Your Accounting File and Financial Reports are only as accurate as the user of the accounting file. Some have implied a bookkeeper’s work to be simple data entry, YES we great bookkeepers can make it look simple but there is a process involved before one can review the Balance Sheet or Profit and Loss that reflects your true financial business position, or give accurate figures to lodge Business Activity Statement.

Running through these checks will help you work like a professional.  Note: The terms used apply to Xero and may not be terms used in other accounting programs.

BANKS

Are all your banks reconciled and is the closing balance in the accounting program true to the balance on your bank statement?

All bank transactions must be reconciled up to the date you wish to review the reports. 

The reconciliation balance in the account of the accounting program must agree to the balance on the bank statement at the date in time of the report you are looking at.  If you have Outstanding Payments or Receipts you MUST check that these are ‘true’, most often a user has duplicated the transaction(s), or written from the wrong bank, these amounts need to be removed from the system if you leave them your reports will be incorrect.

If your bank doesn’t balance your accounting program with your bank statement, you can contact us to find out why. It could be that you have reconciled an internal bank transfer deposit before you did the withdrawal transfer, duplicating the transaction with one remaining unreconciled. You may have agreed to a Match transaction that has nothing to do with what it was meant to match with, this may be a process of removing & redoing a series of transactions to find the wrong one before the bank will reconcile. Maybe your opening balance was never entered, this can put the reconciliation out.

TRADING ACCOUNTS

Have you checked to see the accuracy of your Aged Payable and Aged Receivable Reports?

Users get confused here; it is no wonder with all the different names to describe the two basic Trading Accounts. It might have been less confusing in the time of real books being kept for bookkeeping. There was a book for each trading account, one for Accounts Receivable and one for Accounts Payable. These two Trading Accounts are about TIME to pay, so they are best used when you are given time ‘credit’ being trade creditor to pay an account, or you give time ‘debt’ trade debtor to a customer to pay their account. Reports on who owes you what ‘Aged Receivable’, and who you owe ‘Aged Payable’ are produced from the trading accounts.

In the chart of accounts, these accounts are called:

  1. Accounts Receivable – known as Trade Debtors linked to Sales/Customer/Client Invoices – Aged Receivables
  2. Accounts Payable – known as Trade Creditors linked to Invoices/Bills Payable – Aged Payables

Mistakes are often made when users confuse the trading accounts with Receive Money and Spend Money. Receive money and spend money bypass the trading accounts, do not produce aged reports, and are better used for accounts where receipts are given with no time to pay, however when there is a bill given with an invoice number for a supplier you use often, we recommend entering the bill as a precaution to not duplicate payment because the program will warn for duplicated invoice numbers so long as you are consistent with how you process invoice numbers (copy type what is on the invoice), and only have one card file for the supplier, if there are two the system will not know to warn you.

For Example:

  • Caltex – pay at the time of purchase, receipt given = Spend Money
  • Bank interest – no invoice given, pay at the time of withdrawal = Spend Money
  • Telstra Prepaid – pay at the time of purchase, receipt given = Spend Money
  • Cleaner – provided bill payable on receipt = Trade Creditor
  • Energy Australia – provided bill, given 21 days to pay from the date of bill = Trade Creditor
  • Supplier of stock – gives 7-day account = Trade Creditor
  • Supplier of stock – COD on bill = Trade Creditor
  • Australia Post – purchase stamps, receipt given = Spend Money

Hopefully, you have an understanding of Trading Accounts and will be able to ensure the report’s accuracy. Let’s check the Aged Receivables and Aged Payables Reports for:

  • check for duplication of invoices,
  • make sure any paid accounts at the date of the report are paid and not reported as outstanding
  • any bills you know are outstanding but are not on the list, must be processed into the system.

If you see accounts outstanding that you know have been paid, go to the Account Transactions of the Bank you paid, and locate the payment, it is most likely a receive money or spend money and you have taken up the expense twice. On locating receive money or spend money transaction edit ‘remove & re-do’, you should be able to match the payment to the invoice/bill when you reconcile the transaction. If you chose ‘undo reconciliation’, this leaves the receive/spend money transaction in the system, likely incorrect which is why you choose ‘remove & re-do’, removing the entire receive/spend money transaction and putting the bank-feed back to be re-reconciled.

Still stuck then maybe it might be time to give us a call 0475 131 232, or email info@mygreatbookkeper.com.au

ACCOUNT TRANSACTIONS REPORT

Have you entered transactions to the correct accounts, and taken up the GST correctly?

