Your accounting file and financial reports are only as accurate as the bookkeeper who enters your financial data.
Whilst some bookkeeping work can be simple data entry, great bookkeepers make it look simple through the skillful setup of the accounting system and processes. The structure of the system and quality of the data that is entered can make it easy to review the Balance Sheet, Profit and Loss, or an accurate reflection of your true financial business position. Similarly, it allows you to provide accurate figures to lodge Business Activity Statements (BAS) and tax returns.
Running through the following checks will help you work like a professional. Note: terms used apply to the Xero accounting platform and may not be the specific terms used in other accounting programs.
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 bank 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 otherwise your reports will be incorrect.
If your bank balance in your accounting program doesn’t match with your bank statement, you can contact us to find out why. There are numerous reasons why this can happen.
It could be that you have reconciled an internal bank transfer deposit before you did the withdrawal transfer, thereby 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
To fix this may be a process of removing and reentering a series of transactions to find the one causing the issue before the bank will reconcile. Maybe your opening balance was never entered, this can put the reconciliation out.
Have you checked to see the accuracy of your Aged Payable and Aged Receivable Reports?
Users get really confused here; and no wonder with all the different names to describe these 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 allowing and monitoring time to pay. They are best used:
- When you are given time ‘credit’ to pay money you owe to someone else, as a trade creditor, or;
- When you give time ‘debt’ for a customer to pay money to you, as a 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 these trading accounts.
In the chart of accounts these accounts are called:
- Accounts Receivable – known as Trade Debtors linked to Sales/Customer/Client Invoices – Aged Receivables.
- 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. They do not produce aged reports and are better used for accounts where receipts are given with no time to pay (such as purchases in a store).
When there is a bill given with an invoice number for a supplier you use often, however, we recommend entering the bill into your accounting system. This acts as a precaution to avoid duplicating payments as the program will warn for duplicated invoice numbers. This works so long as you are consistent with how you process invoice numbers and only have one contact card file for the supplier. If there are two contacts in your software the system will not know to correctly warn you.
- 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 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 assure the report for 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, 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. This is why you choose ‘remove & re-do’, removing the entire receive/spend money transaction and putting the bank-feed back to be re-reconciled.
ACCOUNT TRANSACTIONS REPORT
Have you entered transactions to the correct accounts, and taken up the GST correctly?
Reviewing Account Transactions report (known as “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-month period but only have 10 monthly rent expenses, can you explain why 2 months are missing? have they been put in the wrong account?
- View 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.
- See nothing in an account where you know you should 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 personal 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 TPAR’s are lodged. BAS Statements are often lodged prior to reviewing these subcontractors and which means your TPAR’s will be wrong, so triple check this area of GST Coding.
- Check the consistency of entries. For Example: Xero Accounts Subscription, might be under account called ‘Computer Expenses’. You might also find it in an account called ‘Subscriptions and Memberships’. You can choose either for your accounting records but you must be consistent. For the purpose of budgeting for cash flow Forecast, Subscription and Memberships is easier to account.
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?
- Integrated Client Account – BAS. This is for lodged Business Activity Statements
- 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 as 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.
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 need to be adjusted each month to reduce the loan account. To insure the accuracy of your BAS the initial purchase invoice is processed in the accounts, the loan taken up and the unexpired interest allocated to a separate liability account so 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 – this one can be very confusing for businesses. This account must reconcile with what is owing in GST, if it doesn’t, work out why?If your BAS Agent/Accountant is charging you $330-$480 to lodge a BAS return and can’t explain the balance of this account, it’s likely they did not run any checks in this list before lodging your BAS. This is the number one element we have seen BAS Agents/Accountants fail to do!
There are procedures to reconcile this GST control account back to the ledger balance. Depending whether you are on Cash or Accrual for GST, the right procedure should be followed it. It is not a chore but certainly should be included with each BAS lodgement if you use a BAS Agent or accountant.
If you lodge your own BAS you need to check your bank balance in Xero agrees with the Bank Statement. Similarly, when paying for BAS to be lodged, expect to be asked for a copy of your bank statement at quarter/month end. If your BAS Agent/Accountant is actually asking for this it is likely they are appropriately 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 Fringe Benefits Tax (FBT). If you owe the company/trust money we advise you to speak to your Accountant on correcting any balances owed. It maybe that you are advised to increase your own wage to accommodate the loan account.