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Cost Accounting throughout COVID-19



Optimal business performance was at the top of every executive’s mind with the end of the first quarter of 2020 approaching. Then COVID-19 hit and left management reeling from the blow of restricted sales and a plummeting market that would surely be reflected on quarterly financial statements and beyond.

This new reality highlights the importance of implementing an effectively modified cost accounting system during this time.

Cash flows for the vast majority of industries have changed in response to the COVID-19 pandemic. Income streams for many companies are tightening as forced closures take effect and key consumer markets opt to stay home. Cutting costs wherever possible can feel obligatory in order to stay afloat.

Throughout this time, consistently remind yourself that this situation is temporary and unlikely to be repeated in our lifetime. Don’t lose sight of the bigger picture in the wake of a global pandemic. Refrain from impulsively cutting integral units to restore cash flows and rethink your cumulative approach instead.

To prepare for the offset of COVID-19 financially, you should start by implementing a method of financial accounting that will enable statement users to easily segregate the impact of COVID-19 from overall business performance.

Separate COVID-19 Expenses

COVID-19 will be grinding the margins of most corporations for the first and second quarter of 2020, perhaps longer. To ease the minds of investors, and in preparation of approaching creditors when the dust settles, account for all COVID-related expenses in a separate cost pool. This way, pandemic-related costs can easily be broken out of performance figures when the time comes.

The expenses allocated to this cost pool should include those incurred as a direct result of the coronavirus, such as distribution of information to consumers and additional orders of janitorial supplies. This cost pool should also include all of the indirect expenses incurred as a result of the pandemic, such as paid sick leave, time spent in strategy meetings, and late payment penalties resulting from restricted cash flows.

Indirect increases in expenditures may require comparison to historical data and industry standards to determine any excess amounts resulting directly from COVID-19.

All of the expenses should be totaled and disclosed as appropriate and in accordance with industry standards.


Keep Long-Term Strategy in Mind

Keeping your long-term strategy in mind during a pandemic is important to prevent impulsive decision making. Implementing a modified cost evaluation and accounting system is essential to remaining in sync with long-term objectives.

Instead of cutting costs as much as possible, evaluate each expenditure for its place in overall performance. If it is essential in long-term business strategy, such as consumer relations and team management, then consider first modifying the output to supplement your efforts instead of eliminating the outflow indefinitely.

Integral elements of your business structure may feel inessential in this crisis, but that won’t be the case when the economy regains momentum. Keep core company values in mind while making key costing decisions for your business survival.

Any excess costs that arise from this temporary modification of system functions can be debited to the COVID-19 cost pool.


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© 2020 by Ross Nesbit Agencies