The Importance Of Reconciling Your Accounts

With most cheque account transactions and credit card statements now being available anytime online, you might be tempted to skip the monthly chore of reconciling your organisation's accounts. Even if you use cloud accounting apps and no longer have to wait to receive a paper statement in the mail to check your balances, there are several reasons why regularly reconciling your accounts is still a good idea.

Eliminates errors by serving as a double check of your data entry. Even the best accounting software can develop a glitch and possibly miss transactions. Reconciling your accounts allows you to catch errors and enter any missed transactions that your software might have missed when doing the books. Other errors that you can catch with reconciliation include entries with incorrect amounts or entries made to incorrect accounts. If you misplaced a receipt and a transaction didn't get entered into your records, reconciling your accounts regularly allows you to catch this type of error as well while you still have a chance to search for the missing receipt or perhaps return to the supplier and ask for a duplicate.

Allows you to pick up on overpayments or underpayments to suppliers and others. Regular account reconciliation allows you to stay on top of your transactions. When reconciling your account it's not unusual to have some outstanding cheques, but if one has remained uncashed for a period of time, it's always a good idea to follow up and find out if the cheque was lost, or if there is another issue.

Reduces potential for losses due to fraud or oversight. Regularly reconciling your accounts ensures that everyone that handles the accounts and issues cheques is only using the charity's funds to pay for authorised transactions. It also helps you to quickly catch any errors made by your group's bank or other financial institution.

Ensures financial statements are accurate so that data used to calculate required reports or taxes and fees is accurate. If you have missing or incorrect transactions, then the financial statements that are prepared from these records are incorrect as well. Any taxes or other fees that would be based on these statements would also be incorrect. Regular reconciliation of your accounts will catch these mistakes early in the year and allow you to take corrective action long before required reports and forms are due.

Allows you to have a better grasp of your performance. While some may prefer to look at a statement or other report to get a picture of their charity's financial stability, regularly reconciling your accounts can also give you an instant snapshot and up close view on your income, expenses and cash flow. Staying on top of this information allows you to help your charity, club or NFP to take corrective action should you spot a potential shortfall in income or increase in expenses.

While taking the time to regularly reconcile your organisation's accounts is not the most exciting or easy task that you have as a treasurer, it certainly has several benefits for your charity that will make it well worth the time and effort. 

Prepare For The End Of The Financial Year

With the end of financial year already here there are a number of issues you need to focus on in relation to your accounts, the audit, and preparation for the new financial year. Listed below are some important issues you may want to address as part of the end of year process. As Treasurer you may not do all of these but it is important you track that these are completed as part of the end of year process. They will form part of the Board reporting process.

• Obtain from your auditors a schedule of requirements that they need to complete the audit. By knowing exactly what the auditors require for their audit you can save time and cut costs. If you are not prepared and you delay the auditors, they may charge additional fees. If you lodge certain documents late with ASIC you can be fined. It’s important to know that everything that should be done is actually being done.

• Ensure reconciliations are completed for all accounts and that they match balances in the Annual Reports. Also, with any balances in the accounts, understand why they exist and what they are for. For example, you may reconcile the Accounts Receivable and have a $9,000 balance which represents amounts still owed to you. It is critical you have a list of the debtors that makes up this balance as well as how long the debts have been outstanding for. If you have a debtor greater than 6 months then they may be a bad debtor and you are not likely to recover the amount. If you can’t or don’t do this then you need to tighten up your controls.

• Ensure your GST has been calculated up to 30 June and that any end of year adjustments have been included.

• If Group Certificates need to be prepared, make sure the payroll accounts have been reconciled. Also, as Group Certificates require reportable fringe benefits to be included make sure salary packaging details have been reconciled and included correctly.

• Identify and prepare end of year adjusting entries and make sure they are reversed in the new year. Failure to manage these correctly can result in an over or under statement of accounts and can have a significant impact if incorrectly left in the accounts.

• Prepare relevant reports and grant acquittals for any organisations you may have received funds or grants from. Also, review whether new or recurring funding submissions have been prepared and submitted.

• Prepare for the Annual General Meeting as often you are required to advertise the date well in advance of the meeting and also be clear about the procedures for the appointed or election of Board members.

