Friday, October 25, 2013

The Law of the Garbage Truck

I was browsing my Inbox when I come across an e-mail from Bob Proctor. It's about the The Law of the Garbage Truck. 

A law about garbage truck? Sounds interesting. 

You know, typical newsletter from authors, speakers and sellers are eye-catching. Mine included. This one sure catches my attention but since it is coming from a reliable sender, I read it. 

Yes, it was worth reading. 

I just wanted to share the story to uplift your spirit just as it did mine. It's a little reminder about how to react on people's anger, resentment, rage and antagonism. 

Life's short to focus on the negatives. Keep marching on to your dreams and ignore the little irritants and annoyances along the way.

Have a great day ahead!

Here is the story.
How often do you let other people’s nonsense change your mood? Do you let a bad driver, rude waiter, curt boss, or an insensitive employee ruin your day? Unless you’re the Terminator, you’re probably set back on your heels. However, the mark of your success is how quickly you can refocus on what’s important in your life.
The Law of the Garbage Truck Pledge
Sixteen years ago I learned this lesson. And I learned it in the back of a New York City taxi cab. Here’s what happened.
I hopped in a taxi, and we took off for Grand Central Station. We were driving in the right lane when all of a sudden, a black car jumped out of a parking space right in front of us. My taxi driver slammed on his brakes, the car skidded, the tires squealed, and at the very last moment our car stopped just one inch from the other car’s back-end.
I couldn’t believe it. But then I couldn’t believe what happened next. The driver of the other car, the guy who almost caused a big accident, whipped his head around and he started yelling bad words at us. How do I know? Ask any New Yorker, some words in New York come with a special face. And he even threw in a one finger salute! I couldn’t believe it!
But then here’s what really blew me away. My taxi driver just smiled and waved at the guy. And I mean, he was friendly. So, I said, “Why did you just do that!? This guy could have killed us!” And this is when my taxi driver told me what I now call, “The Law of the Garbage Truck®.” He said:
“Many people are like garbage trucks. They run around full of garbage, full of frustration, full of anger, and full of disappointment. As their garbage piles up, they look for a place to dump it. And if you let them, they’ll dump it on you. So when someone wants to dump on you, don’t take it personally. Just smile, wave, wish them well, and move on. Believe me. You’ll be happier.”
So I started thinking, how often do I let Garbage Trucks run right over me? And how often do I take their garbage and spread it to other people at work, at home, or on the street? It was then that I said, “I don’t want their garbage and I’m not going to spread it anymore.”
I began to see Garbage Trucks. Like in the movie “The Sixth Sense,” the little boy said, “I see Dead People.” Well now “I see Garbage Trucks.” I see the load they’re carrying. I see them coming to dump it. And like my taxi driver, I don’t take it personally; I just smile, wave, wish them well, and I move on.
One of my favorite football players of all time was Walter Payton. Every day on the football field, after being tackled, he would jump up as quickly as he hit the ground. He never dwelled on a hit. Payton was ready to make the next play his best. Over the years the best players from around the world in every sport have played this way: Muhammad Ali, Nadia Comaneci, Bjorn Borg, Chris Evert, Michael Jordan, Jackie Robinson, and Pele are just some of those players. And the most inspiring leaders have lived this way: Nelson Mandela, Mother Theresa, Gandhi, and Martin Luther King.
See, Roy Baumeister, a psychology researcher from Florida State University, found in his extensive research that you remember bad things more often than good things in your life. You store the bad memories more easily, and you recall them more frequently.
So the odds are against you when a Garbage Truck comes your way. But when you follow The Law of the Garbage Truck®, you take back control of your life. You make room for the good by letting go of the bad.
The best leaders know that they have to be ready for their next meeting. The best sales people know that they have to be ready for their next client. And the best parents know that they have to be ready to greet their children with hugs and kisses, no matter how many garbage trucks they might have faced that day. All of us know that we have to be fully present, and at our best for the people we care about.
The bottom line is that successful people do not let Garbage Trucks take over their lives.
What about you? What would happen in your life, starting today, if you let more garbage trucks pass you by?
Here’s my bet: You’ll be happier.

