Opinion: Real numbers not always perfect

The examples in the college textbook used financials that were correct. That means the dollar amounts in the accounts could be trusted.

Financial real world

When I took a swing at entering my accounting data, I made a big Slinky-knot mess out of my Peachtree accounting file. Oops. I didn’t learn how to fix my accounting in college. I’ve learned what I know from falling in holes and climbing out of them.

Most financial reports have a few Slinky knots in them – accounts that are just wrong. The data in those accounts are the result of mistakes in data entry.

Getting the accounting correct is the first step; from there, you can see the impact of operational, marketing and sales behaviors. The good news is that you can always improve your financial situation once you know it. That’s what I call KFP – a known financial position.

The key to KFP is your willingness to learn enough about the accounting systems, to enter data properly and to fix things when they get balled up.

If you are the owner of a very small shop, you might be the financial manager as well as the service manager and marketing manager and salesperson, etc. If you dream of being a bigger shop, take heart that big companies were once small. Take responsibility and do a good job as the financial manager. Learn how to do it yourself and document your basic procedures. This will help you successfully hand off the accounting duties.

Financial fixes

It’s probably you. That weird dollar amount in your financial reports probably has a very simple explanation. Somebody, maybe you, entered that information and created the problem. Start from that assumption.

Stay current with your financial reporting. Try a weekly review of the balance sheet and income statement. Get to KFP and run the financial reports at least once a week. It is so much easier to find and fix a mistake that happened in the last few days than trying to track down something goofy from six months ago.

Look for weird things. If you are just getting started with this process, your accountant may help you learn what’s weird and what’s right. KFP means that every account is right. It reflects what you have in assets, what you owe in liabilities and what you own in equity. The sales account should equal what you have sold for that period of time. The expenses should reflect what you have expensed for that period of time. The financial reports should be current and true. Two common weird things to look out for: A dollar amount is positive when it was negative last time (or vice versa), or an account is very different from last week or last month. Here’s how you act: 1. Have your accountant help you make the weird things right with an appropriate journal entry or adjusting entry. 2. Find out how it got weird, if you can, and update the data-entry procedure. 3. If it is a small dollar amount, create an adjusting entry and watch to make sure it doesn’t get weird again. If it does, look through the previous week’s transactions for that account to find the entry. If you do this once a week, you become an expert in what looks right and what looks weird and how to fix the weird stuff.

Run a transaction register report, and look for the debits and credits. Double entry accounting is based on the universal law of “what goes around comes around.” If something goes up, something else goes up or goes down by that amount. With a basic off-the-shelf program such as QuickBooks, MYOB or Peachtree, you can drill down to the transaction that needs to be fixed and recode it.

Be careful with your initial company setup.

If you are entering “service sales” and the dollar amount is showing up as “service agreement sales,” there may be an item or other setup instruction that is sending the information to the wrong sales account. Go to “Company Set Up” or the “Items” list, and do some investigating. Figure out the default debits and credits and which accounts are affected. Update the “Set Up” function and see if that fixes the problem.

Learn to trust your intuition. As your understanding of double-entry accounting increases, trust your gut feeling that a dollar amount is wrong or weird.

It is your responsibility to get the financial Slinky knot untangled. You can do it.

Ellen Rohr is an author and business consultant who offers systems for getting focused and organized, making money and having fun in business. Her latest book is “The Bare Bones Biz Plan.” She can be reached at ellen@barebonesbiz.com.[[In-content Ad]]