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Harbour Authority Manual
3. Finance
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| Introduction | |
| Administration | |
| Finance | |
| Harbour Operations | |
| Environmental Management | |
| PDF Version | |
| 3.1 | Budgeting and Planning |
| 3.2 | Revenue Collection |
| 3.3 | Expenditure Management |
| 3.4 | Government Reporting Requirements |
| 3.5 | Producing Financial Statements |
| 3.6 | Banking |
3.1 - Budgeting and Planning
This section discusses the purpose and preparation of:| 3.1.1 | Business plan |
| 3.1.2 | Cash-flow forecast |
| 3.1.3 | Work plan or budget |
| Also: | Appendix 3-A - Sample of an Annual Budget |
3.1.1 Business plan
A business plan is a written summary of the goals that a business
hopes to accomplish in future years and how it intends to organize
available resources to reach those goals. The business plan is an
essential ingredient in starting and running a successful small business
because it identifies priorities, assesses the risks involved, and
assesses the level of commitment required to succeed. A business plan is
a useful tool in trying to obtain financing.A business plan should include:
- A description of the business. The description of the business provides basic information about the Harbour Authority: its strengths and weaknesses; its key activities, products, and services; and its management and advisory team members. The description also reviews the business environment (nature of the industry, market, trends, competition).
- An analysis of the market. The analysis of the market identifies potential new services and sources of clients. It also addresses strategic issues such as pricing, competition, and promotion.
- A discussion of the operations. The discussion of the operations describes harbour facilities and leasehold improvements, determines human-resource requirements, operating hours and procedures, and the need for new or additional buildings or equipment, if appropriate.
- An assessment of risks and opportunities. The assessment of risks and opportunities identifies the risks inherent to the activities of the Harbour Authority and the unexploited opportunities represented in its particular facilities.
- Current financial information and a forecast of future earnings. Current and future financial information includes cash-flow forecasts, historical financial data (if available) and projected balance sheets and income statements. The information should include financing requirements and the assumptions behind certain figures, such as payment terms and estimated revenue. The Harbour Authority's goals should be clearly stated, and potential new services, growth, and expansion plans described.
- It is a strategic guide for the future development of a Harbour Authority.
- It helps the Harbour Authority identify new business opportunities, and shortcomings and problems before they arise.
- It encourages the Harbour Authority to focus on planning (often a difficult task with so many priorities to be attended to).
3.1.2 Cash-flow forecast
A cash-flow forecast is an estimate of when revenue will be received and when expenses, such as operating costs, will be paid. A cash-flow forecast shows all cash receipts, as they are expected to be received, and all cash payments, as they are to be made, and determines whether the revenue generated is sufficient to meet monthly expenses.If the work plan or budget was prepared using the cash method, then you have already prepared a cash-flow forecast. The difference between a budget and a cash-flow forecast is the time at which the receipt and payment of money is recorded. A cash-flow forecast records revenue and expenditures when the money is received or paid.
Cash-flow forecasting offers the following benefits:
- a format for planning the most effective use of available cash;
- a schedule of anticipated cash receipts and a method of verifying whether that schedule is achieved;
- a measure of the significance-in terms of cash-of unexpected changes in circumstance (reduced revenue or sudden expenses); and
- an estimate of the money needed to pay suppliers and employees on time, thereby remaining solvent.
Preparing a cash-flow forecast
The first step in preparing a cash-flow forecast is to estimate, on a monthly basis, total cash collections and total cash payments. Results from previous years, if available, are a good source of information.
Various work sheets are available to help organize cash flow, projected cash sales, and accounts receivable. The work sheets can be obtained from most financial institutions at no charge.
Cash-flow forecasts should be revised on an ongoing basis. At the end of each month, it is wise to compare the actual cash-flow figures to the planned figures. If a great discrepancy exists between the sets of figures, it may be necessary to analyse the variances, to revise certain assumptions, and to adjust the figures for the succeeding months accordingly. The forecast should provide a clear picture of cash requirements at all times.