Sunday, October 13, 2013

Hurrah! Another Investment Grade for Philippines!

Philippines recently achieved an Investment Grade from Moodys Investor Service. 

It is the last of the Big Three credit rating agencies to rate Philippines as Investment Grade.

Moody's rating on Philippine Government is Baa3 with a positive outlook.

Please take a look on the Ratings table below. The first Rating in order to become an investment grade is Baa3 and we achieved that recently. 

Before this investment grade, we were lounging in the Speculative Grade for the longest time. 

In fact, since Moody's started covering Philippine Government credit, we never obtained an investment grade status.

For two decades, Philippine Government credit was judged to have speculative elements and a significant credit risk.

Until recently.

Our country made great strides in improving the fundamentals of our economy. .

According to Moody's, the factors on the upgrade of rating were:

      1. Sustainability of the country's  robust economic performance
      2. Sustainability of the country's  ongoing fiscal and debt consolidation
       3.Sustainability of the country's political stability and improved governance.

Additionally, the stability of the Philippines' funding conditions during the recent bout of market volatility in emerging markets points to the country's relative lack of vulnerability to external financial shocks.

Yes. We finally "arrived".

Philippine-Economy.jpg (600×410)
It was a long time coming. But it's all worth it.

Savor and take the opportunity of these investment grades. 

Borrowing costs getting cheaper. 

Interest rates at their historical low. 

Benign inflation

Favorable demographic conditions.

High growth GDP.

Peso at its sweet spot.

Kay sarap maging Pilipino! 


INVESTMENT GRADE
Rating
Long Term Ratings
Short Term Ratings
Aaa
Rated as the highest quality and lowest credit risk.
          Prime-1
superior ability to repay short-term
debt obligations.
Aa1
Rated as high quality and very low credit risk.
Aa2
Aa3
A1
Rated as upper-medium grade and low credit risk.
A2
A3
Prime-1/Prime-2
superior ability or strong ability to repay short-term
debt obligations.
Baa1
Rated as medium grade, with some speculative elements and moderate credit risk.
Prime-2
strong ability to repay short-term
debt obligations.
Baa2
Prime-2/Prime-3
strong ability or acceptable ability to repay short-term
debt obligations.
Baa3
Prime-3
acceptable ability to repay
short-term obligations.
SPECULATIVE GRADE
Rating
Long Term Ratings
Short Term Ratings
Ba1
Judged to have speculative elements and a significant credit risk.
Not Prime
Do not fall within any of the prime categories
Ba2
Ba3
B1
Judged as being speculative and a high credit risk.
B2
B3
Caa1
Rated as poor quality and very high credit risk.
Caa2
Caa3
Ca
Judged to be highly speculative and with likelihood of being near or in default, but some possibility of recovering principal and interest.
C
Rated as the lowest quality, usually in default and low likelihood of recovering principal or interest.

Thursday, October 10, 2013

What are Accrual Entries?

Accrual Entries are special journal entries recorded in the books at the end of each accounting period and before financial statements are prepared and issued. Accruals are part of the Matching Principle method where revenues and expenses are recorded when they are incurred, regardless of when cash is exchanged.

There are two types of accruals.

            1. Accrued Revenue
      2. Accrued Expense

Accrued Revenues are revenues that have been earned but are not yet recorded in the books of accounts at the end of each accounting period. Accountants recognize revenues as earned, whether or not the company has received cash.

Goods or services have been delivered to the client but there was no billing yet. Thus, even though a company doesn’t have an Invoice yet for services or goods delivered, the revenues must be recorded in the books accounts.

Example:

Company ABC entered into a one year lease contract for its two brand new heavy equipments to a client for $144,000.
Contract starts Jan 15, 2013 and ends on Jan 14, 2014.  
Contract states that billing is every 30 days and payment term is 30 days from date of Invoice.
Company ABC’s accounting period is monthly.

Adjusting Journal Entry:
Jan 31, 2013   Dr. Unbilled Receivable                      $6,800
Cr. Rental Revenue                                        $6,800
To record accrued revenue for 17 days (Jan 17-31, 2013) for the lease of two brand new heavy equipments

Reversing Journal Entry:
Feb 1, 2013     Dr. Rental Revenue                            $6,800
                        Cr. Unbilled Receivable                      $          $6,800
To reverse the accrual entry made in January for the lease of two heavy equipments.

