Monthly commitments sheet

In order for your management accounts to be as accurate as possible, you make adjustments for expenses that have been incurred but not yet invoiced (accruals). In theory, you should be able to identify any expense commitments from the list of purchase orders already entered on to your purchasing system; however, this rarely works effectively for “services” costs.

Other managers

Not being aware of all the accruals that need to be made will impact on your management accounts in two ways: (1) the current month’s performance becomes overstated as not all costs have been accrued for; and (2) forecasts for future months will be overly optimistic. Although these errors may result from activities which you were not aware of, the blame will tend to fall squarely on your shoulders as the accountant. So what can you do to avoid this?

To minimise unrecorded liabilities, send a Monthly Commitments Sheet, about a week before the month-end, to all managers who approve costs, requiring them to enter estimates of all significant un-invoiced costs in various categories, e.g. development projects, external services, abnormal purchases and other external and internal costs. The form should list the categories, with spaces for exact descriptions, e.g. professional fees, capital expenditure, travel, accommodation and staff overtime, columns for liabilities accrued by the month-end, and estimated total costs in the case of one-off exercises still in progress, e.g. advertising.