The company’s financial statements normally contain the statement of income, the balance sheet, and the statement of cash flow. The statement of income summarises income, expenditures, and earnings for the reporting period. The balance sheet reports the assets, liabilities, and equity of the lenders, and the cash flow statement summarises the cash inflows and outflows.
The financial statements must be balanced at the end of the month, every quarter, every 6 months, or every year. Balancing financial statements is like balancing a chequebook. There are, though, more factors. Instead of balancing checks and withdrawals on the company’s side with cash additions and disbursements on the bank’s side, the controller’s balance-sheet financial statements blend internal assets, liabilities, equities, sales, and expenditures with each other in such a manner that the company’s financial results are reasonably and truly reflected.
Why is Maintaining Accurate Financial Statement Necessary?
Precise financial statements are critical because managers, analysts, creditors, and external auditors rely on accurate and detailed reports to determine the financial stability and results of businesses. Precision begins with the journal entries and concludes with the Chief Executive certifying the authenticity of the information.
Maintaining correct financial records is a high priority for businesses in all sectors. However, several private businesses are failing to collect timely and reliable financial data and to perform fundamental analyses on the basis of various variables. The most popular is poor reporting by your financial workers. Missions in the balance sheet refer to an erroneous statement of sales. And having one or both problems may have a huge effect on decision-making and financial management.
How to Ensure the Accuracy of Financial Statement?
Financial statements cannot be effective if they are dependent on account recordings that are incomplete and misleading. Intentional dishonesty and negligence are the two primary causes of financial reporting inaccuracy. You should adopt the below-mentioned tips to ensure the financial statement is accurate:
Tip 1 – Hiring an External Auditor
The first method is to regularly hire an outside accounting firm to audit the financial statements. In an audit, the external auditor or accountant tests reported account balances for accuracy.
Tip 2 – Adoption of Adequate Internal Controls
Adopting adequate internal controls is the tool utilized to discourage dishonest and misleading financial statements. Internal controls are the measures and practice a corporation should take to secure its properties, ensuring that financial information is correct, and deter theft. Such strategies are not mutually exclusive. Understand the KPIs (Key Success Indicators) of the organization and include accountability in the method of reporting. It should be the responsibility of team members who prepare internal and external financial statements to report on significant improvements in the KPIs of your business.
Tip 3 – Accurate Data Entry
Increase the reliability of the method of data entry, which entails financial transaction log entries and the uploading of journal entries to the ledger. If the data entry experts create math mistakes or insert the data into the incorrect records, it would not be identified by such an advanced accounting kit. Two approaches to maintain quality compliance in the data-entry phase are preparation and random testing.
Tip 4 – Reconciliation of Internal and External Records
Compare the financial reports, such as bank accounts, dealer invoices, credit card statements, and other documentation, with external records. Numbers need to align. The cash amount on the balance sheet, for example, should equate to the final balance on your bank statement. Similarly, the balance in long-term obligations may be compatible with the overall debt amounts and other long-term loan records.
Tip 5 – Look Out for Balance-Sheet and Income Statement Errors
Look for apparent mistakes in the balance sheets. Small business managers are advised to check for apparent mistakes, such as a negative cash flow, on the balance sheet. For potential failures, check the income statement. The cost of products produced should not be the same each month, since the composition of the revenue is likely to differ every month. There could be an entry for depreciation costs if you have fixed assets. Verify that the correction entries for accumulated yet overdue costs, such as interest and compensation expenses, have been created by you.
Tip 6 – Verification of Non-Cash Expenses Adjustments
Verify that you have made adjustments for non-cash expenses in the statement of cash flows. The difference in the net cash balance between the previous and current periods should match the change in your bank statements, assuming that loan proceeds go through your business’s bank accounts.
Tip 7 – Strong Follow Up
When you spot irregularities, a check-up with the bookkeeper, shop manager, or warehouse supervisor. For example, the effect of so many expired or outdated products in storage may be a higher-than-normal inventory balance. In your manufacturing facility or in the facility of your supplier, a large sales return number could suggest a quality control issue.
What are the Risks of Inaccurate Financial Statement?
Your Profit & Loss Statement (also called your Income Statement), Balance Sheet, and Cash Flow Analysis are contained with the quarterly reports. Through the financial method, certain records are taken straight from your general ledger. Reviewing these reports on a monthly basis lets you make smarter strategic choices for your company.
- You can run into issues with regulatory bodies, financial institutions, and investors if your organization does not deliver these reports on a monthly basis.
- Holding reliable accounting data and understanding that all the balance sheets have been reconciled helps the CEO to have peace of mind, meaning that the financial reporting is right, up-to-date, and audit-ready if these forms of concerns occur.
- It should be taken into consideration that advisors from third parties depend on the financial reporting of the company. In the form of loans, many corporations depend on the backing of banks, private investors, institutional investors, and the federal government. To retain their assistance, you must have reliable data that complies with their criteria.
- In small businesses, most frauds exist because their financial records are seldom audited, and they also lack the means to impose adequate internal controls. This is because the expense of recruiting enough workers to enforce a fair division of roles cannot be afforded for many small businesses.
We Are Here for You
How sure are you now that you’ve read this post that your financial statements are accurate? It’s definitely time to contact a team of professionals who will help you arrange the details and record the right figures if you’re not sure about your answers. We provide accounting solutions at Riz and Mona Consultancy that go far beyond basic bookkeeping. To learn more about how we can help you analyze results and maximize profitability today, book an appointment!