Hello! my name is Harry and this is my accountancy blog. It is my mission to use this blog to educate others about the benefits of hiring an accountant. I hired an accountant last year and doing so has brought many positives to my life. I now find it much easier to run my business and to manage my tax returns at the end of each financial year. I hope that by reading the articles I have posted here, you will gain a good understanding of how an accountant can help you. Thank you for stopping by and checking out my blog.
The balance sheet is among the four primary financial statements used by business owners, finance professionals and stakeholders. It shows the true and fair view of a business enterprise at any point in time by aligning the assets, liabilities and equity held in the business. These three elements show your business enterprise's health with a comprehensive look at your bank balances, fixed assets, payable and receivables. Indeed, it makes sense to get your balance sheet reconciled and ensure that everything is sitting in the right place. The following discussion takes you through the essentials of balance sheet reconciliations.
Defining Balance Sheet Reconciliation
Your balance sheet is a critical tool for tracking the financial growth of your business. It depicts the business assets, liabilities (amounts due to others) and the equity. Equity is what remains after settling all your expenses and liabilities. The equity must always be equivalent to the sum of the assets and liabilities for your balance to give a fair view of your business. Typically, reconciling your balance sheet refers to cross-checking all the balances and making sure they are correct. The process allows you to verify that all the entries in the balance sheet accounts are correct and in line with all the relevant documentation.
Causes of Errors on Balance Sheet Accounts
There are several causes of inaccurate balance sheet accounts. Most of them happen when making postings to different accounts. For example, a balance sheet account could be incorrect due to wrong amortisation of amounts paid in advance to cover costs for a whole year. Recognising such an amount for eleven months rather than twelve months means you are overstating the charge in a certain period. It affects the balance of your prepaid expenses and the overall position of the current assets in that period.
Transposition errors are also notorious for the inaccuracies on the balance sheet. They occur when you reverse the order of two or more numbers when making your accounting postings.
Handling the Reconciliations
Balance reconciliations are necessary for ensuring the accuracy of your accounting records. They also mitigate the risk of tax penalties and late payments to and from other parties. You need a bookkeeper to examine the documentation related to your business, bank statements and other activities to catch any discrepancies on the balance sheet. In case of anything, they will adjust the books by passing relevant manual journals and recognising the transactions in the correct balance sheet accounts.
Share28 December 2020
