Our focus is helping clients get it right during the year, so at year end there is minimal effort. Many owners assume what their package or accountant gives them is correct. It doesn't matter who does your accounts - as a business owner / director, the responsibility is yours. So let's have a think about accounts with a wider angle lens.
Two main essentials are profit and loss (statement of financial performance) and balance sheet (statement of financial position).
Profit and loss
This shows how much you made in the period concerned. For this purpose I shall talk about annual financial accounts.
The big question is what constitutes profit? There are detailed rules on what expenses are deductible - but the two general rules are they're either part of generating income, or they're involved in running a business which generates income. There are lots of exceptions, variations, explanations, etc. which is why people use accountants. But those two general rules cover most expenditure.
Of course, they don't say what's an expense as opposed to an asset, what's fully deductible and what's only partially deductible (and what to do with the non-deductible portion) and many other questions. And they don't detail what happens when the tax rules and the accounting rules differ (e.g. accounting fees accrual).
There is also not a lot to check the profit and loss against – the main one being your knowledge of what happened in the period. (Comparing with last year often helps.) Does it make sense? The business owner is the best judge of that. Some other details can be checked against external sources – wages, interest received, and so on.
Everything here should be supported by an external source. “External” is not the best term – for example comparing debtors and creditors figures to the aged trial balances is internal to integrated packages – some even compare them for you - you just need to check it. The same applies to stock (inventory).
Bank reconciliations should be a regular part of every business – but one aspect too commonly missed is items entered but never affecting the bank statements. There are a variety of factors here – but these always need to be dealt with ASAP.
I won't go through other options – but every figure should match a figure from elsewhere. This may include figures in other entity's accounts. These might include related companies – but the most common example is a trust. Amounts owing in one should match amounts receivable in another.
Of course, there are always exceptions. In this case, the main one is shareholders' current accounts. These can be very busy – although we recommend that you keep private expenses away from the business as much as possible. If you do this, it is relatively straightforward to check the account visually.
Accounts are your responsibility. So please understand the numbers you see – and if you don't, ask questions until you do.