Actual Billing Entry:
Feb 15, 2013   Dr. Account Receivable                     $12,000
                        Cr. Rental Revenues                                      $12,000
30 days billing from January 15 to February 13, 2013 for two heavy equipments


From January 15-31, Company ABC already earned 17 days of the 30 day billing period. It must recognize and record that 17 days for January by passing an accrual entry on January 31.

On the first day of the next accounting period, the accrual entry was reversed. Reversing entries are used to simplify the entry on the next period.

When the Invoice was cut on Feb 15, 2013, the accountant simply debits (Dr.) Accounts Receivable and credit (Cr.) to Revenues the Invoice amount.  The accountant doesn’t need to worry about the number of days that pertains to January and February because the accrual and reversing entry takes care of it.   

Rental Revenues account- 17 days rent for January and 13 days rent for February must be recognized at the correct accounting period. We achieved that because of the accrual entry, reversing entry and actual billing entry we posted in January and February.

Unbilled Receivable account – normally this account has zero balance once the reversing entry is posted. The February balance of Unbilled Receivable ($6,800-$6,800) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Accounts Receivable account - When the actual billing was made in February, it resulted to $12,000 accounts receivable. This amount is the correct Invoice value collectible to the client.

Accrued Expenses are expenses that have been incurred but are not yet recorded in the books of accounts at the end of each accounting period. Accountants recognize expenses as incurred, whether or not the company has paid out cash.

Goods or services have been received from the supplier but the billing did not arrived yet. Thus, even though a company doesn’t have the Invoice yet from the supplier for services or goods received, the expenses must be recorded in the books of accounts. In the case of non-suppliers, expenses incurred already but not yet paid.

Example 1:

Company ABC payroll cut-off is every end of the month. Payment is every 2nd day of the succeeding month. Payroll for the month of January 2013 is $12,000.

Adjusting Journal Entry:
Jan 31, 2013   Dr. Salaries Expense              $12,000
Cr. Accrued Salaries                          $12,000
To record accrued salaries for the month of January 2013.

Reversing Journal Entry:
Feb 1, 2013     Dr. Accrued Salaries              $12,000
Cr. Salaries Expense                          $12,000
To reverse the accrual entry made for January 2013 salaries.

Actual Payment Entry:
Feb 2, 2013     Dr. Salaries Expense              $12,000
                        Cr. Cash                                              $12,000
To record payment of January 2013 salaries .

Salaries Expense - Under the accrual base accounting, expenses must be recorded on the accounting period they were incurred. Thus, we made an accrual entry in January 31 to record the salaries expense.

We have two transactions in February, reversing entry and actual payment of salary entry. These two entries resulted in a net transaction balance of $0.

 Accrued Salaries- normally this account has zero balance once the reversing entry is posted. The February balance of Accrued Salaries ($12,000-$12,000) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Example 2:

Company ABC entered into a one year lease contract for one brand new car from Rent-A-Car.
Lease amount is $14,400.
Contract starts Jan 15, 2013 and ends on Jan 14, 2014.  
Contract states that billing is every 30 days and payment term is 30 days from date of Invoice.
Company ABC’s accounting period is monthly.
  
Adjusting Journal Entry:
Jan 31, 2013   Dr. Rent Expense                               $680
Cr. Accrued Rent Payable                             $680
To record accrued rent expense for 17 days (Jan 17-31, 2013) for the lease of one car

Reversing Journal Entry:
Feb 1, 2013     Dr. Accrued Rent Payable                 $680
                        Cr. Rent Expense                                           $$680
To reverse the accrual entry made in January 2013 for the lease of one car

Entry Upon Receipt of Invoice from Rent-A-Car:
Feb 15, 2013   Dr. Rent Expense                               $1,200
                        Cr. Rent Payable                                            $1,200
To record 30 days rent for one car from January 15 to February 13, 2013

Rent Expense - 17 days rent for January and 13 days rent for February must be recognized at the correct accounting period. We achieved that because of the accrual entry, reversing entry and actual billing entry we posted in January and February.

