Accounting Tips Guides

A purchase order is a document, commercial in nature, issued by a purchaser to a seller, informing the latter about what type, quantities and price of products and/or services that are agreed for purchase by the buyer from the seller. When the buyer sends a purchase order to the seller, it makes for a legal offer for purchasing goods or services. When the supplier accepts the form, a contract between the buyer and seller comes into existence. A Purchase Order has the following contents:

1. Purchase Order Number
2. Shipping date
3. Billing address
4. Shipping address
5. Requested terms
6. List of products including quantities and prices

There are usually several reasons for a buyer to issue a purchase order to a supplier. In the first instance, the document sets out the a written communication to the seller about the buyer’s intention to purchase and it strengthens the hands of the seller who can find protection in this written communication in the event the buyer defaults on the purchase. To protect themselves against malfeasance on the part of the buyer, sellers ask for a written form. A purchase order is the document representing the buyer’s intention to purchase specified quantities of goods at specified prices. In case the buyer defaults on paying the seller, the P.O. is a legal document in a court of law that demonstrates the intentions of the buyer in purchasing goods or services with the intention of facilitating collection of dues. Since a P.O. reduces the risk of defaulting buyers, most companies that do business with other companies for major purchases require such a form to be filled out by the buyer.

There are several different types of purchase orders. Some of the more common Types are:

1. Electronic P.O.s, especially using B2B standards such as ANSI, EDIFACT and RosettaNet
2. Single use forms as used in retail stores to keep track of purchases through use of a single form
3. Blanket Purchase Orders used by some companies to track purchase made for a certain class of products such as IT purchases

Each time a buyer orders some goods or services from a vendor it gives rise to a contract to buy as well as a contract to sell. A Purchase Order helps keep an accurate track of such important transactions. Each document should state the shipping method, date on which the goods or services are required as well as the name and designation of the person with whom the order has been placed. The form should also confirm the quantity and price per unit of the items being bought.

Some companies have very sophisticated purchase ordering systems where automatic generation of forms occurs once the on-hand quantity of an item falls below a certain level. This enables the processing of partial receipts, updating of inventories as and when goods are received as well as being able to track variations in price of goods received against price of goods invoiced.

By integrating the purchase order with accounts payable, inventory management and an effective sales order module it gives rise to an all-inclusive purchasing system. A good system will help the company in making better informed purchasing decisions with all information related to this activity being easily available at all times.

Keeping in mind the possible advantages for a business entity that accrue from having a good purchasing system, it may be for the betterment of the company to have a complete purchase order form on hand. With well formed template documents available in the market, the company would be well advised to consider using them for their purchasing needs.

Wade Anderson is a CPA and operates DigitalWorkTools.com
Legal Forms and Business Documents. Click to view a Purchase Order

A Living Trust is a type of trust formed to hold ownership of the assets of the Grantor during his or her lifetime and to distribute the same in the event of his or her death. It is common practice in the United States to use such a document since it facilitates the transfer of assets to heirs without need to go through probate. Not having to go through probate is very convenient and time saving as well as being private.

Probate means paying fees (based on the net worth of assets) and is a public process as opposed to living trust which is private. A living trust is useful in planning for cases of incapacity of the Grantor. The Grantor may be a solo trustee or a co-trustee and may act independently with respect to the agreement. In addition, the living trust agreement may provide for either trustee to act independently should the Grantor become incapacitated.

Though this has a lot of advantages it also suffers from certain drawbacks, especially in the case of inter vivos trust. Beneficiaries do not obtain the benefit of any savings on estate or state inheritance taxes. Furthermore, a living trust can be expensive to create and this expense has to be borne at the outset by the Grantor. Getting a professional quality agreement may, in certain cases, help even double the estate tax exemption.

HOW TO ESTABLISH A LIVING TRUST

Establishing a living trust means that a person wants to transfer assets from himself, in the form of Grantor, to himself as Trustee of the trust and to administer benefits for himself. During the lifetime of the Grantor such beneficiaries do not receive anything. Sometimes, it may be advisable to make use of the services of a corporate trustee such as banks.

The main advantage of corporate trustees is that they may operate forever (in perpetuity) whereas an individual cannot. Furthermore, corporate trustees are required to keep accurate and complete records of all transactions of the trust as long as the trust remains in existence. These records are called the accounting of the trust and may be required by courts as well as the other beneficiaries. In addition, corporate trustees must also actively manage the trust.

A properly drafted and executed living trust will certainly reduce the necessity of probate. This is because the trust owns the assets and not the deceased and only property owned in the name of the deceased must go through probate. Make sure that all the necessary homework on this subject has already been done before formalizing the arrangement.

A living trust agreement may not be enough by itself. In addition, you may want a will, known as a “Last Will and Testament” which instructs the executor to transfer assets to the trust so that the trust’s provisions can kick-in. Also, you would be well advised to have a “Durable Power of Attorney” for financial matters and one for health matters.

A Living Trust may be thought of as a detailed proposal of how to handle the Grantor’s affairs when he becomes incapacitated. Such an arrangement allows for greater flexibility in executing the Grantor’s wishes. There is also better acceptance of actions of trustees than for agents of a durable power of attorney.

Wade Anderson is a CPA and operates DigitalWorkTools.com

Legal Forms and Business Documents. Click to view a

Living Trust Agreement

The Capitalization Table provides investors with a bird’s eye view of the sum total of all the different securities issued by a company. It includes the amount of investment that the company has procured from investors and the distribution of securities which might include common/preferred shares, options, warranties etc. and the individual capitalization ratios.

The driving force behind an investment in a company is its expected return on investment, which should be profitable as well as lucrative. For investors, the tool used to state expected return is called a capitalization table, which is used in tandem with pro forma financials. Thus, the usage and preparation of capitalization tables is of great interest to prospective investors.

Basically, a capitalization table addresses the present and future funding requirements of the company as well as returns in terms of value that will be obtained over a period of time. It implies that the investor is greatly concerned about whether the returns on investment are good enough to justify the risk involved or not. The capitalization table encapsulates all the details about the amount of equity capital used in funding the company, the time of capital contribution and the ownership of the company. This information helps investors better understand their returns on investment.

Terms most commonly used in capitalization tables are “pre-money valuation” and “post-money valuation”. The former refers to the company’s value prior to any investments made by an investor. When the pre-money valuation is divided by fully diluted shares outstanding, a price per share is obtained. The latter refers to pre-money valuation plus whatever amount is invested. Obtaining the exact picture regarding calculation of pre-money valuation is not so much a scientific endeavor as it is an art form. There is great scope for personal judgment. All said and done, pre-money valuation is, by its very nature, negotiable.
However, getting future valuation for the exit can be achieved more scientifically.

There are a number of formulas that help determine the value of the company but, often, just one solitary equation without need for other and more complex formulae will help solve the issue. For a company wishing to achieve higher valuations at exit, it must have first achieved a sustainable competitive edge, and normally this may only occur after six years or more for those companies having planned for a five year plan of action. That makes it imperative for companies to outperform “also ran” companies and prove to the competition that trying to imitate more successful companies will surely not be of much use.
Some important and noteworthy aspects that a capitalization table should address are: