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January 13, 2016

Is your Bookkeeping done correctly?

Today there are thousands of accounting systems on the market.  As a business person most of your time is devoted to your product/service and marketing of your product/service and I would guess that the bookkeeping is left to your spouse or an outside bookkeeper.  After more than 30 years in this arena I know that if you don’t understand what your bookkeeper is doing, you don’t know if they are doing it right.

To help you feel more comfortable with the financial information you are receiving I have created the following three questions you should ask:

  1. Are your books kept on a Cash or Accrual basis?  The Cash basis assumes that Revenue is not recorded until the cash is received and Expenses are not recorded until the cash is paid.  The Cash bases method is not allowed by the Canada Revenue Agency.
  2. Is a Bank Reconciliation done at least monthly?  This process compares the bank balance according to your books with the bank balance according to the bank.  If this is not done, there is no assurance that nothing has been missed.  I would advise that you also make sure this is done correctly.  One bookkeeper told me she does a Bank Reconciliation and upon investigation I found that her interpretation of this process was to tick off the cancelled cheques to the bank statement and if all the cheques were there everything was good.
  3. Are the sub-ledger totals compared to their control accounts?  If you make sales on account, or make purchases on account, you will have, respectively, an Accounts Receivable listing and an Accounts Payable listing.  The total of each report must be compared to the General Ledger Trial Balance report.

These 3 questions (and the answers) will indicate whether you can rely on the amounts reported for your Bank Account, Receivables and Payables.

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