Accrued Rent Payable – normally this account has zero balance once the reversing entry is posted. The February balance of Accrued Rent Payable ($680-$680) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Rent Payable - When the actual billing was received from the lessor, the Invoice amount was recorded. This amount is the correct Invoice value and payable to Rent-A-Car.

Accounting softwares
Accounting softwares makes recording of reversing entries easier.

The program can automatically reverse all accrual entries on the first day of the next accounting period. This program saves you time and effort.

Reversing Entries

Reversing entries are an option. They are not required. If you do not want to make a reversal entry, you need to take a look at the accrual entry you’ve made and then do the necessary compound entry later on. It removes the duplication of revenues and eliminates the need of a compound entry. It allows an efficient processing and recording of the transactions.

No Reversing Entries
If you prefer not to use reversing entries, that is perfectly permitted. What is really important is that the revenues and expenses are recorded at the correct accounting period.

In the Accrued Revenue example, if there is no reversing entry, actual billing will be recorded as follows:

Actual Billing Entry:
Feb 15, 2013   Dr. Account Receivable                     $12,000
                        Cr. Rental Revenues                                      $5,200
                        Cr. Unbilled Receivable                                  $6,800
30 days billing from January 15 to February 13, 2013 for two heavy equipments.

The effect on the balances of Rental Revenues, Unbilled Receivables and Accounts Receivable is just the same.

However, the accountant needs to check the accrual entry posted before in order to come up with the correct compound entry.



Tuesday, October 8, 2013

What is the Effect of US Gov't Shutdown on Stock Market?

The stock market apparently is not nervous about the government shutdown. October 1, the first day of the government shutdown, S&P went up by 0.80%, DOW by 0.40% while Nasdaq by 1.2%.

On a weekly note which ended last Friday, S&P was up by 0.53%, Nasdaq by 0.96% while DOW was down by 0.38%.

Date
 S&P
 DOW
 Nasdaq
26-Sep
  1,698.67
0.30%
15,328.30
0.40%
  3,787.43
0.70%
27-Sep
  1,691.75
-0.40%
  15,258.24
-0.50%
  3,781.59
-0.20%
30-Sep
  1,681.55
-0.60%
  15,129.67
-0.80%
  3,771.48
-0.30%
1-Oct
  1,695.00
0.80%
  15,191.70
0.40%
  3,817.98
1.20%
2-Oct
  1,693.87
-0.10%
  15,133.14
-0.40%
  3,815.02
-0.10%
3-Oct
  1,678.66
-0.90%
  14,996.48
-0.90%
  3,774.34
-1.10%
4-Oct
  1,690.50
0.70%
  15,072.58
0.50%
  3,807.75
0.90%

What does this mean? The investors are not worried about the economic repercussions of the US government shutdown.

The longest government shutdown was in 1995-1996 and it cost $1.4 billion, over $2 billion in today’s dollars according to Office of Management and Budget.

According to Lexington, a global market research firm, the cost of a day’s shutdown is at least $300 million.  A week-long shutdown will reduce the 4th quarter growth by 0.2%. 

A 21 day shutdown similar to the 1995-1996 shutdown could reduced growth by 0.9 to 1.4% according to Guy Lebas, chief fixed income strategist at Janney Montgomery Scott  LLC.

The economic cost of the shutdown is just a fraction of the total GDP of the USA. Investor’s interests are mainly on the recovery of the US economy and improving global economic outlook.

Historically, Government Shutdowns Never Hurt the Stock Market

 Historically, US Government shutdowns never hurt the stock market. There are 17 shutdowns technically but none of them lasted for more than a month.

The longest shutdown was during the Bill Clinton administration from November 14 to November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. The S&P 500 rose 4 percent between those dates.

