How to make sure my accounting is accurate?

Number one thing when it comes to accounting is making sure it’s accurate – all your figures need to add up correctly, be accounted for using compliant measuring procedures and obviously be supported with source documents for all entries. Accounting is keeping proper books about your company’s financial performance. How else would you ensure you’ve really got a viable business for an example? 

You wouldn’t. If your accounting is all messy and not really compliant nor supported or confirmed, not counted or measured for value routinely etc. nobody can really be sure of what you own and what you owe, what you earn and what you spend. Does your bank account on the balance sheet reconcile with bank statements for the same date? Does it? If it does, you would be surprised how easily it can go all not matching and how for some people it’s a load of work!

For assets there are things called stock counts, confirmations and obviously regular reconciliations. Just to list a few most common control procedures being used often in everyday accounting:

  • Cash and bank accounts – perform confirmations with counting physical cash and confirm bank balances regularly. With cash being the most liquid asset a company can have it’s also the most tempting for someone to steal it and surprisingly it’s also what you pay your bills with. Reconciling the bank statements with your own accounts and ensuring your cash balances remain as matching is crucial – without cash there’s nothing to operate your business with!
  • Account receivables – perform confirmations at least once a year and for most frequent clients even more often if deemed necessary. Why? Your accounts receivables to clients are your most important asset after cash and bank accounts – your bread and butter for keeping the business going. The importance of receivables derives from the fact they’re the residues of sales – you make a sale and you’re most commonly left with a receivable on your balance sheet. It’s your goal now to receive the balance as cash or as a payment to your bank account.
  • Inventory – it’s what you sell! It’s your goods that generate revenue and if sold at the right price also profits. What you should do is ensure their safety (i.e. against theft, destruction etc.), proper and controlled access by other people and regularly check physical existence of all the goods in your accounts and vice a versa, check whether all good stored in your warehouse have also been accounted for. It’s one thing to check whether all the goods you’re supposed to have are really there, but it may also be so that not everything has been taken into the accounts – wrong shipments perhaps. And another thing, when doing the stock count, keep an eye out for goods that are older and not realizable, broken or long past their “best before” date for an example.
  • Tangibles are assets being used to generate goods or support your business more or less (i.e. production lines, machinery or equipment like computers and buildings where the business is run for an example). Your regular control procedures when it comes to tangibles should be counting at least once a year to ensure they all exist and also check their usage and condition – whether some of them need to be written off or can be sold perhaps? Always something to be decided during those checks. Now something that’s not so much as a control procedure but rather something that needs to be done annually or more frequently if conditions arise is the evaluation of reasonableness of useful lives and residual values used. What you’re supposed to do is simply assess whether the periods and amounts set are still valid and reflecting the actual situation at the date.

And, just to add, this list is obviously not complete meaning that there are many more controls or procedures you could perform to ensure your accounts are accurate.

Since a balance sheet consists of two sides (we’ll come to more detailed description later on), in addition to having your assets in check you’d also want to ensure your payables are accurate just as well. After all it’s what you owe! For liabilities the procedures to be performed as a minimum are as follows:

  • As with costumers, you also should confirm your payables to your suppliers – in that sense they’re no different. Bit of advice here though, even if the balance is zero, consider confirming those even so if transactions have considerable during the last period (i.e. year if you’re confirming balances once a year). The more there are transactions the more there are bound to be invoices missing or wrongly accounted for (i.e. typos, to wrong account or with a wrong date etc. – the more different types of dealings, the more opportunities of things going wrong). So, make your choices and confirm selected or all payables to suppliers at a certain selected date.
  • Loan payables are also something you might want to reconcile to bank statements if they were taken from the bank or if not so, confirm balances at least once a year to ensure you haven’t messed up somewhere or as it’s two parties, that the other side hasn’t made an error anywhere.
  • I would say that if your liabilities include any other significant balance that can be confirmed or at least reconciled to some form of more detailed information, it’s suggested to do so. Seriously.
  • One thing is to confirm those balances you’ve also recognized but it’s also crucial to identify those payables you’ve got not idea about. How should one do that? What I would suggest is either depending on the size of your company and the amount of employees you have who are authorized to buy stuff for the company to either set up a confirmation process to be followed prior to making the expense so that the accounting would already know there’s an expense coming in even without the invoice or simply inform those few making expenses about the importance of getting all invoices in in due time. The choice is yours and as I said, depends on the size of your company.

Whatever you decide and which procedures you choose, always make sure they’re efficient, sufficient and reasonable. There’s no point in having a procedure that’s hardly worth doing. Oh, and make sure you either stick to those procedures you’ve chosen or that you clearly ditch them and pick on something that works (unless you decided you don’t need anything because for an example you no longer have cash and you just use bank accounts). Either way as always make sure you’ve got your procedures you’ve found needed all written down, you do them timely and follow through fully.