Last updated on April 13th, 2015 at 02:17 pm
As a small business owner you (or your Accountant) will be producing annual accounts and I thought that I’d produce this very brief guide to what you should look at when reviewing your accounts.
Although it’s tempting to leap straight to the profit and loss account I would suggest starting the review by looking at the balance sheet. This is because if there are errors in the key areas of bank, debtors and creditors in your balance sheet then it is very unlikely that your profit and loss is correct.
This needs to be reconciled so that you know that any difference between the closing system balance and the bank statement balance is made up of clearly identifiable transactions that have not cleared through the banking system so are not on your bank statement.
Check this list of uncleared transactions for things like possible duplicate entries, especially if they have not occured in the last few days of your accounting year.
If everything looks reasonable and the bank account balances it’s a good indication that all your payments and receipts have been recorded and you can move on to the next check.
Review the list of aged debtors.
Are there any credit balances? These could either be duplicate payments by your customers or sales that have not been recorded on your system correctly. The latter means you have unrecorded income in your profit and loss, and is a good reason why it’s important to start with the balance sheet.
Once you have checked for credit balances take a look to see if there are any really old balances which might be potential bad debts.
Once this review has been completed you need to check :
Like the Aged Debtor list you need to review the list of aged creditors.
This time check to see if there are any debit balances. These could be either overpayments to your suppliers or unrecorded expenses.
Are there any obviously wrong balances for example, do you have an annual bill that you pay monthly (business rates for example) that been posted as a creditor but the monthly repayments have been accidently to the profit and loss rather than the creditor’s account
Having checked these key elements of the balance sheet you can now look at the profit and loss account.
With the review of the balance sheet behind you this can be a “sense” check for reasonableness.
Check the gross margin (is the percentage what you were expecting?) and look to see if overhead expenses are in line with your expectations and with previous periods. And finally look at that bottom line, hopefully you will see a healthy bottom line as a reward for your efforts