• Always double check that the amounts in the Financial Reports are correct by checking the additions as well as amounts referred to in the notes and ensure they add up to the totals in the reports. Mistakes can happen and as you are signing off on the reports you must be sure they are accurate and correct. Do not just assume the auditors have got it right as they make mistakes too.

• Often at the end of the audit the auditors will prepare an Audit Closing Report that covers issues associated with their audit. Ideally, try and get the auditor to attend a Board meeting to discuss the report as well as cover any other issues the Board may discuss.

While there are many other issues you may need to address it is important you plan out what needs to be done and give yourself realistic timelines to get everything completed.

When Did They Invent Accounting?

Have you ever wondered how and when accounting systems were invented? You might not know that people were using accounting systems in civilisations as old as Ancient Egypt and Mesopotamia.

It fascinates me that people in such ancient times spent their days doing what we do, but doing it without our modern conveniences.

I found this video on YouTube. It’s a brief history of accounting and it’s interesting, not dull and dry - really. Oh, it is told by a computerised voice but that is quite interesting too.

Next time you pick up your calculator or work on your spreadsheet, think about the Ancient Egyptians. You have something in common.

Do Balance Sheets Matter?

The end of financial year is a stressful time. Balancing the accounts on time and correctly can be very difficult if your records are even slightly disorganised. Add to that the production of the Annual Report and the Treasurer’s Report and you’ve got a big job on your hands.

One of the most important parts of the Treasurer’s Report is the balance sheet.

The Small Business Development Corporation of WA says,”The balance sheet is a statement of what a business owns (assets) and owes (liabilities) at a specific point in time. It lists the assets that the business owns, the liabilities owed by the business, and the value of the owner's equity (or net worth of the business).”

The balance sheet is a statement showing the financial health of the business and is a legal requirement for most organisations.

But how useful is a balance sheet? To most people who read it, all they see is a blur of numbers that mean very little. Indeed, even the full length balance sheet, usually compared to the previous year’s figures, means absolutely nothing to the layman so is there any real point in putting it in?

1. They are costly to prepare.

2. They take up time that the Treasurer could better use.

3. No one reads them anyway.

4. Very few people actually understand what they are reading.

5. The report is probably out of date by the time it is published so it doesn’t accurately reflect the financial position anymore.

6. One tiny mistake in the calculation of assets or liabilities can make the report invalid.

7. If you were debt free on 30th June but took out a huge loan on 1 July the balance sheet becomes irrelevant in your financial planning.

With all those negatives, I ask you for your opinion. Do you think that balance sheets matter?

Why you should reconcile your accounts....seriously!

Kylie Short from Tilda Virtual specialises in providing administrative support, bookkeeping, online marketing, e-newsletter design, website design and technical support. She is passionate about good book keeping and has provided this great article about reconciling your books that applies equally to business as it does to the volunteer treasurer in a community organisation.

"It’s an issue I come a cross often, incorrect or no reconcilation of accounts and it still amazes me to see it. I can’t imagine not reconciling the accounts and don’t understand why people are so laid back about doing it. Reconciling your accounts are important for a number of reasons:

• It picks up any missing transactions that you may have misplaced a receipt for;
• It picks up any transactions that should not have gone through your bank account;
• It picks up over payments to suppliers;
• It picks up over payments by customers;
• It’s good business practice to do it.

When reconciling your accounts under no circumstances do you ‘make up’ transactions just to make it balance. If the accounts don’t reconcile after you’ve ticked the statement and ticked the transactions in your software, then you need to start again from the beginning to find the mistake. One trick I have is to reconcile the bank statement on a page by page basis. Try reconciling the first page, if it balances then mark it reconciled and move onto the next page. Going page by page is a great way to find the mistake and you’ll soon have it finished.

After you have reconciled your bank accounts mark the statement as reconciled and file it so you can find it later. If you are ever audited you’ll need your bank statements and it can get quite costly to replace them. I personally don’t print all the reconciliation reports but it’s a good idea to print them to PDF and file them on your computer so you can find them later.

If the idea of reconciling your accounts gives you the chills or makes you want to head for the hills, give me a call on 03 9013 8389. My team and I would love to help you!"

If you operate a home-based business, Kylie Short can help you become more successful through her virtual assistance business, Tilda Virtual Services.