3.1.3 Work plan or budget
A work plan or budget is a game plan that helps an organization reach its goals. It provides an estimate of revenue and expenses for the coming year and determines the ability of a corporation to meet its obligations.In some cases, a Harbour Authority may require financial support from the Department of Fisheries and Oceans (DFO). The Harbour Authority must prepare a work plan or yearly budget to confirm and justify its funding requirements. DFO will review the work plan and discuss it with the Harbour Authority.
A work plan is a projection of how the coming year will unfold. A projection is a combination of facts and assumptions. Examples of facts are the number of boats currently using a harbour, the current cost of electricity, the current salary of the harbour supervisor, and so on; examples of assumptions are the utilization rate of harbour services for the coming year, bad debts, allowance for possible storm damage to a harbour, and so on. It is prudent to be conservative when projecting future revenues and less conservative when projecting future expenses.
A work plan should include a discussion of:
- what can be achieved financially during the coming year;
- where potential financial problems lie; and,
- what the financial situation of the Harbour Authority will be at the end of the year.
- It provides additional control over harbour operations. The Harbour Authority has a good idea of what to expect in the coming year and, by comparing actual results to budgeted figures, can often identify initial signs of operational problems or faulty internal controls.
- It facilitates appropriate decision making. The Harbour Authority uses resources according to the work plan.
- It demonstrates the managerial abilities of the Board of Directors and satisfies the information needs of the membership, the Department of Fisheries and Oceans (DFO), and others (banks).
- It saves time and money. The Harbour Authority can project the financial impact of a decision before committing to it.
- It encourages directors and staff to appreciate the full scope of the business: looking ahead, determining how to achieve success, making decisions that should contribute to that success, and considering alternative courses of action in the event that a decision fails to achieve a desired result.
When preparing a work plan or budget, start by estimating expected income or total revenue. Because of the level of uncertainty, expected income or total revenue is difficult to determine. The best way to develop a reliable forecast is to talk to other people in the same industry and to refer to historical records, if they exist.
Revenue figures cannot be divorced from the particular circumstances and geographical location of a harbour. The types of services offered at a harbour, the harbour clientele, the types of fisheries that operate out of the harbour, and competition from other harbours must be considered when estimating total revenue.
Preparing a work plan or budget may be more difficult for a new Harbour Authority than for an existing Harbour Authority, because a new Harbour Authority has no historical records to use as a reference. But, in these cases, a work plan is even more essential. The extra work and time are justified by the importance of determining, at the outset, whether the Harbour Authority will generate enough revenue to meet its stated goals.
As mentioned earlier, a Harbour Authority has limited control over the amount of revenue it will generate. It does, however, have great control over the expenses it will incur. Therefore, one of the main concerns in preparing a work plan or budget is to identify expenses as accurately and in as much detail as possible. Appendix 3-A shows a sample annual work plan or budget.
Determining the cost of services
As part of the work plan or budget exercise, a Harbour Authority may choose to determine the cost of the services that it provides to harbour users. The Harbour Authority can then set fees that reflect the real costs of providing these services. Knowing the costs can also serve to explain and justify fee increases or reductions in service. For example, if garbage collection becomes more expensive, and if the membership refuses to pay higher fees, the Harbour Authority may choose to terminate the service and require the harbour users to collect and dispose of their garbage individually.
