Here's Part Two of Ash Beetson's article, "A Guide to Period-End Routines." You can read Part One here.
For more information on this topic, make sure to register for our webinar, "Save time with nettTracker - fixed assets made easy" on December 8, 2020 at 4:00 p.m. Eastern Time. You can register here.
Profit and Loss
Prior to reviewing profit and loss categories, when possible run a report so that you can view the report on a month by month basis. From there, just review each category on a line by line basis and see if anything looks out of place.
Turnover / Sales for the year.
When possible run a ‘sales by customer’ report, or similar. Compare values to the figures on the profit and loss. Does any of the turnover relate to a subscribed service paid in advance? If so, then it may be necessary to create ‘deferred income’ adjustments.
Cost of Sales / Materials
For the areas that incur the most spend, where possible compare with supplier reports.
The number of other profit and loss categories to review will vary greatly from one business to another, so it’s impossible to list them all. However, here are other things to consider when reviewing the profit and loss.
Consistency
Checking that income and expenditure appears consistent every month. Are adjustments for prepayments and accruals required? Have items been incorrectly coded? Has a fixed asset been coded as an expense? (this can be the difference between showing a profit/loss even if tax is not affected)
Relevance
Any personal expenditure incorrectly coded as business? – holidays, car repairs for example. Are there too many ‘chart of account’ categories in use – can any be merged to simply and tidy up the reporting?
As with the balance sheet, it’s a good idea when possible to compare the profit and loss report to the previous year. At the end of this document is a simple checklist you can use a guide for your period end reviews.
Use a checklist
To help make sure you keep on top of your regular tasks, whether they are monthly, quarterly or annually, it’s a good idea to have a checklist for reference. If you are an accountant in practice, you may be able to set up tasks and checklists within your bookkeeping or practice management software.
Or just create a simple list on a word or excel document and print this out when you are about to commence your review and tick off each time you’ve completed each section. Here is an example you can download.
Do you like the idea of automation?
If you’d like to learn how to automate fixed assets and save a good chunk of time during your period end review and move a step closer to true ‘Real-Time’ Financial Accounting, please join us on this webinar next week. Or visit nettTracker to learn how fixed assets can be made easy….very easy!
For more information on this topic, make sure to register for our webinar, "Save time with nettTracker - fixed assets made easy" on December 8, 2020 at 4:00 p.m. Eastern Time. You can register here.