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Blog – Standard

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Lack of an Employed Qualified Accountant

blog_images3Anyone can be an accountant… with training.

The problem is not everyone performing accounting functions like accounts receivable and accounts payable functions has the proper training.  And, even if you have the proper training for one industry, it may not translate to another (think clothing retail versus the film industry).  While it may be self serving to say that having access to properly trained accountant is essential, having had to clean up accounting messes in the past it really is true.

Even the most simple of accounting functions can cause significant reporting errors.  And at the end of the day, the reason we keep proper records is to present meaningful data to the end users: management, investors, and credit parties.

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Maintaining Proper Records

blog_images1Documentation, documentation, documentation!!  These are the three true golden rules of accounting.  Most accountants will recite the three golden rules of accounting as the debits and credits of Personal, Real and Nominal accounts.  Those are the essence of how to mechanically account.  But as any good accountant knows, if you don’t document the purpose of the transaction, don’t document why you chose the specific ledger accounts used and the accountant can’t support the transaction with evidence, then there is no transaction in the eyes of a third party.

Your accounting records are for your needs equally as much as for a third party such as a taxing authority, your bank or your investors.  Don’t be afraid to write a memo to the vendor file, affix a note to the journal entry or add some other form of documentation that would allow an unrelated party to understand why you did what you did and that supports the accounting treatment.  The time invested at the beginning of the process will prevent or solve many of your later problems.

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Cash is King

blog_images2How does your business manage cash?

Do you just look at your bank balance and hope there is enough cash
for payroll or the next check run?

I hope not!!

I prefer to update a rolling cash forecast on at least a weekly basis.  Also, I believe it is critical to a small business to reconcile cash weekly (before each check run) and input payables and receivables the same day they occur.  These habits are the cornerstone and foundation for proper cash management.  And, in this technological era, it is easier than ever to have real-time access to your bank activity.

The rolling cash forecast will pinpoint future low cash balances to give advanced time to manage the business through that challenging period.  Reconciling cash before each check run will ensure the accountant doesn’t overdraft the cash account.  And entering of payables and receivables allows you to manage known near term cash sources and uses as well as trends with how quickly you pay your vendors and how long your customers take to pay you.  Proper cash management techniques will keep your business running smoothly and give you advanced warning of brewing trouble.