What constitutes a “Fundamentally Sound Accounting System”?
What constitutes a “Fundamentally Sound Accounting System”? What are some of the things you should expect from your small business bookkeeping system and your accounting firm?
Correct and Timely Financial Statements
Many times business owners get intimately involved in the details of the business and have a difficult time backing out to take the “long view.” Periodically, you need to take a look at the “Forest” rather than the “Trees” — to step back and assess how your business is doing. You need information in order to do that. This information could include the following:
- A balance sheet and an income statement, at least on a monthly basis — to give you the financial overview of how you are doing.
- Open invoice and unpaid bills reports — so you know who owes you money, who you owe money to, and when they are due.
- Detailed transaction listing or ledgers to help understand what’s behind the figures on your income statement and balance sheet.
- Bank reconciliations for each of your bank accounts — so you know exactly how much you have in the bank.
A successful business owner operates “in the future,” constantly planning for sales, marketing, purchases, expansion, etc. Yet, accounting is essentially a “historical” activity.
- You should get your financial statements and reports by the middle of the following month — while the information is still relevant and fresh in your mind.
- If your reports are more than a month behind, they are like “financial archeology” — they might be interesting, but they won’t be particularly useful or relevant.
Returned Phone Calls and Regular Contact
- When your accountant reviews your financial transactions, reconciles your bank and credit card accounts, and prepares your financial statements, tax filings, and other reports, they learn a lot about your business.
- You should expect them to share that knowledge with you — on a regular basis!
If your accounting firm and bookkeeping systems provide you with this type of information, you are in command — and you have the tools you need to effectively run your business. If not … that is a major issue you need to address! A good accounting firm will be invaluable to you.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
Copyright Information 2011 Professional Association of Small Business Accountants