Five Account Steps You Must Implement TODAY
Have you given much thought to your accounting goals this year? Hopefully one of them is to ensure your financial statements are accurate, reliable, and timely, and properly represent the results of your business operations. To accomplish this goal, you must analyze each balance on your financials continuously, understand what each consists of, and make adjustments if any are incorrect.
I know many businesses struggle with this particular task, often with perfectly justifiable reasons. It may be due to a change in business operations, a turnover in accounting personnel, or other disruptions. Many times, it can be traced back to a lack of adequate understanding on the part of the personnel charged with the accounting responsibilities and a failure to establish and adhere to proper policies and procedures.
Regardless of the reason, the value of maintaining accurate, reliable, timely financial statements is far too great to ignore. In the big picture, you must:
- Make the necessary corrections to your financial statements
- Do whatever necessary to maintain correct balances
The former may be simpler than you think, and the latter may not. But, they both can be accomplished. Here’s a realistic five-step game plan:
Determine correct general ledger account balances. Consult your accounting professional, or if you’re an iDMS customer, arrange some time with one of our consultants for help.
At the very least, tackle your receivables inventory and then inventory payable, side notes, and accounts payable. Generally speaking, the detail reports represent your true balances. Adjust your financial statements to reflect these balances. You can then work it out from there until you address every account.
Make necessary correcting entries. Make adjustments if necessary to correct your account balances, even if you’re not certain of the offsetting entry. Many times, you’ll find the net remaining adjustment is negligible. If you end up with such a difference that you simply cannot determine what to post it to, you may want to consult with your accounting professional for a suggestion on the proper accounting treatment.
The viable alternatives generally include a) expensing it in the current period, or a prior period; b) posting it to a balance sheet account and amortizing over time; or c) posting to retained earnings, if it is determined to be attributed to prior years. (Don’t elect this option without agreement from your accounting professional. It may require restating financials and/or tax returns.)
- Begin daily reconciliations. Once you adjust your account balances to match your detail reports, immediately begin reconciling the balances daily. The daily accounting reconciliation process is arguably the most important accounting function in the organization. If properly configured, and with proper processes in place, the transactional accounting should be automatic. All you have to do is audit it regularly and consistently, then find and correct any discrepancies.
- Learn causes and initiate corrective actions to avoid problems. Check to make sure your daily balances remain correct, and make necessary adjustments. Doing this will give you a better understanding of what causes incorrect transactions and will allow you to react to them properly. You’ll know you’ve reached your goal when you find virtually no problems to fix.
- Become a student of accounting principles relevant to your business. Continue to build on what you’ve learned, constantly adding to your knowledge and expertise.