Appendix 3-A - Sample of an Annual Budget
Annual Budget-Harbour Authority ofRevenue
Berthage
Wharfage/Moorage
Licences
Subleases
Electricity services
Others (specify)
Subtotal:
Total Revenues:
General Expenses
General expenses
Salaries and benefits
Rent and office supplies/furniture
Telephone
Professional services
Insurance
Municipal taxes
Subtotal:
Operational Expenses
Electricity
Garbage collection
Wharf maintenance
Equipment (winch)
Ramp/slipway
Floats
Breakwater
Dredging
Services area (parking)
Buildings
Snow removal
Subtotal:
Others Expenses
Miscellaneous
Equipment purchased
GST/HST
PST
Subtotal:
Total expenses:
Profit or (Loss):
3.2 - Revenue Collection
This section covers the following topics regarding revenue collection:| 3.2.1 | Daily boat count |
| 3.2.2 | Sources of revenue |
| 3.2.3 | Records of commercial activities |
| 3.2.4 | Invoicing and billing |
| 3.2.5 | Outstanding accounts (collection procedures) |
3.2.1 Sources of revenue
A Harbour Authority has various potential sources of revenue from
fees and charges for services provided by the Harbour Authority.The Board of Directors determines an appropriate fee structure for the Harbour Authority. The fee structure may take into account such factors as:
- the volume of business,
- the client mix,
- the cost of the services provided,
- the market value of the services offered, and
- the willingness and ability of the clients and members to pay.
Berthage fees are normally presented in the form of a fee schedule. The schedule can be set as a function of the size and type of vessel. Fees are usually stated in dollars per metre per day, dollars per metre per month, and dollars per metre per year. The fee for a given vessel is then calculated based on the schedule. The fee schedule determines the potential berthage revenue.
The fee schedule may differ for different categories of vessels. Category descriptions might include:
- Commercial fishing vessels used to harvest or transport fish or seafood products.
- Pleasure craft used for recreational purposes.
- Government vessels owned or contracted by a government agency.
- Commercial vessels used for commercial activities other than fishing, such as ferries, transports, cruise ships, and others.
The cost of services such as electricity, water, gear or boat storage, garbage collection, and shower facilities can either be included in the berthage fee or be charged separately. When charged separately, the fee may be fixed or based on actual consumption. The fixed fee could be the same for all boats, or it could vary according to the size of the boat or some other criteria.
Subleases and licences
The Harbour Authority may generate other revenue by issuing subleases, permits, and licences to harbour users.
The Harbour Authority should ensure that sublease agreement holders, licencees, and other agreement holders, observe all the terms and conditions of their agreements. Adequate records should be kept of these transactions.
Other sources of revenue
Special events, fish landing fees, and parking fees may represent additional sources of revenue for the Harbour Authority.
At times, the Harbour Authority may be involved in repair or maintenance projects that are financed wholly or in part by the Department of Fisheries and Oceans (DFO). The monies provided by DFO represent revenue to the Harbour Authority. Project expenses should be recorded and closely monitored to ensure that they do not exceed the funds allocated to the project.
3.2.2 Daily boat count
The daily boat count is a method used to record the movement of boats into, out of, and within the harbour.Description
The daily boat count is an inventory of all vessels occupying a berth in the harbour, and the vessels stored or being serviced in other areas of the harbour. A boat count systematically records the status of the boats using the harbour. Possible statuses are:
- arrivals,
- departures,
- unchanged status, and
- dry dock.
Process
A boat count may be completed on paper or by computer. A good counting system ensures that the information collected is reliable and complete. Poor records may compromise the Harbour Authority's revenue collection.
Related activities
Depending on the volume and type of traffic in the harbour, the Harbour Authority may wish to collect berthage fees while conducting the daily boat count. For example, new arrivals may be given a "Vessel Welcome Notice" that contains information about registration requirements, the payment of fees, rules and regulations, and other relevant information.
3.2.3 Records of commercial activities
The Harbour Authority may wish to register the various commercial activities that take place at the harbour to determine the level of economic activity generated.Description
Records of commercial activities may consist of the following compilations:
- a consolidation of boat count reports by type and size of boat;
- a tally of fish landings in weight and dollar value;
- a record of the value of fish stocks held in holding carts (e.g., lobster carts) in the harbour at the height of the fishing season;
- records of commercial, tourist, or community activities that are held at the harbour, including attendance.
