Back to Basics – Developing a Strategy for Accurate Accounting Information

There is so much focus on the profit and loss statement (or income statement). Why wouldn’t there be? It tells you everything you need to know about how things went the past year. Right? Well, maybe not. To ensure accuracy of your profit and loss statement, it’s crucial to first verify at the accuracy of your balance sheet. The balance sheet provides a summary of your business’s financial health at a specific point in time. Any inaccuracies here can directly impact your reported revenues and expenses. By confirming that your balance sheet is correct, you can be confident that your profit and loss statement will also be accurate. 

When assessing the accuracy of your balance sheet, I urge my clients to get back to basics and start at the top. It helps to have a list of questions to ask yourself as you review your balance sheet from a top-down approach:

• Review your bank reconciliations – I cannot stress enough how important bank reconciliations are to any accounting process. Are they littered with old items that require adjustment? If yes, you may also want to review our blog on unclaimed property: Lost and Found: Are Outstanding Checks Unclaimed Property?  Did balancing the bank reconciliation require a “plug”? (It shouldn’t). 
• Does your accounts receivable have customers that need reminders? Are there any that should be written off?
• Have equipment and vehicle additions and dispositions been recorded properly? (Good accounts to review are office expenses, auto repairs and maintenances.) Have related loans been properly recorded?
• Have accounts payable bills been recorded on the correct dates? Is your accounts payable aging complete?
• Do the balances of loans and lines of credit match your lenders statements? Has interest been properly expensed?
• Do you need to consider the accuracy other types of assets and liabilities? (e.g. prepaids, inventory, accrued payroll, and shareholder loans).