Reviewing the Account Transactions report (General Ledger Detail in MYOB) for the period required is important to make sure each transaction is in the correct account. This report shows you every account in your Chart of Accounts, and every transaction processed will be in that account. From the list under each account name, you can:

  • determine if you are missing entries. For Example, you are looking at 12 months but only have 10 monthly rent expenses, can you explain why 2 months are missing? Have they been put in the wrong account?
  • if transactions have been posted to the wrong account. For Example, BP Fuel expense needs to be removed from Printing, Postage & Stationary and put into MV Fuel.
  • nothing in an account but you know you have an expense.  For Example: You have nothing under MV Insurance and Rego but registration was paid in that period, is it in the wrong account, or did the bank feed stop working and you haven’t checked your bank reconciles to your bank statement, or maybe you paid it out of your account and need to take it up?
  • Shows the GST claimed on the transactions. This is particularly important to review the GST Claimed or not claimed, especially for subcontractors where annual TPARs are lodged. BAS Statements are often lodged before reviewing these subcontractors which means your TPARs will be wrong, so triple-check this area of GST Coding.
  • to check the consistency of entries. For Example: Xero Subscription, might be under an account called ‘Computer Expenses’, and you might also find it in an account called ‘Subscriptions and Memberships’, you can choose either but you must be consistent. For Budgeting for Cash-flow Forecast, Subscription and Memberships are easier to account for.

IMPORTANT NOTE: If the user linked the bank feed to the wrong Contact Card Name it is difficult to know if the transaction is posted/entered incorrectly, so if an account you are reviewing does not look right, you may need to go back to the Bank, Account Transactions, open the transaction and see what the bank feed (or bank statement) said, remove and re-do accordingly until it is correct.

ATO INTEGRATED CLIENT ACCOUNT (ICA) – BAS/Income Tax

Have you checked that your ATO Integrated Client Account Reconciles?

Did you know in the ATO Tax Portal you may have two ICA accounts? 

  1. Integrated Client Account – BAS is for lodged Business Activity Statements
  2. Integrated Client Account – Income Tax generally you will only use this account when the ATO gives you your Income Tax bill after lodging year-end financials,

So, beware there are two lots of BPAY details.

When the BAS has been lodged with the Australian Tax Office it is good practice to upload these figures by ‘General Journal’ into your accounting software, clearing reported figures out of the Control Accounts such as; GST, PAYG Withholding, PAYG Income Tax and moving the amount payable or refundable to the ATO Integrated Client (ICA) – BAS Account.  Then when you reconcile the payment or refund you simply put it back to the ATO Integrated Client Account (ICA) – BAS Account.

LIABILITY ACCOUNTS

Have you check that your liability accounts reconcile, and made sure any loans balance to the loan statements?

Here are a few accounts particular accounts to review:

  • Chattel Mortgages – have principal and interest that need to be adjusted each month to reduce the loan account. To ensure the accuracy of your BAS the initial purchase invoice is processed in the accounts, the loan is taken up and the unexpired interest is allocated to a separate liability account so that each month the principal and interest can be reduced while taking up the monthly interest expense.
  • Superannuation payable – is this correct, many times our clients put superannuation paid to the expense account when it has already been expensed at the time of processing payroll. If your Liability for Superannuation Payable is more than what you owe, you’ve probably put the payment to the expense account for superannuation, so you want to find it and move it.
  • GST Account – wow this one is a real damper for businesses. This account MUST reconcile with what is owed in GST, if it doesn’t why? If your BAS Agent/Accountant is charging you $330 $480 to lodge a BAS and can’t explain the balance of this account, I would say it’s likely they did not run any checks in this list before lodging YOUR BAS. This is the number one area we have seen BAS Agents/Accountants fail to do! So disappointing, especially when it is likely to have been less than 15 minutes of their time charged out at $380.00 to lodge one incorrect BAS. It is a procedure to reconcile this GST control account back to the ledger balance depending if you are on Cash or Accrual for GST, but if the right procedure is followed it should not be a chore and it certainly should be included with each BAS you’ve been given a $330-$480 bill for. If you were to lodge your own BAS you would need to check your bank balance in Xero agrees with the Bank Statement, so when paying for BAS to be lodged, expect to be asked for a copy of your bank statement at quarter/month end, this way it’s likely your BAS Agent/Accountant is actually checking figures prior to lodgement 😊.

DIRECTORS LOAN ACCOUNT

Do you owe the business money?

Bookkeepers are not allowed to give advice for income tax or FBT, if you owe the company/trust money we advise you to speak to your Accountant to correct any balances owed, it may be that you are advised to increase your own wage to accommodate the loan account.

ACTIVITY STATEMENT

Have you reviewed the BAS Fields for correct tax codes? 

Review Activity Statement Report for the period to look check the correct BAS Field was used per Transactions. It is easier to check ‘GST on purchases’ and ‘BAS Excluded’ by sending the report to Excel and sorting by Contact/Narration, or account. One common mistake is Subcontractors registered for GST, BAS field is ‘GST on purchases’ and those not registered for GST, BAS field is ‘BAS Excluded’.  Note: if a business is not registered for GST, they are not a free supply, it is not GST Free, milk is GST Free.  Triple check the BAS field used for Subcontractors were correct particularly if annual TPAR needs to be lodged.

LODGED TAX RETURN ADJUSTMENTS TO ACCOUNTING FILE

Have you made the end of year adjustments in your accounting file to agree with your lodged income tax return?

If you have filed your end of year tax return, the year-end financial statements will provide figures to produce the journal to balance your accounting file to agree to with the tax return. A great accountant will provide the closing journal entry, or do it for you. This step is too often ignored so please note: You cannot read a true Balance Sheet from your accounting file if the closing entries to agree with the lodged tax return were never adjusted!