The con­cept of garbage in, garbage out is used in com­put­er sci­ence when flawed, or non­sense input pro­duces non­sense out­put or “garbage”.  I use this phrase a lot when I am work­ing with clients on ana­lyz­ing and improv­ing account­ing pro­ce­dures.  If you do not have the prop­er pro­ce­dures in place you will not get the data you are look­ing for.  Below are a few basic “must haves” to ensure that you are get­ting the infor­ma­tion you want.

Chart of Accounts

The chart of accounts is used to orga­nize the finances of the enti­ty and to seg­re­gate expen­di­tures, rev­enue, assets, and lia­bil­i­ties.  You want to make sure that you have accounts set up for impor­tant items and group some of the small items into one account.  For exam­ple, you might not need an account for water and sew­er.  You could com­bine them into one account, water/sewer.  Or you might real­ize that all your util­i­ties (water, sew­er, elec­tric­i­ty, etc.) can be lumped into one account because the amounts are not that mate­r­i­al.  I have seen chart of accounts as long as 3 pages.  This is not help­ful and very intim­i­dat­ing when it comes to ana­lyz­ing infor­ma­tion.

Accu­ra­cy When Post­ing Trans­ac­tions

Book­keep­ing is not a mind­less act.  There are many details to attend to in order to get the infor­ma­tion that is need­ed.  When post­ing trans­ac­tions make sure to pay atten­tion to these details:

  • Dates
  • Vendor/Customer Info (name, address, ID num­ber, etc.)
  • Amount of the trans­ac­tion
  • Appro­pri­ate account with­in the chart of accounts
  • Memo lines

Attend­ing to the detail from the very begin­ning elim­i­nates the need for cost­ly and over­whelm­ing cleanup in the future.

Month­ly Account Rec­on­cil­i­a­tion

Review­ing your accounts (check­ing, sav­ings, cred­it card) against exter­nal records can alert you to dis­crep­an­cies between the two.  By doing month­ly bank and cred­it card rec­on­cil­i­a­tions you can be assured that you have accu­rate bal­ances with­in your account­ing sys­tem.  Be sure to inves­ti­gate any dif­fer­ences, espe­cial­ly old out­stand­ing checks and deposits.  Check­ing your accounts payable with ven­dor state­ments month­ly is also a good prac­tice.

Accounts Payable and Accounts Receiv­able Process

You want to make sure that you have process­es in place to track the sta­tus and due dates of accounts payable and accounts receiv­able.  As accounts receiv­able ages, it gets hard­er to col­lect and costs you more mon­ey.  You also want to watch the aging of your accounts payable.  If you are pay­ing late, you could incur unnec­es­sary penal­ties.

Own­er to Set Aside Time Each Month

Own­ers should set aside time to review the pre­vi­ous months finan­cial state­ments (10–15 days after month-end close).  This time spent on the busi­ness is an impor­tant step in the account­ing process.  This is when the own­er can see trends and make any adjust­ments if nec­es­sary.  If sales are decreas­ing, then some adjust­ments to expens­es might need to take place.  If you are see­ing a major expense start­ing to creep up in cost month­ly, maybe it’s time to do a deep dive and find out why. There is no sense in hav­ing good finan­cial data if some­one isn’t will­ing to take the time to under­stand what it means about the health & tra­jec­to­ry of the com­pa­ny.

If you feel that you do not have any of these process­es in place or if you would like to improve on these process­es, call me at 859–331-7755 ext. 106 and I will help you through it.

At Mack­ey Advi­sors we are pas­sion­ate about cre­at­ing a pros­per­ous world, one entre­pre­neur at a time.  If we can help you, call me at 859–331-7755 ext. 106 or email me at Natalie@MackeyAdvisors.com