3.2.4 Invoicing and billing
A Harbour Authority should have policies and accounting systems in place to handle revenue collection, as well as billing and payment transactions so that all such transactions are handled with consistency and fairness. Invoices should be consecutively numbered and filed in numerical order, not alphabetical order. The Harbour Authority must also account for all invoices to ensure that invoice numbers are recorded in the sales/receipts journal in numerical order, and that all cancelled invoices are entered as such in the journal. All applicable taxes (GST, HST, and provincial taxes) should be included on invoices or bills, as well as entered in the books.Once services have been rendered, invoices (bills) should be issued as quickly as possible. Bills and statements should be clear and understandable to the clients of the Harbour Authority. For services that are billed monthly, such as berthage fees, the Harbour Authority may wish to establish a routine in which billing is completed by the fifth day of the month.
If purchased services are permitted to be paid in installments, client records will have to be updated to apply payments received to the unpaid balance and to add new charges as they are incurred. A system of aging the accounts receivable will facilitate the reconciliation of outstanding balances and the charging of interest, if applicable.
3.2.5 Outstanding accounts (collection procedures)
The most effective approach to collecting delinquent accounts is a personal telephone call or visit. A written notice can also be sent to inform a client that an account is overdue and to describe the action that the Harbour Authority might take if payment is not made after the first notice.If normal collection procedures fail, the Harbour Authority could turn the debt over to a collection agency (if necessary) or initiate a claim in Small Claims Court (claims under $3,000 in the province of Quebec).
3.3 - Expenditure Management
This section discusses:| 3.3.1 | Expense categories |
| 3.3.2 | Project management accounting |
3.3.1 Expense categories
A Harbour Authority expends money in a variety of ways during the
normal course of business. Day-to-day records of receipts and expenses
should be kept. Normally, a cash disbursement journal is used for
tracking expenditures. It records every cheque issued by the Harbour
Authority.Establishing the following three categories of expenses can facilitate consolidation and preparation of the financial statements that are usually required for an annual report.
- General Expenses. General expenses include salaries, office furniture, telephone, professional services, insurance, and municipal taxes.
- Operational Expenses. Operational expenses include electricity, garbage services, snow removal, winch, wharf, ramp/slipway, floats, breakwater, dredging, services area, buildings.
- Other Expenses. Other expenses include equipment acquisition, miscellaneous items (only very small expenses), the Goods and Services Tax (GST) or Harmonized Sales Tax (HST), and provincial sales taxes.
To maximize the cash-on-hand, the Harbour Authority should consider taking advantage of discounts "for prompt payment" if they are offered and, if they are not, issuing cheques dated for the precise due date, just before interest would become payable.
Depending on the number of transactions, the bookkeeper should determine the most appropriate interval for processing payments: daily, weekly, or "as needed".
3.3.2 Project management accounting
At times, DFO may request that the Harbour Authority conduct important repairs to the harbour facilities. The repair contract signed with DFO should be treated as a receivable (similar to a client file), because cash is received in return for completing a service. If the Harbour Authority receives a financial contribution from DFO, the Harbour Authority must report the cash received either as income or as a reduction of an expense.3.4 - Government Reporting Requirements
This section discusses government reporting requirements such as:| 3.4.1 | Filing tax returns |
| 3.4.2 | Registering for GST/HST |
| 3.4.3 | Making payroll deductions |
| Also: | Reference Material - 4 |
| Appendix 3-B - Harbour Authorities Located in the Province of Quebec |
3.4.1 Filing tax returns
Though Harbour Authorities are registered non-profit organizations (NPOs), they are required, by law, to file a T2 Corporation Income Tax Return for every taxation year and in some cases, a T1044 Non-profit Organization Information Return.The T2 return must be filed within six months of the end of the corporation's fiscal year. To file the T2, the Harbour Authority may use a T2-Short form and attach a complete financial statement (balance sheet, income statement, notes about the financial statement, and the auditor's report).
Harbour Authorities that are also required to file a Non-profit Organization Information Return must include the following information in the return:
- the amount received during the fiscal period (e.g., interest and property rental income); and
- the statement of assets and liabilities (e.g., amount receivable by the members).
