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  • Writer's pictureCherie Larson

Analyzing Your Financial Reports: Part 2 – Cleaning Up Your Assets

Your small business’ financial statements hold a wealth of information to help you see what’s going on in your business. An often-ignored statement is the balance sheet. Even if you don’t have much on your balance sheet, it can offer clues as to what is going on with your business and sometimes reveals bookkeeping errors that might be giving you false information.

Begin by running a balance sheet dated the end of the month. It’s more informative if you run it on an accrual basis rather than a cash basis. The balance sheet has three sections: Assets, Liabilities & Equity. Before you can accurately analyze your balance sheet, it’s important to make sure the values are valid.

In this blog post, we’ll focus on getting your Assets cleaned on your books. See future posts for Liabilities, Equity, and what to look at once you know your figures are reasonable.

Assets (items held by the company)

  • Cash on Hand, Bank Accounts

  • Accounts Receivable (A/R, what customers owe you)

  • Inventory

  • Prepaid Expenses (accrual basis accounting only)

  • Equipment and Vehicles

  • Buildings, Land, and Leasehold Improvements

  • Accumulated Depreciation

Analyzing Your Assets

  • Are all assets, except for accumulated depreciation, positive?

  • Is there accumulated depreciation on your books?

  • Do the balances in your assets make sense?

If any of these answers are no, then you may have a bookkeeping error. Here’s where to start looking for those errors:

  • Count your cash on hand. Make an entry in your books to decrease or increase sales for any variance to bring the balance to the correct amount.

  • Reconcile your bank accounts to the bank statements. After you reconcile, look at anything older that has NOT cleared the bank yet. There could be checks or deposits that are old and not cleared. First, make sure that the checks and deposits not cleared aren’t duplicates. Did you manually record them as well as recording them through the bank feed ? Are there checks you forgot to deposit – maybe they are tucked in a drawer or under the seat in your car? (Yes, that happens!)

  • Run an Accounts Receivable report in your accounting software. This should tie to the balance on the balance sheet. Do the balances for each of your customers look correct? If not, dive into the details and fix the issues.

  • Inventory figures can be harder to check. Do you have another system tracking inventory? Does the figure on your balance sheet tie to that? When’s the last time you did a physical count of your inventory? Spot check some of your inventory transactions– is the inventory cost being recorded correctly when you purchase and sell items?

  • All fixed assets (equipment, vehicles, buildings, land, and leasehold improvements) should be recorded on the books when purchased or when entries are done at year end. The balance listed is the purchase price – not the current value. Look at the items in these categories – do you still own everything and is everything there? What is the minimum amount you’ve decided you’re going to put into fixed assets and depreciate? (Perhaps a question for your tax accountant!) Are you putting things in this category that don’t belong there?

  • Are you recording accumulated depreciation each month or year? Your tax accountant should be able to provide you with the entries you need to do this.

Need help figuring out your assets – know they are wrong, but don’t know how to fix it? Reach out to us today for some assistance!

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