Mar 10, 2021The Untapped Power of Accounting Assessments
How to conduct a self-assessment of your current accounting practices.
Have you ever seen a car dashboard light come on and suddenly feel a sinking pit in your stomach? Unless you drive a military-grade tank, you’ve likely experienced the frustration of taking your car to the mechanic to learn that a key part is damaged, costing you hundreds or thousands of dollars you weren’t planning on paying. Similarly, if a company’s accounting systems are faulty or outdated, the IRS will send some nasty warning lights. Just like regular car tune-ups can prevent unexpected car repairs, investing in an accounting assessment can prevent unexpected hiccups.
Whether your revenue is $100 or $100 million, you should be getting an occasional tune-up to check the health of current accounting practices. At Nimbl, we recommend that every company, both hair salons and technology companies alike, conduct an self-assessment of accounting practices to discover any potential problems before they become expensive to fix.
Of course, not all assessments are created equal. Here are a few questions to consider:
- Do you have a cloud-based accounting system?
- Are all of your associated business bank accounts connected and reconciled?
- Do your previous year-end financials match the prior year return?
- Are you using cash or accrual accounting? Why did you choose that method? (Consider tax and accounting advantages and disadvantages.)
- Are there any items on your balance sheet that don’t match associated statements? (For example, match loan balances to statements, accounts receivable to customer details, and accounts payable to vendor balances.)
- Does the equity section of your balance sheet accurately reflect owner-related transactions? (ex. dividends, distributions, partner capital accounts, and owners draw)
- Do your uncategorized accounts have outstanding balances? (Note: These accounts may be called “Uncategorized assets, expenses, or income” or “Ask my accountant.”
- If you sell products through Amazon, Shopify, Paypal, or another similar platform, are merchant and shipping fees, warehouse costs, inventory, sales, and sales tax recorded properly in the “net deposit” amount on your bank account?
- Do you have prepaid or accrued expenses that you’re unsure how to record on your financials?
- Are any “unearned revenue” transactions properly deferred and recorded in the appropriate month?
Although this self-assessment takes time to work through, it can save you in the long run. Fix those flashing lights before they come on. Trust us, remedying accounting issues takes a little longer than a mechanic’s 2-3 business day turnaround time. If you’d like another set of eyes in this process, please contact us to receive a free assessment as part of your ongoing services.