3.4.2 Registering for GST/HST
The GST is a 7 per cent tax on consumption. Most transactions in Canada are subject to the GST. The Harmonized Sales Tax (HST), follows the same basic operating rules as the GST, replaces the GST in three participating provinces (Newfoundland, Nova Scotia, and New Brunswick), and is applied at a single rate of 15 per cent. The federal component of the HST is 7 per cent and the provincial component is 8 per cent. Non-profit organizations, such as Harbour Authorities, whose sales of taxable goods and services exceed $50,000 over the four previous calendar quarters, must register for, collect, and remit the GST/HST. A Harbour Authority, whose annual revenue is lower than $50,000, may choose to register voluntarily for the GST/HST. A Harbour Authority in the province of Quebec must remit the GST, together with the provincial sales tax (PST), to the government of Quebec.An advantage of voluntary registration for the GST/HST is the opportunity to claim a credit-called the input tax credit (ITC)-that recovers the GST/HST paid or owed on purchases related to an organization's commercial activities (equipment acquisition, professional services, maintenance or repair contracts, computer, and other activities). A Harbour Authority should evaluate its particular circumstances and determine the advantages and disadvantages of voluntary registration.
Once registered, the Harbour Authority must:
- collect the GST/HST regardless of whether its invoices for taxable goods and services exceed or fall short of $50,000;
- determine its intervals for filing and making installment payments (annual, quarterly, or monthly);
- set up an accounting system for the GST/HST;
- determine the input tax credit applicable to each period;
- file GST/HST returns at established intervals; and
- remit the GST/HST owed.
Two simple accounting methods exist to calculate the amount of GST/HST owed: the Quick Method and the Simplified Method. Under the guidance of a Revenue Canada agent, a Harbour Authority could try both methods.
More information on registering for the GST/HST can be obtained by calling the GST Information Line at 1-800-959-5525 for service in English, or 1-800-959-7775 for service in French.
3.4.3 Making payroll deductions
From time to time, a Harbour Authority may hire employees. The Harbour Authority is obliged to accurately record payroll information for its employees, and to maintain up-to-date records. Harbour Authorities must follow a few simple procedures to account for payroll costs and to conform to government regulations. A payroll journal must be established. If the Harbour Authority has more than one employee, the journal consolidates earnings record cards (which simplifies consolidation for T-4 slips). The journal also records the amount to be remitted to the government, including the employer's contributions.A Harbour Authority must register with Revenue Canada as soon as its first employee is hired (unless the Harbour Authority is already registered for the GST/HST). The next step is for the Harbour Authority to obtain, from Revenue Canada, the Payroll Deductions Tables for Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax deductions for the appropriate province. The tables are available in electronic format on disk or from the Revenue Canada Web site at www.ccra-adrc.gc.ca as well as the Tax Services offices of Revenue Canada. Harbour Authorities located in Quebec must register with Revenue Québec. All questions pertaining to the sales tax and to the "Régime des ventes du Québec" must be also be directed to Revenue Québec.
Major deductions from pay cheques include:
- Canada Pension Plan contributions (in Quebec, Quebec Pension Plan (QPP) contributions);
- Employment Insurance (EI) contributions; and
- income tax.
Reference Material
Revenue Canada has produced an excellent guide (RC 4070) for small businesses. The guide covers the principal issues that a business should consider when running its operations from a fiscal point of view. A Small business hand book, prepared by Industry Canada, provides a complete list of services, and organizations that deliver these services.Communication-Québec has an information and reference service for starting an enterprise. The service has compiled several relevant publications and forms including the guide Starting a Business.
Appendix 3-B - Harbour Authorities Located in the Province of Quebec
Harbour Authorities located in the province of Quebec are required to complete and remit the following additional forms:- Déclaration des sociétés (CO-17 Income tax return for corporations).
- Déclaration de renseignements des entités exonérées d'impôt (#TP-997.1).
