13–13. Create a Contract Terms Database
It is a common occurrence for the accounting department to forget about the terms of various agreements other departments of a company entered into, resulting in missed billings to customers or payments to suppliers. Due to the special nature of these agreements, which fall outside of the usual accounts payable and receivable systems, it is easy for them to be forgotten. Examples of these contracts are billings for the sublease of company equipment, rebates, and maintenance agreements. The typical result of these problems is either missing revenue, because customers were not billed, or irate suppliers that were not paid. In the latter case, missing payments to suppliers may also result in the failure of key services to the company, such as failed maintenance agreements for key equipment. Thus, a lack of attention to the terms of a company’s various contractual arrangements can result in lost revenues or services.
The solution is to create a database of all current contractual agreements, along with a central file containing copies of all the contracts. An example of a contract terms database is shown in Exhibit 13.7. This database lists all of the key information about each contract, including the due date on which billings or payments are supposed to occur, the termination date of the contract, the frequency with which activities are required, ...
Get Accounting Best Practices, Fifth Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.