Most small businesses use bookkeepers to maintain their financial records, on a part-time, full-time or as-needed basis.
Some bookkeepers are exceptional and knowledgeable, while others, not so much.
A good bookkeeper is imperative to the financial health of a business. She pays the bills, reconciles the accounts, and properly categorizes revenue and expenses into the correct accounts.
A bad bookkeeper is dangerous. By failing to follow proper accounting procedures, she creates an inaccurate picture of the business’ financial stability, and in the long run, the business pays a far greater price – in the form of late fees and interest on missed filings or late bill payments, and a much larger CPA bill at year end to fix the mess.
What Information Should You Review
1. Reconciliation Reports
Your bookkeeper should reconcile your bank and credit card accounts monthly. QuickBooks (and other accounting software) will generate a reconciliation report showing the date the account was reconciled, the transactions that cleared in the month (meaning they appear on the bank statement), and the transactions that did not clear in the month. Comparing the reconciliation report to the bank statement allows you to check on your bookkeeper’s work. If the dates of the uncleared transactions are recent, then they are fine. Checks written at the end of the month that have not been cashed, deposits “in transit” on the last day of the month – those are to be expected. When deposits are several months old and still showing as uncleared, there’s a problem because your bank balance in QuickBooks is overstated and not truly reflecting the balance at the bank. Uncleared expenses cause your QuickBooks bank balance to be understated.
2. Aging Reports
Are your customers paying you on time? Your bookkeeper should be notifying you of old balances and attempting to collect on them. After 90+ days, you may need to send the account to a collection agency for resolution. Are there unapplied credits from your customers?
Is your business paying its vendors on time? Are there duplicate bills? Not recording bill numbers is a symptom of a greater problem – bills may be paid twice, or the correct bill may not be paid at all.
3. Profit and Loss (Income) Statement
Review this report. If you don’t understand it, ask your bookkeeper. If she can’t explain it to you, there’s a problem. Your bookkeeper must be able to explain your P&L to you and make suggestions for improvements if applicable.
4. Balance Sheet
Your balance sheet shows your liabilities and assets. It provides an accurate financial picture of your business and should be looked at often. If accounts look odd to you, chances are there is a problem.
The most popular accounting software for small businesses is QuickBooks. Your bookkeeper should know QuickBooks inside and out, and ideally be certified. Knowing the software as well as knowing bookkeeping will ensure your books are correct and enable your bookkeeper to spot errors.
For more info on reviewing your books, contact Tammy Collins today. 401-952-9919 voice or text, or at email@example.com.