The financial  vice-president of Perini Corporation received a disturbing call from one of the company’s banks. The bank reported that Perini’s bank account was substantially overdrawn. Perini, a large construction company based near Boston, had never overdrawn any of its bank accounts in over twenty-five years. Shortly thereafter, another of Perini’s banks called and reported that its Perini account was also overdrawn. A review of the recent bank statements, which had been lying around unreconciled for two weeks, revealed canceled checks of more than $1.1 million that had not been recorded.

Perini kept its unused checks in an unlocked room. Perini also kept its supply of coffee cups in the same room, where every clerk and secretary had access ti them. A quick review revealed two missing boxes of checks.

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Whenever a business borrows money or enters into a credit agreement that requires the payment of interest, it is important that the business understand how the interest will be computed. For example, the difference in 180 days interest computed on the basis of a 365-day year versus a 360-day year is shown below for a loan of $ 40,000 at an interest rate of 12 %

$ 40,000 x 0.12 x 180/365 = $ 2, 367.12

$ 40,000 x 0.12 x 180/360 = $ 2,400.00

The difference of $ 32.88 may seem small, but for a business that  might enter into thousands of such as transactions for millions of dollars, the difference between computing interest on a 360-day year versus a 365-day year can be significant.

Inventories are essential for merchandising and manufacturing businesses. Inventory are necessary in order to generate sales, and sales are necessary in order to generate profits.

The primary benefit of carrying inventory is that it provides protection against unexpected events and disruptions in business operations. For example, an unexpected strike by a supplier’s employees can halt production for manufacturer or causes lost sales for a merchandiser. Business that rely upon foreign suppliers are particularly affected by disruptions caused by international crises and events.

Carrying inventory also allows a business to meet unexpected increases in the demand for its products. Thus, you can think for inventories as a buffer or cushion against the unexpected.

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