correct salesman falls into the responsibilities of the VPoS.

3. Recording Other Income

In the event of selling machinery or other capital equipment, credit "Materials" and debit "Cash." Rebalance the Cash Account.

4. Purchasing Materials

The VPoM should give you a receipt. Possibly, the CIO will make a purchase. This should make a one-line entry for the entire purchase amount. You will credit Cash, hand him VPoM the specified amount, and debit Materials. If you write a check instead, credit Accounts Payable, enter the check in the Checkbook record, and, again debit Materials. Rebalance either Cash or Accounts Payable.

5. Other Expenses

These include paying your sponsor, room rental [if required], etc.. You will again either write a check and credit Accounts Payable, entering the check into the checkbook record and rebalancing, or crediting Cash. Either way, you must debit Other Expenses. You need to rebalance either Cash or Accounts Payable.

6. Depositing Money into your Checking Account (Accounts Payable)

You will credit "Cash" and debit "Accounts Payable." As mentioned above, one can consider this as one of those transactions that has no effect on the real value of the Company since it adds from one account and subtracts from another. You must enter this transaction also into the Checkbook. You must rebalance both accounts.

7. Withdrawing Money from your Checking Account (Accounts Payable)

You will debit Cash and credit Accounts Payable. You, again, must also enter this transaction into your checkbook. You must rebalance both accounts.

During the first few weeks, the CFO will need to record the stock income from the Corporate Secretary. After this, most evenings will typically involve, at most, 2-3 transactions.

First, the CFO should collect any income. Almost always this will come from the VPoS. This should, usually, come as one entry. It may take the VPoS some time to assemble this money. The CFO should double-check amounts to make sure they equal the totals presented by the VPoS.

Second, those making purchases or requesting them will approach the CFO. This will include the VPoM and possibly the CIO. The CFO needs to demand his copy of the invoice prior to making payment. By having these transactions second, the CFO may have the resources to simply pay them from the cash received and the balance in his Cash Account. This will simplify matters considerably. Remember, don't pay without a receipt. However, in the event of a lost receipt, please make sure that the purchaser speaks to the CEO and, if necessary, the sponsor for a fair solution to this problem.

Once these transactions finish, hopefully before 1600, the CFO should double-check all of his accounts on his computer. In the event the accounts "don't balance," he should continue working until they do, asking help from the CIO, CEO, and, if necessary, the sponsor.

Save each night's copy of the financial record under a new name. Thus, if last week's version was "fin_rc04," save as "fin_rc05.xls." Remember that Windows automatically saves the records in "My documents" unless you specify somewhere else. Make sure that your copy ends up in the right place. If something bad happens, and you save multiple copies, you'll only lose one nights transactions. After finishing on the computer, make a backup copy on either a floppy or a USB port to put on your hdd at home.

On an occasional basis, the VPoHR or VPoS will approach the CFO to pay salaries and commissions. The CFO should set up a regular schedule for payment, unless the Company can't afford these bills. Then, the night of payment, the CFO should get the cash from the Virtual Bank on his nightly trip. He should give the money to the VPoHR, small bills will probably help, and leave it to the responsibility of the VPoHR to make sure each employee signs for receipt of his cash. Their signatures should return to the CFO.

As mentioned several times previously, each K-Business company will also keep a separate checkbook account. Partly, the sheer size of the Fin_rec [General Ledger] forces this arrangement, but also this will allow for a greater and more accurate recording of each check's contents, dispersal, etc..

Each time the CFO makes any transaction concerning this virtual account, i.e., Accounts Payable, including nightly withdrawals and deposits, he must make a corresponding entry into the checkbook file. The far left column marked "trans" allows using the SAME transactions numbers as in the Fin_rec. Needless to say, the Fin_rec will undoubtedly contain more transactions than the checkbook since some transactions will not involve the checkbook at all, so the checkbook will not have a continuous series of numbers. The CFO need not skip lines so long as the two sets of transaction numbers match.

The Checkbook account uses its own "double entry" system. Each time the CFO makes an entry on the left side, he must make a corresponding entry on the right side of the "x." For a deposit, he will make a corresponding entry in the column on the nearest the "x" and for a check or withdrawal on the far right column. As soon as he receives acknowledgment of the recording of the transactions by the Business Office, such as a statement showing the deposit or cashing of the check, he will delete the entry on the right hand side of the column marked "x" and put in an "x" in that column. The "x" then means that the Business Office, indeed, finalized the transaction.

The logic for this may not seem obvious. This system allows a quick means of doing what is referred to as "balancing your checkbook." A bank (or Business Office's) checkbook balance may not correspond to the totals in the balance column of the checkbook. For example, if you take a quick balance at a nearby ATM machine, the balance may not correspond to that in your own records. This imbalance results from the slow processing of some transactions, particularly the cashing of checks. Businesses often take 2-3 days to process a check. The higher balance shown you on your ATM machine may mistakenly convince you (a) you have more money than you imagine or (b) your made a mistake in your figures. This can lead to some very fatal errors.

Banks traditionally help consumers deal with this situation through a complex and not necessarily intuitive system for dealing with outstanding checks, called "a check reconciliation." With the K-Business checkbook, the CFO can perform this task in a very quick fashion and as many times as necessary through performing the following steps:

Add the results of (1) and subtract the results of (2) to your current balance. It should equal the amount on your ATM balance or Business Office statement.

Obviously, this serves several purposes. The CFO can quickly determine if one of two errors occurred: (1) he made a mistake in the checkbook account or (b) the Business Office made a mistake in this account. The latter happens far more often that some people realize, and it pays to take the time tracking down the error! Generally, though, the errors come from the CFO. Doing this monthly "balancing of the checkbook" provides a way of identifying errors in this account similar to simply adding the cash on hand in the Cash Account.

The checkbook record also helps determine when individuals did not cash checks. Sometimes they lose checks; other times, they refuse to take them. By tracking down these instances and recording them, the CFO can help resolve these problems. The CFO should "balance the checkbook" at least once a month and request periodic statements from the Business Office.

Needless to say, the checkbook ALSO appears on the Fin_Rec. In the case of an error in this accounts, he needs to correct the corresponding entries in the Accounts Payable.

Given prior experience, most companies will choose to write few checks. Instead, they will deposit the majority of the stock money into their virtual bank account, leaving out an enough cash to purchase materials. Then, they'll conduct most transactions from that amount of cash. Further trips to the Business Office will occur for one of two reasons:

Though the procedure to deposit in this account may seem annoying, remember that, unlike even the safest cashbox, the money WILL be safe in the Business Office. If you start getting a very full cash box, consider making another deposit. See also H below.

In mid-December, the CFO should initiate a midpoint evaluation of the Company. This will determine the approximate value of the shares.

The CFO and CEO can decide exactly how accurate they wishes this to be. In simplest form, the CFO can total balances of "Cash" and "Accounts Payable," i.e., the cash on hand and balance in the checkbook and divide the balance by the number of shares. This will give a very "rough" version of the book value of the stock. Of course, the Company needs to subtract any liabilities, but by using the balance of these two accounts, which would include outstanding checks, the CFO actually already takes this into account.

A bit more accurately, the CFO should also include the sale value of (1) finished products and (2) raw materials. The former will come from the VPoS's figures of product outstanding MINUS commissions and the estimated resale value of raw materials as given by the VPoM of CIO. Also, in fairness, the CFO should subtract any outstanding compensation obligations that firm reasonably expects to pay.

This midpoint evaluation should include the totals from all columns. Thus, the firm will show its income from sales and expenses. However, the OE really matters the most to stockholders. The spreadsheet marked "Book_val" should help with this task.

The spreadsheet for "Book Value of the Stock" should make this task relatively simple.

While Liquidation of the Company for the President involves a long list of tasks, for the CFO, it basically involves simplifying an equation, or closing accounts. In short, one might say, first that the CFO closes all expense and revenue accounts, second pays all the liabilities. The remainder, the assets, equals owner's equity.

To do this, the CFO needs to do the following:

At this point, the only account remaining, "Cash," should have a positive balance. If the balance in this account does not equal the IPO value of all shares (i.e. 680KD if the firm sold 68 shares), the CFO need not take any remaining steps other than to divide what remains between those 68 shares as the firm made no profit.

However, if the remaining cash more than equals this amount, the CFO should take the difference between these two amounts as "profits."

The spreadsheet marked Profits should help.

It makes sense that most K-Business activity will involve cash, as suggested above. However, as experience shows, keeping too much cash on a school campus holds a lot of risks. Therefore, CFOs should follow the following guidelines.

(1) Keep no more than about KD60 in cash. This represents about the limit one can reasonably leave "lying around," even in a locked file cabinet.

(2) The Company should purchase a cash box and leave it locked in the file cabinet in Dr. Dan's classroom. The CFO should present this expense early. No one should have the key or combination other than the CFO and CEO.

(3) After the fourth week, the CFOs should make a large deposits to the Business Office of the stock receipts. If the sponsor wants cash other than shares, the CFO should pay this out of stock money. He should leave, again, about KD60 in his cash box.. Through much of the year, the amounts brought by sales and spent on materials should about balance and hopefully sales income will overshadow expenses.

(4) Always make sure those receiving cash SIGN FOR THE CASH. Every transaction should include paper.

If the CFO follows the guidelines above, he can probably limit himself to 4-5 transactions per night. Then, he can leave it to others, such as VPoHR or VPoS, to get individual signatures, by forcing them to present ONE bill for all salaries, wages, and commissions. Checks create their own records; the CFO must create them if doing cash transactions.

(5) When paying salaries, the CFO should get the cash the night of payment and give the entire amount to the VPoHR to sign for and deal with.

(6) The CFO may want to liquidate by writing one final set of checks to stockholders, even if it means writing 60 identical checks. This will get around the need for bringing 500-600 KD cash to one meeting. This will also allow tracking who gets his money and who does not more easily than having them return receipts.

Starting 2005-2006, a new code of operations applies to K-Business companies. Some of the regulations apply to the CFO. In many case, they simply make a rule of practices already done by CFOs. The relevant regulations appear below.