Getting Down to Brass Tacks
Ending a fiscal year, and beginning a new one, is a great time to do some fiscal housekeeping, and get a fresh start if necessary.
As we move into 2012, it’s important to keep your business’ goals in mind as you conduct your accounting activities. One of the primary accounting goals for your business should be to ensure that your financial statements are accurate, reliable, timely, and represent the results of your business operations. A key to accomplishing this goal is to continuously analyze each balance on your financials, understand what it consists of, and make adjustments if it is not correct.
One of the primary accounting goals for your business should be to ensure that your financial statements are accurate, reliable, timely, and represent the results of your business operations.
I know that many businesses struggle with this particular goal, often with perfectly justifiable reasons. It may be due to a change in business operations, 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 policy and procedures.
Regardless of the reasons, the value of maintaining accurate, reliable, and timely financial statements is far too great to fail to make it happen. In the big picture, two things must happen if this is a problem for your organization:
- You must make the necessary corrections to your financial statements
- You must do whatever necessary to maintain correct balances
The former may be more simple than you think. The latter may not be, but it can and should be accomplished. I will endeavor to lay out a realistic game plan for you:
- Determine correct general ledger account balances
- Make necessary correcting entries
- Begin daily reconciliations
- Learn causes and initiate corrective actions to avoid problems
- Become a student of accounting principles relevant to your business
- Master your universe.
Begin by learning how to determine the correct balances in your general ledger accounts. Consult your accounting professional, or arrange for some time with one of our professional services consultants to help you with this if necessary. At the very least, tackle your receivables, inventory, and then inventory payable, side notes, accounts payable and others that you have a good report to balance to. Generally speaking, the detail reports represent your true balances. Adjust your financial statements to reflect these balances. Then you can work it out from there until you address every account on your financials.
Make adjustments if necessary to correct your account balances, even if you’re not certain what the offsetting entry is. 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. The viable alternatives generally include:
- Expensing it in the current period, or a prior period
- Posting it to a balance sheet account and amortizing over time
- 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.
Once you adjust your accounting balances to match your detail reports, then immediately begin reconciling the balances daily. Make sure they remain correct, and make necessary adjustments. This will help you gain an understanding of what causes incorrect transactions, and therefore enable you to react accordingly with procedure/policy changes. At no additional cost, we have accounting manuals, daily process documentation, and reconciliation schedules available to help accomplish this. In fact, chances are good that you already have them. If not, just ask us, we’ll be glad to send them to you.
This 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 to find and correct any problems. You’ll know you’ve reached your goal when you find virtually no problems to fix.
By the time you have reached this point, you should be quite a student of relevant accounting principles. Continue to build on your knowledge and expertise by attending seminars, training sessions and classes, like the ones offered at our annual Innovate conference. Learn everything you can about all things related to accounting in your business and industry. Find ways to increase the effectiveness of your business processes, reduce the time and effort required, and improve on the presentation of your financial statements. Master the generally accepted accounting principles that apply to your business. Master your trade.
As you gain control and confidence in your profession, you will gain credibility and value with your employer, your peers, and others in the industry. You will also raise your standing in the industry with lenders, vendors, and investors. This will ultimately ease the cost and effort required to secure leverage and equity, and generally result in a much more pleasant and successful business experience.