Many businesses financial year coincides with the calendar year so during January is accountants and bookkeepers are often busy preparing year end accounts for both the business owners and statutory bodies – companies house, HMRC etc.

To lessen the burden here are some simple periodic checks that can be carried out to ensure your books are in good order.

Check the Trial Balance balances

Since every transaction in the books consists of debits and credits on various accounts that balance to zero then the sum of all these credits and debits should also balance to zero.

To check this, obtain a trial balance from your accounting software (for Fusion Accounts users this is available from the Financials menu).  The trial balance shows the balance (sum of all the credits on the account less the sum of the debits)  of all the accounts usually showing a net debit or a credit amount against each account.  These should add up to zero – the sum of the debits should equal the sum of the credits.

Most software packages will include a “balance check” on the trial balance.  In Fusion, for example, we show the sum of all the credits and the sum of all the debits.

If your trial balance does not balance then it could be caused by one of the following:

• Foreign currency rounding errors: a business using foreign currencies may specify an amount in another currency and an exchange rate for foreign currency transactions.  The Trial balance is the sum of the values converted to the businesses currency (by dividing by the exchange rate).  Depending on the way these values are rounded this can result in a 1p discrepancy.
• A transaction not balancing to zero.  Most software will prevent this from happening – but some may allow non balancing entries to be made.
• Accounts not included in the trial balance – some software allows nominal accounts to be created that are not included in the “chart of accounts”.  Check your software’s instructions, help or contact their support if you think this may be a problem.

Reconcile the bank statement(s)

This process involves checking the statements from your bank match the transactions recorded in your accounts.  Again, most software packages will support this process.

The process consists of -

• Selecting the bank account, credit card account etc. for the statement you wish to reconcile
• Enter the end date of the statement and the closing balance of the statement.

The transactions that have been recorded in your software against the account selected up until the end date entered that have not been reconciled against previous statements are then displayed

An opening reconciled balance (being the closing reconciled balance of the last statement reconciled) should be displayed.  This should match the opening balance of the bank statement.

• Select items that match the statement – this is usually done by ticking off the items on screen and on a hard copy of the bank statement.
• Enter any missing items
• Amend any differences.

Some transactions on your bank account will correspond to several transactions in your accounts.  For example, if you pay in several checks from your customers at once then this will appear as on transaction on your bank statement but may appear as several transactions in your accounts.

A closing reconciled balance is also displayed.  This is the opening reconciled balance plus all the statement transactions that have been marked as reconciled.

The reconciliation is complete when:

• All the items on the bank statement have been “ticked off”.
• The closing reconciled balance in the accounts matches the closing balance on the bank statement.

Usually nearly all the transactions in the account up to the selected end date should have been “ticked off” as reconciled.  However, transactions whose date is towards the end of the statement date may appear on the next statement as they may not have cleared.  Any un-reconciled transactions which pre-date the statement should be investigated to see if they have been recorded in error or are duplicates.

Common errors found during bank reconciliation are -

• Missing transactions – particularly direct debit/standing order payments.
• Erroneous transaction amounts.

To help with bank reconciliation, when recording transactions, such as receipts and payments, enter a reference number corresponding to what will appear on your bank statement e.g. the cheque number or the paying in slip number.

Check the Aged Debtors matches the Debtors Control Account

Most bookkeeping software will allow you to view an Aged Debtors report.  This report shows how much debt your have, who this debt is owed by and how old it is.

In fusion the aged debt report is available from the Customers menu.

The total debt in your business is also recorded in a special account (usually referred to as a control account) called the Debtors Control Account (or similar).

Invoices raised against customers debit this account and receipts and credit notes credit it.

The balance of this account should, therefore, match the total on the aged debt. 

Alternatively, the sum of all the balances on customers accounts should match the debtors control account.

Fusion Accounts has a report to reconcile the customers account to the aged debt in the Nominal Reports on the financials menu.  This report highlights any transactions that are not in both of these figures.

Look for negative amounts in the Aged Debtors

Negative totals in the aged debtors account indicate that more money has been received from the customer than has been invoiced.  This can happen but it can also indicate that receipts have been recorded incorrectly.

A negative amount in one period but an overall 0 or positive amount indicates that payments in that period has not yet been allocated to invoices.

Again, reports in fusion accounts can be used to find any unallocated amounts.

Check the Aged Creditors matches the Creditors Control Account

The aged creditors report is like the aged debtors except it shows who you owe money too rather than who owes you money.  Consequently business owners tend to pay less attention to it!

Again, the total credit in your business is recorded in a control account usually called the creditors control account.  The aged credit total should match the creditors control account.

Again, check to see if, like Fusion Accounts, your accounting software supports this.

Look for negative amounts in the Aged Creditors

As with the aged debtors, negative amounts indicate more money has been paid to the creditor than invoices recorded.

Check sales turnover from VAT returns matches sales accounts.

This can be done as part the VAT return process.  The box 6 figure on a VAT return, showing total sales, should be the same as the sales made during the same period.

The sales made during a period can usually be obtained from a profit and loss report (across the period) or comparing two trial balances.

Again, Fusion has a report showing any transactions that are in one of these figures but not the other.  Typically these may be transactions dated within the period but entered after the VAT return was done or transactions dated before the start of the return but were not included in the previous return both of which are expected but this comparison will highlight any purchases that have inadvertently been recorded against the sales account.

If you can get the vat return transactions as a report is is also worth checking the zero rated transactions for transactions that should be exempt.  Exempt transactions are generally those that do not involve the purchase of goods or services – Wages, Tax (income , national insurance and VAT) etc.  These items do not contribute towards your VAT return.

Check transaction types in accounts for utilities

Typically utilities such as electricity and gas are recorded as Supplier Invoices and then Purchase Payments.  If there are Bank Payments recorded against accounts such as Electricity, Gas and rates it can indicate that Purchase Payments have been inadvertently recorded as General Payments.