What Does Kitting Mean?

In modern days, customers are used to customizing their products according to their needs. This is possible mostly because of online e-commerce platforms that allow consumers to pick and choose the items they desire to include in certain purchase. A kitting procedure is one that mixes individual items, selected by the customer, and packages them as a single piece. This increases customer satisfaction and reduces shipping costs.

On the other hand, one of the challenges of kitting procedures is that not all items might be available at the same location. This is a regular situation for companies that have different warehouses or fulfillment centers. The online system might state that there are enough inventories to deliver the order but it will not be possible to use kitting in such order because the items are located in different places.

To reduce this situation, companies tend to have an ABC system of inventory where A items, those with the highest demand, are always available at the same location to increase the chances of enabling a kitting alternative for the client.

Example

Cornelia is a 23 year old girl who wants to buy a laptop. She visited the website of a well-known PC manufacturer called Solar, who offers the alternative of building your own laptop by allowing the client to choose between different options of the various components that the laptop require. After deciding which kind of laptop she needed, she went on and picked the memory, case, processor and screen size of it.

These elements were combined by the manufacturer to produce a customized laptop that was put together in a single box and sent to Cornelia’s house in 5 days. In this scenario, the laptop itself was the result of kitting, since the separate elements were combined to produce the laptop that Cornelia wanted.

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What Does Remaining Monthly Balance Mean?

A few examples of monthly bills might be a mortgage, an internet service bill or an insurance premium payment. Depending on the financial arrangement most of this bills have to be paid within a few days after the invoice is issued. If the bill is not completely paid for at the end of the month there will be a pending balance that must be covered within the next month.

Having a remaining monthly balance creates the risk that the service might be shut down. Electricity, gas or water bills are also examples of this type of commitments. Each of this remaining balances are accumulated month after month if the bill is not paid for. In most cases a partial payment can be issued but it will not reduce the risk of a service disruption.

From a personal finance standpoint, accumulating balances from past months is not a healthy practice since it creates a big debt burden that can lead to a bankruptcy situation if the situation gets severe enough.

Example

John was recently fired from his last job as an Office Manager. The lay-off was unexpected for him since it was caused by a natural disaster that shut down the business where he worked at. This situation caught him off-guard and he had not saved enough money to sustain himself until he landed another job. John was not able to pay his monthly rent, electricity bill and insurance premium.

At the end of the month he had a remaining monthly balance of $750 including other pending bills additional to the ones mentioned. A few days after the month had ended he managed to find a job at a local furniture store that allowed him to pay for this commitments and get rid of the pending debt.

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What Does Void Check Mean?

Individuals and corporations should maintain an adequate trace of their checkbooks in order to avoid frauds or overdraft situations. Sometimes, mistakes are made when checks are being filled and in these cases, the word “VOID” should be written in the check to identify it as no longer valid for cashing. Nevertheless, the check will still display all the account’s information, which is a dangerous situation since electronic payments can be issued and approved with this information at hand. To avoid this scenario, voided checks should be destroyed immediately if possible.

On the other hand, checks are also voided to provide banking information to employers when a person is enrolling at a new company. Finally, from an accounting perspective, if a check was issued and voided afterwards it should be notified to the Finance Department of the company for them to erase the payment from the outstanding check’s record. This will allow the company to update its cash flow estimations accordingly.

Example

Sicilian Palace LLC is an Italian restaurant located in the hearth of Miami. The restaurant is well known for its pizzas and calzones and the owner, Luigi, is also well known for keeping a tight ship when it comes to the restaurant’s finances. Recently, he had an issue with a cheese supplier who said that a check issued by Luigi bounced at the bank. Luigi was very sorry for the situation and after reviewing the matter he recognized that he made a mistake in his signature.

He decided to void the check and issued a new one for his supplier, then he invited him and his family for a free dinner to compensate for all troubles caused. The voided check was adequately destroyed and the new one was assigned as the payment for that supplier’s invoice in the company’s accounting system.

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What Does Skimming Mean?

