Garbage In, Garbage Out

//Garbage In, Garbage Out

Garbage In, Garbage Out

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

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