YOU MISSED WHAT?! THE MOST OVERLOOKED ACCOUNTING TASKS - PART I

Whether you are doing Full Cycle Accounting or just Monthly Accounting Reviews, having a standardized checklist is a must if you don’t want anything to fall through the cracks. Some tasks are obvious, such as making sure all transactions are recorded, bank account reconciliations, principal and interest postings, and providing financial reports. However, many accounting tasks get overlooked by disorganization, preparing books on a time-crunch, and sometimes simply, inexperience.

Here are some of the most overlooked accounting tasks:

  • MATCHING THE BALANCE SHEET BEGINNING BALANCE WITH THE PRIOR YEAR TAX RETURN (SCHEDULE L)

    It is important to do this every year after the taxes are filed for the prior year. Make sure to get Journal Entries from the CPA or make the adjusting entries yourself if you are confident reading the Schedule L.

  • PROPER PAYROLL ALLOCATION & PAYROLL RECONCILIATIONS

    To ensure proper payroll posting, you MUST allocate payroll properly and reconcile the Payroll Liabilities and Salary/Wage amounts (at least) quarterly. Employee tax liabilities are not an expense, and must be tracked as a liability on the balance sheet until paid by the company to the government agency. If you have access to the quarterly Federal 941 & State DE9, you can compare what is reported to the government with the payroll journals from the processor. Make a habit of allocating the payroll every pay period (or monthly) and reconciling payroll at least quarterly.

  • CHECKING FOR EXPENSES THAT SHOULD BE CATEGORIZED AS ASSETS

    This is a common oversight that I see often. It’s easy to categorize office furniture or electronic expenses as office expenses, or a new piece of equipment as equipment expense, but the IRS expects to see some tangible (and sometimes intangible) property to be categorized as depreciable assets. Per the IRS.gov website, to be a depreciable asset, the property must be:

    • Property you own

    • Used in your business’ income producing activity

    • It must have a useful life as determined by the IRS

    • It must be property that is expected to last more than one year.

    For specific details on whether an expense should be depreciated, please refer to the IRS website or consult your CPA. A good rule of thumb is that if it’s a small item that will not last more than a year on average (such as copy paper, ink pens, small tools, etc) it can be categorized as an expense.

    Comb through your Office Expense and Equipment Expense categories monthly or quarterly to make sure you are not expensing depreciable items!

  • DEPRECIATION & AMORTIZATION POSTING

    It’s important to periodically post expected depreciation for assets and amortization for prepaid expenses (for the currently year). Most tax software will provide a Depreciation Schedule for the year being filed (prior year), as well as the current year, for the taxpayers reference. If you take the total “anticipated” depreciation based on the assets from the tax return, divide that amount into a quarterly amount, you can post it via journal entry to the Balance Sheet quarterly. This will ensure that your financials take into account this deduction as it is accrued. Similarly, it’s important to amortize any prepaid expenses. If you pay upfront for a 12 month business liability insurance policy, you can post that as a prepaid asset on the date of purchase, and expense it monthly (the total divided by 12). This will give a more accurate representation of your monthly business expenses.

Stay tuned for more overlooked accounting tasks!! If you need personalized accounting assistance, contact us today.

Writer: Heather D. RIchard

Heather Richard