scrumfinance-blog

[scrumfinance-blog]

Electronic Funds Transfer Payments in LedgerSMB

When you reconcile a bank account in LedgerSMB, it will consolidate payments made on the same payment date with the same reference.

If paying a vendor's invoice with a check, then this isn't a problem. We want all the invoices that were paid with a single check to be grouped together.

However, if we make multiple payments via electronic funds transfers (EFTs) then this could be problematic. For instance, let's say that we paid the following five invoices on the same date:

The Home Depot $100.00

The Home Depot $50.00

KCP&L $250.00

KCP&L $100.00

Ferrellgas $300.00

If we use the reference EFT for all five of these payments, then when we reconcile the checking account, all five payments will be lumped into a single transaction on LedgerSMB's reconciliation screen for a total of $800.00.

To solve this problem, we started appending the amount of the EFT to reference of each electronic payment we make. For the example above, this means we would have made three payments and use the following references:

The Home Depot for $150.00 with reference EFT.150.00

KCP&L for $350.00 with reference EFT.350.00

Ferrellgas for $300.00 with reference EFT.300.00

Now when we reconcile the checking account, these three payments will show up separately, even though they were paid on the same date, since they have distinct references.

[scrumfinance-blog]

Data Life in an ERP vs. Data Warehouse

According to Marshall B. Romney and Paul John Steinbart in their textbook *Accounting Information Systems* 11th edition: > ERP systems and integrated AIS are not sufficient, however, to support management's strategic decision-making needs because they are designed primarily to support the organization's transaction processing needs. Accordingly, they typically contain data for only the current fiscal year, plus perhaps one additional month to enable comparisons of the current month's activities to those of the same month a year ago. Now we don't run SAP or J.D. Edwards, but in all the ERP systems that I've looked at not one of them states that they "contain data for only the current fiscal year." Is this really true in the larger ERP systems? Even in the case where a company has a data warehouse storing detailed information, it doesn't seem to make sense to delete the transactions from the operational databases. All of the ERP systems that I've reviewed, which I admit are mainly open-source systems such as [OpenERP][openerp], [PostBooks][postbooks], [Adempiere][adempiere], and similar systems, do not purge transactions from the database. So the question remains, do the large ERP systems really only contain data from the current fiscal year? [openerp]: http://www.openerp.com/ [postbooks]: http://www.xtuple.com/postbooks [adempiere]: http://www.adempiere.com/

[scrumfinance-blog]

Peter Bell talks about how he implements his version of Scrum for a solo developer.

[scrumfinance-blog]

"Scrum isn't for everyone. But it is for those who need to wrestle working systems from the complexity of emerging requirements and unstable technology."

Ken Schwaber and Mike Beedle in *Agile Software Development with Scrum*

[scrumfinance-blog]

Ryan Rinaldi poses the question that has been on my mind lately—How do you implement Scrum where you have one, smallish, team working on multiple projects? For his team, they have decided to implement one product backlog for all of their projects. Thoughts and questions that are still on my mind are: * Is it feasible to have one daily scrum meeting for all the projects? * If you are discussing multiple projects in one daily scrum, will the scrum master be able to know when someone is focused on the wrong thing? * How do you make sure that one project doesn't receive more focus than it should compared to the other projects?

[scrumfinance-blog]

File hard copy invoices under the *identical* vendor name as used in your accounting software.

Matthew Rankin

[scrumfinance-blog]

Useful Life, Class Life, and Recovery Period

According to [IRS Publication 946: How to Depreciate Property][irs-p946], in order for property to be depreciable it must meet all of the following requirements: * "It must be property you own." * "It must be used in your business or income-producing activity." * "It must have a determinable useful life." * "It must be expected to last more than one year." Of the four requirements, the last two both relate to time. Given this importance, what time should be used when depreciating an asset? The asset's useful life? A shorter period? The same period for both book and tax financials? Like many other finance and tax related questions, the answer is that it depends. [Publication 946][irs-p946] defines three terms associated with the life of an asset: 1. **Useful Life:** "An estimate of how long an item of property can be expected to be usable in trade or business or to produce income." 2. **Class Life:** "A number of years that establishes the property class and recovery period for most types of property under the General Depreciation System (GDS) and Alternative Depreciation System (ADS)." 3. **Recovery Period:** "The number of years over which the basis of an item of property is recovered." ## Useful Life ## Useful life is simply an estimate of how long the asset will last for *your* particular company. If you're a construction company, a pneumatic nail gun may last you less than one year; however, if you're a software company that happens to have a nail gun, it might last 30 years. According to [FASB ASC paragraph 360-10-35-3][fasb], "Depreciation expense in financial statements for an asset shall be determined based on the asset's useful life." Therefore, the useful life is: 1. An estimate of how long the asset will last for your company 2. Used to calculate book depreciation ## Class Life Do a quick google for *class life* and most results will lead you to believe that the class life is the period over which you depreciate an asset for tax basis—that's not true! The [Economic Recovery Tax Act (ERTA) of 1981][wiki-macrs] established property class lives, effectively bucketizing assets into classes with a single useful life assigned to each property class as the class life. Instead of depreciating over the class life, assets were depreciated on a shorter period known as the recovery period using the Accelerated Cost Recovery System (ACRS). ACRS was used for tax purposes until it was replaced by the Modified ACRS (MACRS) in 1986 when the [Tax Reformed Act of 1986][wiki-macrs] was passed. Similar to ACRS, MACRS uses a shorter recovery period for depreciating assets. ## Recovery Period When referring to assets, people often refer to one of nine property classes, which are listed in Chapter 4 of [IRS Publication 946][irs-p946]: 1. 3-year property 2. 5-year property 3. 7-year property 4. 10-year property 5. 15-year property 6. 20-year property 7. 25-year property 8. Residential rental property, 27.5-year property 9. Nonresidential rental property, 39-year property Here's the dirty little secret—the year used for the property classes is the number of years for the recovery period **not** the class life. Actually this isn't very dirty and it's not very secret if you reference reputable sources, such as [IRS Publication 946][irs-p946], instead of relying on websites that don't provide references. So now you know that 7-year property is referring to assets in the property class with a recovery period of 7 years. More correctly, this is the recovery period under the General Depreciation System (GDS). What's GDS? A topic for another post, that's what it is. [irs-p946]: www.irs.gov/pub/irs-pdf/p946.pdf [fasb]: http://www.fasb.org/home [wiki-macrs]: http://en.wikipedia.org/wiki/MACRS