This form of theft is common in small businesses where the owner is also the person that acts as a cashier. In order to avoid paying taxes on cash sales, the owner “skims” the cash and fails to record it at the company’s accounting. By doing that a tax fraud is being committed.

On the other hand, it also refers to a situation where an employee is illegally subtracting cash from the company through unrecorded cash sales. It is much more difficult to detect skimming in services companies since sales transactions are not related to physical goods that can be inventoried. After a skimming theft is done, an inventory procedure will reveal a missing item, which is the source of the cash being subtracted. Finally, the term skimming is also employed in banking to refer to credit card information theft done with an electronic device.

Example

Loiada Restaurant LLC is a Japanese food restaurant located in Miami. They have a few years in business but the manager has recently picked up what appears to be a skimming operation. The bartender of the restaurant has been reporting inventory mismatches recurrently and this has raised concerns since there is no reason for that to happen.

The owner of the restaurant decided to review the cameras placed above the bar to get a sense of what is going on and it appears that the bartender has been skimming the company by fooling clients, telling them that it is possible to pay him for their drinks directly in cash. Since the clients don’t know anything about the company’s internal procedures they fall into the trap and the company ends up skimmed. The owner decided to charge the bartender for the “missing” inventory and fired him immediately.

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What Does Voided Check Mean?

Although the primary purpose of a check is to facilitate a money transaction, voided checks exist for several reasons. One group of motives derive from errors or changes in the transaction. For example, some information was wrongly written or the check is not needed any more because the transaction was cancelled. But another common reason is simply to send reliable information about the banking account to another person or organization.

An illustration of this happens when a company needs to make an electronic charge to someone who purchased a service. The supplier wants to be sure that the charge will be made to the correct account and holder. In this case, the owner provides the supplier with a voided check where the required data is visible but at the same time avoids any misapplication. When reconciling bank statements, voided checks must be accounted for.

Certainly, voided checks are not very common in the current electronic era. Account holders increasingly use on-line platforms to make payments and tend to fill their banking information directly on web sites.

Example

Martha Schneider is a 68 years old lady living alone. She is making changes at her house to offer more comfortable spaces when grand children come to visit her. Mrs. Schneider decided to expand the dining room and therefore hired an experienced civil engineer to do the work.

She issued a check at the beginning with the total forecasted amount and kept it during three weeks. However, the final amount charged by the contractor was 5% lower due to some changes introduced in the process. Mrs. Schneider then voided the check and provided the worker with another check correctly filled.

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What Does Check Kiting Mean?

Check kiting schemes have existed for a long time and they are basically a way to exploit floating periods imposed by banks to clear certain transactions. These periods create an opportunity to defraud the institution. Basically, the scheme works like this: An individual deposits a check with no funds from Bank A in his account at Bank B. This first check creates a transitory balance on his account at Bank B.

Using that balance, the person issues or cashes a check against from Bank B. The false float created by the clearing process will back Bank B’s check and the check will be cashed successfully, but after the check gets cleared and bounces, the bank might deduct the check from the final recipient (normally a retail establishment) or the bank will take a loss as a result of the fraudulent procedure. Banks have implemented different measures to avoid check kiting.

For example, issued checks might not be cleared if the floating balance is not available at the time. That means retail business must protect themselves from giving cash advances to individuals with past fraudulent record, since they will be the ones experiencing the losses if a check kiting scheme is being performed.

Example

Mr. Hodges owns a retail store located at a small suburban neighborhood in Washington DC. He currently offers his clients cash advances backed by checks and charges a small commission to do so. He has a black list of known fraudulent individuals that usually use establishments like his to perform check kiting schemes. Recently, one of these individuals came to the store.

Mr. Hodges wasn’t available at the moment and one of his employees accepted a $300 check from the person and gave him $275 as a cash advance. Mr. Hodges wasn’t aware of the transaction until the check bounced. To avoid future situations like this one, he trained all his employees to identify defrauders quickly.

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What Does Tax Withholding Mean?

Withholding is a business term that commonly indicates a tax-related transaction. It normally takes place when an employee is getting paid and the company withholds a portion of its payment to meet federal, state or even municipal tax commitments. This is a mandatory practice for US businesses, according to the current tax law, since it helps the government get periodical payments rather than getting all of them by the end of the year.

