ACCRUED LIABILITIES

POLICY AND PROCEDURES

Prepared By:

Approved By:

Revision Date:

Effective Date:

PURPOSE:
To provide Company X guidance with regard to the definition of and responsibility for items included in the
accrued liabilities-other account.
The purpose of monthly accrual processes is to allocate expenses to the proper accounting period and
match expenses with related revenues. At the close of each month, accrual processes ensure that all
expenses related to that month are properly included in the company’s financial statements. Accrual
processes shall be completed in a timely and accurate manner and must comply with applicable financial
and accounting standards.

SCOPE:
The intended use of this policy is for domestic offices and subsidiaries of Company X.

POLICY:
This policy establishes the standards and guidelines for ensuring that Company X accounts for monthly
accruals are in compliance with management’s objectives and generally accepted accounting principles
(“GAAP”).
It is the policy of Company X that all expenses shall be captured to the greatest degree practical in the
period in which they are incurred.

PROCEDURES:
Company X shall accrue for:
 Accounts payable
 Payroll
 Redeployment reserves
 Product upgrade reserves
 Product performance liability reserves
 Product warranty reserves
 Construction in process reserves

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  Reserves for sales and marketing
 Any other material obligation that is a liability of Company X
The accrual process shall be accomplished in a timely and accurate manner, and must comply with all
applicable financial and accounting standards. Obligations that accrue with the passage of time shall be
recorded over the accounting period in a systematic and rational manner. Obligations that accrue when
an event occurs should be recorded at the time of the event.
The factors to be considered in determining the time of recording for payables and accrued liabilities
include:

1.0 Risks of ownership passed to Company X through receipt of goods or equipment. The expense
must have been incurred during the month being closed; that is, the product or service must
have been received on or before the last day of the month in order to qualify as an expense.
Even though an expense may have originally been budgeted in the month, it does not qualify
for accrual unless the product or service was actually received by the company.

2.0 The date that title passes from seller to Company X.

3.0 The date that the product is received, and there exists no significant risk of return.

4.0 All outstanding liabilities will be accrued.

5.0 All accruals will be reversed automatically in the next month and re-accrued the following
month, as needed.

In addition to the above factors, the following should also be followed in determining time of recording:

1.0 If the product is received on consignment, do not record until title passes.

2.0 For amounts due under contracts, including retainages, items shall be recorded as they
become billable.

3.0 Services shall be recorded and charged to expenses or capitalized, as appropriate, as the
services are performed.

4.0 Dividends, interest and sales tax shall be recorded in the period the obligation arises, or when
corresponding revenues are recorded.

5.0 Payroll taxes withheld and other payroll withholdings shall be recorded at the time the related
payroll is recorded.

6.0 If payment is due prior to performance, the amount should be accrued to prepaid expenses.

Office accounting personnel are responsible for having procedures in place to estimate losses and
documentation to support accrued liabilities. The following sets forth a representative listing of items that
are to be included in accrued liabilities (Note: This list is not all inclusive):

1.0 Worker’s Compensation: A liability for worker’s compensation and public liability insurance

2.0 Commission External: A liability for commissions due to third parties

3.0 Utilities: This liability includes gas, telephone, electricity, water, etc.

4.0 Professional Fees: This liability includes audit, legal, consulting and other professional fees

5.0 Legal Contingencies: A liability with respect to pending or threatened litigation, and actual or
possible settlement. Legal contingencies should be developed in conjunction with the
company’s legal department

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 6.0 Restructuring: A liability for restructuring operations, which includes salary, wages, benefits and
other severance costs

7.0 Contracts: For amounts due under contracts, including retainages, items shall be recorded as
they become billable

8.0 Freight: A liability for shipment of goods – inventory or systems, products, or parts

9.0 Travel and Entertainment: A liability for payment of approved employee expense accounts

10.0 Bonuses: A liability for payment of approved employee bonuses

11.0 Other: Any other accrued liabilities not mentioned above

Payables and accrued liabilities shall be recorded at face value plus or minus any interest premium or
discount and other appropriate adjustments. The payable amount can be determined from the billing
received and should be verified against purchase orders/requisitions, contract terms, or any other
appropriate documents prior to recording the liability. When actual values are not available, the recorded
value should be based on best available estimates. Estimates should be based on current market price,
experience/history and comparables.
Corporate accounting personnel are responsible for performing an overall review for unrecorded accrued
liabilities three to five business days after accounts payable closes each month to help ensure that all
expenses are appropriately captured.

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