How to Ensure Accuracy on Financial Statements
The financial statements of the company include the profit and loss statement (P&L), balance sheet, and statement of cash flow. The annual statement summarizes revenues, expenses, and benefits for a year. The balance sheet includes assets, debt & equity. The formula is Assets = Liabilities + Owner's Equity Cashflow statement and summarizes cash inflows and outflows. The presentation of the financial statements are important as well.
Elements that leads to accurate financial statements
Consistent bank reconciliation on each bank accounts and even credit card Creating and reviewing bank reconciliation report each month Reviewing accounts receivables and ensuring that they are recorded and also the accounts are collectable. Reviewing and recording investment accounts and its earning Reviewing and recording capital assets and its proper depreciation Reviewing accounts payable and ensuring that they are recorded Proper recording of employee wages payable Proper recording of taxes Proper recording of shareholder loans Reviewing long term loans and debt and ensuring that they are recorded - Differentiate between the debt and interest on long term debt Same logic on all revenue and expenses.
An Advice
Consistent review of monthly reports ensure that there are no errors in data entry. Furthermore, automation will reduce human data entry errors. For example, when using QuickBooks Online (QBO) and connect to your bank account, data flows through it automatically and error free. At Numetrica, 100% of our clients are on cloud accounting, QBO. Their financial statements are ready in record time which enables them to make timely decisions, pay taxes on time and even pay their employees through direct deposit.
Recommendation
Glance at the financial statements and ensure the accounting formula is correct. For example, Assets actually equals liabilities plus Equity. Also ensure that no asset accounts are recorded as negative and vise versa. When an asset is negative it means it is a liability. For example, taxes receivable are stated negative, well this is a liability then and it will belong to the liability section. Same logic for revenues and expenses. While looking at your statements, analyse accounting ratios and compare them with your industry standards to determine how you are performing. If you need advice looking at your financial statements let us know
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