This also helps individuals to pay taxes on a prorated basis, helping them to avoid getting unusually-high tax bills at the end of the year. Some bank and brokerage accounts also withhold taxes from clients if they are receiving income in their accounts. In the case of banks, they can withhold a portion of the interest paid to the account holder; and in the case of brokerage accounts, there might be a withholding tax when a dividend payment is received.

Here’s an example.

Example

Mr. Spencer was recently hired at a company named Double B Communications LLC. His job contract says he earns a gross salary of $3,500 a month. According to his individual evaluation, required by the current tax laws, the company has to deduct 6% of Mr. Spencer gross pay. The total amount being deducted from his paycheck would be $210 a month. Is this a withholding transaction?

As we previously stated, withholding is an operation in which money is deducted from a payment issued to a third party, regularly for tax purposes. As we see in this scenario, the company is deducting a percentage of Mr. Spencer money to withhold taxes on behalf of the federal government. This means the transaction can be considered as a withholding.

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What Does Wage Bracket Withholding Table Mean?

The IRS and US tax laws require employers to withhold employee’s for income tax purposes. The employer is required to withhold a certain amount of income from its employees and remit that money to the federal government.

When the federal government receives the payments made by the employer, each employee is credited with their portion of income taxes paid. Throughout the year, the income tax withholdings are reported on each employee’s pay stub and reported on each employee’s W-2 at the end of the year.

Example

A wage bracket withholdings table usually has income numbers in the far left column and income tax withholding numbers in the columns to the right. Above all the income tax withholding columns are dependent allowance claims. Each employee fills out a W-4 that indicates how many dependents the employee is anticipating on claiming for the tax year as well as the employee’s filing status.

The employer then matches the income numbers on the left with the dependent number in the top row to find the amount of income taxes that must be withheld for that pay period. Here is an example of a weekly wage bracket withholding table. Wage bracket withholding tables are also available in bi-weekly, monthly, quarterly, semi-annual, and annual tables.

Download this accounting example in excel.

Since modern computer systems and software have become popularized, manual wage tables like this are uncommon. Most companies rely on bookkeeping software or payroll companies to compute the necessary amount of payroll tax withholdings.

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What Does Voucher System Mean?

A voucher system sets up procedures to safely verify, approve, record, and issue cash disbursements. Since cash is the most liquid asset company’s can own, it is highly susceptible to theft and fraud. The voucher system establishes safeguards to protect a company’s cash.

Example

Here’s an example of a typical voucher system for purchasing raw materials. First, the workers in the assembly line notice they are running out of materials, so they notify the purchasing department that they need more by sending a purchase request.

Once the purchasing department analyzes and approves the purchasing request, it is then sent to the ordering department to order the goods.

Once the ordering department has ordered the goods, all of the documents in the voucher file are sent to the receiving department.

After the receiving department receives the shipment, it notifies the purchasing department that the goods arrived and sends the invoice and packaging slip to the accounting department. The goods are then sent to the assembly line floor. The accounting department can record the transaction and sent approval to the cashier to pay for the goods.

As you can see, the series of controls that the voucher system puts in place prevents the assembly line from ordering goods at anytime. It also prevents them from fraudulently ordering too many goods or trying to order goods and keep the money.

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What Does Voucher Register Mean?

The voucher register is to vouchers like what a check register is to checks. It records all of the vouchers that are approved, so management can look up and access the vouchers at a later date.

Example

For instance, if a manager wanted to examine the purchase orders and invoices from a particular supplier, he could look up the vouchers in the voucher register for that vendor and see what purchases were approved on different dates throughout the period.

The manager can then go to the voucher files and examine the source documents for the individual transactions like the purchase request, purchase approval, and cash disbursement approval.

The voucher register can also be used as an audit trail for fraudulent transactions and transfers. Internal controls like segregation of duties only allows certain people to access and record new transactions in the voucher register. Thus the register can be used to identify vouchers that are authentic and properly approved and others that were simply run through the system for fraudulent orders or cash payments.

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