3.5 - Producing Financial Statements
In every business, a set of financial statements is periodically prepared to monitor the progress of the business. Financial statements are useful tools for managing a Harbour Authority. This section discusses:| 3.5.1 | Balance sheet |
| 3.5.2 | Profit and loss statement |
| 3.5.3 | Financial audit |
| Also: | Appendix 3-C - Sample Balance Sheet |
| Appendix 3-D - Sample of a Profit and Loss Statement |
3.5.1 Balance sheet
A balance sheet is a summary of the financial position of a Harbour Authority at a particular point in time: a snapshot, so to speak. The balance sheet lists the Harbour Authority's assets (resources), its liabilities (debts), and the resulting surplus or deficit position.Assets are items of value owned by the Harbour Authority, such as equipment and buildings. Liabilities are items of value owed by the Harbour Authority to others, such as debts and bank loans. The surplus or deficit position of a Harbour Authority is the difference between its assets and its liabilities. The surplus or deficit position is composed of the money invested in the Harbour Authority over the years and the gains (profits) or losses sustained by the Harbour Authority since its creation. A Harbour Authority's surplus or deficit position may also be called the reserve fund because it consists only of accumulated gains or losses.
By subtracting current assets (items that can be converted to cash within less than a year) from current liabilities (items that must be paid within less than a year), a picture develops of the corporation's flexibility in meeting its obligations (money owed and payable within the year). The reserve fund of a Harbour Authority is a good indicator of its wealth and its ability to weather difficult financial times.
See Appendix 3-C for a sample detailed balance sheet.
3.5.2 Profit and loss statement
The profit and loss statement shows the operating results of the Harbour Authority over a specified period of time (month, quarter, half a year, one year). The period of time covered by the profit and loss statement usually ends on the date that appears on the balance sheet. Operating results are shown as the money earned (revenue) and the money spent (expenses) by the Harbour Authority over a specified period of time.The profit and loss statement confirms whether revenue from fees, licences, and other activities exceed expenses such as salaries, maintenance, repairs, and other expenses incurred in earning the revenue. The detail provided on a profit and loss statement will depend on the activity in the harbour and on what the Board of Directors wants the Harbour Authority to report. The expense category used in the Harbour Authority's work plan or budget can be found on the profit and loss statement.
Formal profit and loss statements are usually prepared once a year for income tax or annual reporting purposes. A profit and loss statement can be prepared periodically throughout the year to check progress and to ensure that all plans (and the budget) are on track.
Profit and loss statements are usually compared with past and future budget projections. The Board of Directors looks for significant differences between the budget and actual results as reported on the profit and loss statement. The Board also looks for non-budgeted revenue and expenses, and requests explanations for the discrepancies.
Profit and loss statements are also compared to the statements of previous years to identify large variances. The comparison highlights potential problems, allowing time to adjust the budget (i.e., defer some projects to the next financial exercise).
See Appendix 3-D for a detailed profit and loss statement.
3.5.3 Financial audit
The financial statements of a Harbour Authority should be audited annually by an auditor. The auditor may be a professional or a non-professional accountant. The Harbour Authority may retain the services of a professional accountant when financial and managerial advice is required or if a concern arises over specific issues (e.g., lack of appropriate controls, appearance of fraud, the need to improve financial reporting).The auditor's report typically takes the form of a letter signed by a firm of chartered accountants. The letter states that the accountants have examined the balance sheet and other statements and that, in their opinion, the statements fairly represent the financial position of the Harbour Authority on a given date (usually the fiscal year's end). The report may also contain notes about the financial statements that define accounting policy, changes in accounting policy, and additional information such as lease and rental commitments.
Appendix 3-C - Sample Balance Sheet
Harbour Authority (**Insert name**)BALANCE SHEET
MARCH 31, 1998
ASSETS
Current Assets
Cash
Accounts receivable
Total Current Assets
Fixed Assets
Office equipment
Accumulated depreciation (office equipment)
Fixed assets
Accumulated depreciation - fixed assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Salary payable
Accounts payable
Loan payments (due within 12 mos.)
