The accounting operations have to deal with several forms of errors, mistakes, and outstanding issues that can impact the accuracy and reliability of the information. The data shown in the balance sheet may not reflect the true picture of the company’s financial status. It is important that accountants have to check and make sure that the assets and liabilities are stated with correct and up-to-date numbers. One way to ascertain that information generated can be used for decision making is to review the balance sheet items on a regular basis, for examples:
• Cash on hand and in bank – It is necessary to ensure that the cash balance on hand counted and reconciled with the outstanding support documents can be tied to the recorded amount in the general ledger. Many companies do not perform the cash confirmation in a sufficient manner and it causes the incorrect cash balance which can be due to the intentional mistakes made by the cash holder or unintentional human errors caused by the process flaws.
• Advance to Employees – There are several obvious cases that show long outstanding amount paid to employees as an advance for transactions such as traveling advance or urgent request for purchasing transactions. Normally advance amount should be cleared as soon as possible such as within 7 days after returning from the business trip or after the business transactions have been executed properly.
• Other Current Assets – These include refundable VAT outstanding, deposit, unclaimed check, and long outstanding receivable accounts. All these assets have to be reviewed regularly for clearing purposes. Theoretically, current assets represent amount that can be turned into cash within the next one year. Unless these long outstanding assets can be collected within one year, it should be classified into non-current asset category instead.
Accounting people should establish a standard practices that can account for all business transactions on an up-to-date basis. Any deviation from these standards should be highlighted during the month-end account close review so that appropriate actions can be taken. Computer generated reports should show any variances both positive and negative to the company’s financial status so that concentration can be given to the unusual rather than the normal. By doing this, the accounting team can be kept efficient. The account will be clean. Everyone in the accounting department can have the most updated information that anyone can use for business operation effectiveness.
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