Here is the list of US Government Shutdowns:

September 30 to October 11, 1976 (10 days)
September 30 to October 13, 1977 (12 days)
October 31 to November 9, 1977 (8 days)
November 30 to December 9, 1977 (8 days)
September 30 to October 18, 1978 (18 days
September 30 to October 12, 1979 (11 days)
November 20 to November 23, 1981 (2 days)
September 30 to October 2, 1982 (1 day)
December 17 to December 21, 1982 (3 days)
November 10 to November 14, 1983 (3 days)
September 30 to October 3, 1984 (2 days)
October 3 to October 5, 1984 (1 day)
October 16 to October 18, 1986 (1 day)
December 18 to December 20, 1987 (1 day)
October 5 to October 9, 1990 (3 days)
November 13  to November 19, 1995 (5 days)
December 5, 1995 to January 6, 1996 (21 days)

 Let’s take a look at the impact of these shutdowns on the stock market. We’ll begin with the November 20 to November 23, 1981 shutdown during the Reagan administration.

The previous year’s shutdown under Carter’s administration were removed because the Dow was 959 the day Carter was inaugurated and 966 the day he left. There is very little movement on the stock market during his time.

Nov. 20-23, 1981 — The market fell one point from 853 to 852; one month out it was up to 873.
Sep. 30-Oct. 2, 1982 — The market rose from 896 to 903; one month out it was up to 991.
Dec. 17-21, 1982 — The market rose from 1,011 to 1,030; one month out it was up to 1,084.
Nov. 10-14, 1983 — The market rose from 1,236 to 1,254; one month out it was up to 1,260.
Sept. 30-Oct. 3, 1984 — The market fell from 1,206 to 1,182; but one month out it was up to 1,217.
Oct. 3-5, 1984 — This shutdown was an extension of the previous one, and the market remained the same, at 1,182.
Oct. 16-18, 1986 — The market fell from 1,836 to 1,811; but one month out it was up to 1,860.
Dec. 18-20, 1987 — The market rose from 1,975 to 1,990; one month out it was down to 1,963.
Oct. 5-9, 1990 — The market fell from 2,511 to 2,446; but one month out, at 2,502, it had regained nearly all it had lost.
Nov. 13-19, 1995 — The market was way up, from 4,872 to 4,983; and the following month the government shut down again.
Dec. 5, 1995, Jan. 6, 1996 — The market rose from 5,177 to 5,197; two months out (since this one took most of the month) the market was way up, to 5,407.

Based on the above data, government shutdowns virtually have no impact on the stock market.

Hence, investors today did not fret about on the ongoing standoff between the Republicans and Democrats over the federal budget.

The Effect of US Gov't Shutdown in Philippines Economy 

On the first day of shutdown, PSEi registered gains and it continued in green for the rest of the week.

Date
PSEi
26-Sep
  6,407.46
-0.20%
27-Sep
  6,379.81
-0.43%
30-Sep
  6,191.80
-2.95%
1-Oct
  6,197.84
0.10%
2-Oct
  6,362.26
2.65%
3-Oct
  6,387.65
0.40%
4-Oct
  6,390.48
0.04%

The potential impact of US Government shutdown would be on risk-averse foreign investors who move away from risky assets to traditional safe haven. These risk-averse investors can cause volatility in the stock market and foreign exchange.

Photo taken from http://www.bsp.gov.ph
This is evident during the past few months when the US Fed hints on tapering the $85 billion a month stimulus. Our stock market plunge dramatically and our peso depreciated more against dollar even reaching the 44 exchange rate level. The Bangko Sentral ng Pilipinas (BSP) however is ready to counter any volatility in the financial markets.  
  
Right now, our stock market and currency are stable. There is no significant deviation from their current levels. In fact, our stock market experienced an uninterrupted gains beginning Oct 1 until October 4, 2013. Investors are largely ignoring the economic repercussions of the US Government shutdown.

If you take a look on the USD/Php exchange rate, our Peso actually got stronger during the week since the government shutdown. It appreciated by 0.90% for the week ending Oct 4, 2013.

Date
USD/Php
26-Sep
43.27
0.37%
27-Sep
43.37
-0.23%
30-Sep
43.48
-0.25%
1-Oct
43.31
0.39%
2-Oct
43.40
-0.21%
3-Oct
43.11
0.67%
4-Oct
43.09
0.05%

Amid all the hoopla surrounding the US government shutdown, the investors are actually focusing on the fundamentals of the economy.

Philippine economy is largely protected from the US Government shutdown.