Last week I wrote about the four inaccuracies in Profit & Loss statements. This week I’ll write about balance sheet inaccuracies.
Here are the six major Balance Sheet inaccuracies that you can spot in less than a minute:
Balance Sheet That Doesn’t Balance
Assets must equal liabilities plus net worth (also called equity or capital). That’s why it’s called a balance sheet. If it doesn’t balance you have major issues with your financial statements.
Negative Cash
It is impossible to have negative cash in the bank in most cases. This means that you are bouncing checks and the bank will soon close your account because you are writing checks without sufficient funds to cover them.
Negative Payroll Taxes
This means that the state or federal government owes your company money for payroll taxes. Not likely unless you’ve overpaid them. Garnishments and 401(k) payables also are not likely to be negative.
Negative Loan Payments
The bank or other lending institution doesn’t owe you money for your loans unless it is the last payment and you’re overpaid by a few dollars.
Accounts Receivable Aging Report and Accounts Payable Aging Report Doesn’t Match The Value On Your Balance Sheet
This is a warning sign that someone is making journal entries instead of going through these two modules for billing, receipts, and vendor bills. The total on these two aging reports must match the totals on your balance sheet.
Year-to-date Profit On Your P&L Doesn’t Match The Year-to-date Retained Earnings On Your Balance Sheet
This is NOT the month’s profit. This is the year-to-date profit on your profit and loss statement. These two numbers must match. If they don’t something is seriously wrong with your financial statements.
In less than a minute you can see the most common Balance Sheet mistakes.
If you find errors, ask questions – this puts your bookkeeper on notice that you are watching!
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