Taxes payable (due within 12 mos.)
Total Current Liabilities
Long Term Liabilities
Loan payments (due after 12 mos.)
Total Long Term Liabilities
CAPITAL OR EQUITY
Reserve fund or accumulated surplus (deficit)
TOTAL LIABILITIES AND CAPITAL
Appendix 3-D - Sample of a Profit and Loss Statement
Harbour Authority (**Insert name**)PROFIT AND LOSS STATEMENT
January 1, 1998 to December 31, 1998
Budget Actual
REVENUE
Berthage
Wharfage/Moorage
Membership fees
Licences
Subleases
Electricity services
Other
TOTAL REVENUE:
EXPENSES
General expenses
Salaries and benefits
Rent and office supplies/furniture
Telephone
Insurance
Professional services
Municipal taxes
Operational expenses
Electricity
Garbage collection
Wharf maintenance
Equipment (winch)
Ramp/slipway
Floats (specify structure)
Breakwater
Dredging
Services area (parking)
Buildings
Snow removal
Others
Other expenses
Equipment acquisition
GST/HST/PST
TOTAL EXPENSES:
PROFIT/LOSS:
3.6 - Banking
This section discusses various aspects of banking with which a Harbour Authority should be familiar, including:| 3.6.1 | Setting up a bank account |
| 3.6.2 | Bank statements and cancelled cheques |
| 3.6.3 | Bank reconciliation |
| 3.6.4 | Bank financing |
3.6.1 - Setting up a bank account
A Harbour Authority must set up a bank account to properly record funds received and spent. The Board of Directors passes a resolution choosing the financial institution at which the Harbour Authority will open an account and the directors who are to have cheque-signing privileges.3.6.2 - Bank statements and cancelled cheques
Harbour Authorities conduct most of their business transactions by cheque. Cheques are safer to handle than cash; they also provide an immediate and permanent record of business transactions. Cheques generate additional financial records such as bank statements, deposit slips, and cheque stubs.Keeping monthly bank statements and cancelled cheques in a safe place and maintaining the order in which the bank has arranged the cheques is important. Cheques are cross-referenced against entries on the bank statement and against the list of outstanding cheques (not cashed) prepared at the end of the previous month. This process produces an updated list of outstanding cheques as of the date of the bank statement.
3.6.3 - Bank reconciliation
A bank reconciliation is a simple procedure used to verify the differences between the bank statement and the cash balance in the ledgers. At the end of each month, the bank sends the Harbour Authority:- all cheques that were cashed against the account during that month.
- a notice of any cheques paid into the account that were refused as stale-dated or drawn against an account that lacked sufficient funds (NSF) to cover it.
- a statement showing all transactions occurring during the month.
- that month's opening and closing balances.
3.6.4 - Bank financing
Before obtaining financing, a Harbour Authority must examine its Letters Patent and by-laws to determine whether it may borrow money, and if so, what its borrowing limit is. (Note, however, that the latest version of the incorporation document has been amended. The clause limiting the amount a Harbour Authority can borrow has been removed.) A Harbour Authority whose charter contains a clause of incorporation that imposes a limit on its ability to borrow, causing a problem as a result, can amend its charter to limit or increase the amount to be borrowed by way of regulation.A Harbour Authority might require credit for either of two reasons:
- to finance its operations (normally by a line of credit), or
- to finance the purchase of equipment or another major asset (normally by a term loan).
Line of credit
The purpose of an operating line of credit is to tide the Harbour Authority over until the accounts receivable are collected. A line of credit is the link between the provision of services and the collection of fees.
Term loan
The purpose of a term loan is to finance a major purchase and to spread its repayment over a relatively lengthy period of time. A bank extends a term loan based on the assumption that the intended purchase will help the Harbour Authority to generate revenue and that, over time, the revenue will repay the loan.
