Saturday, 25 May, 2024

The 12 Most Common Financial Statement Mistakes – Part 3


Reading Time: 3 minutes

By: Ruth King

 

 

An estimated 75% of all small business financial statements have errors.  As you know, good financial statements are critical for spotting and resolving impending issues such as a cash flow crunch. Here are the last four most common mistakes.

 

Mistake #9: Negative Credit Card Values on Your Balance Sheet

This means that you overpaid your credit card charges and the credit card companies owe your company money.

Occasionally you return products for credit.  However, negative thousands of dollars is probably not realistic. This might happen for the credit cards in possession of one or two of your employees who returned something.  But, again, not likely for the entire credit card balance.

Like negative accounts payable, sometimes I see this at the end of a fiscal year when you pay credit card charges before the statement comes in.

However, if it is the middle of your fiscal year, it is unlikely that you have negative credit card balances.

Many times the bookkeeper has entered the credit card charges into the accounts payable module and paid the bills from a “write checks” section of your accounting software.

If your bookkeeper enters bills into the accounts payable module, they need to be paid out of the accounts payable module!

 

Mistake #10: Negative Loan Payment Value on Your Balance sheet

This means that your bank or other lending institution owes your company money.

Rarely, unless it is a few dollars at the end of a loan.  If your bookkeeper took your entire loan payment against the amount owed, then at the end of the loan period it will look like the bank owes your company money.

Why?

The loan payment is part interest and part loan repayment. Interest is on your P&L and the loan repayment on your balance sheet.  If the entire payment is put against the loan, then your profits are higher than they should be (interest was not included as an expense).

 

Mistake #11: Negative Payroll Taxes Value on Your Balance Sheet

Similar to the negative loans payable, it is unlikelihood that the state or the garnishment agency owes your company money.

Most times your bookkeeper made an error in the recording of payroll taxes.  Usually this happens when the bookkeeper accounts for all payroll taxes as an expense to your company.  Part of payroll tax payments are taken from your employees’ salary/hourly wage.  The other part is where the company matches, in most cases, the amount taken from the employees’ compensation.

 

Mistake #12: Year to date Net Operating Profit on Your P&L Doesn’t Match Year to Date Retained Earnings on your Balance Sheet

If they don’t match, this is a sign that something is very wrong with your accounting.

There are usually two values in retained earnings – the net profit for the year and the retained earnings, which means the net profits for previous years combined.  Only the current year’s net profits should match.

If they don’t match, the first action is to print out an aged accounts receivable and accounts payable list as of the date of your financial statements.

If the totals don’t match the totals on your balance sheet, then it is time to dig really deep and find out who is playing games with your accounting system!

 

We’re happy to give you a free review, i.e. financial check up, of your 2023 year end P&L and Balance sheet. Click here for more info.

 

Note:  If the link doesn’t work: https://keap.page/rk139/ffb-upload.html

 

Check out Part 1 of this Series Here

Check out Part 2 of this Series Here

For more great business content see here.

Ruth King is known globally as the “Profitability Master,” and is a a thought leader in entrepreneurship and business. Her books have been recognized as among the greatest in numerous industries. Learn more about all her business activities here

Follow Ruth: www.ruthking.info

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LinkedIn:  https://www.linkedin.com/in/ruthking1

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