Accounting

The cornerstone of every great financial department

Your company’s accounting is more than just the day to day processing of financial transactions. It is the foundational data of your company that determines if your business is making money or not. 

In this video we provide a high level overview of two key accounting processes that need to function smoothly in your business.  You’ll also learn the one thing you can do for a few minutes each month to ensure the cash balance on your books agrees with your bank accounts.

Go to the next pillar: Reporting

Your company’s accounting is more than just the day to day processing of financial transactions. It is the foundational data of your company that determines if your business is making money or not. 

In this video I’m going to review two key accounting processes that need to function smoothly in your business. At the end I’ll share the one thing every business owner can do for just a few minutes each month to ensure the cash balance on your books agrees with your bank.

Let’s start by defining the processes. The first generates cash and is called order to cash. The other distributes cash and is called procure to pay.

Order to cash processes the transactions necessary to fill a customer’s order and get paid for it.

Here’s the accounting process. We create an item we sell. We put it on an invoice. We collect payment for that invoice. We deposit the cash in our bank. Simple

What we want to focus on in this process is the invoice. It brings together all the data we need to make decisions. The most important piece of data on the invoice is the item. The item assigns revenue to an account we can easily measure, it tracks pricing and units sold and tells us how profitable an item is. 

Here’s a pro tip: use items to track different discounts you offer to your customers. It will help you see how effective your discounting programs are.

To make sure you’re getting paid run an Accounts Receivable Aging Summary report once or twice per month. Question any invoices that are more than 30 days old or any negative amounts anywhere. 

You should also vouch your sales by running a Sales by Customer Summary report and comparing it to any operational systems you use that measure sales. This helps you avoid “revenue leakage” - amounts you have not properly invoiced due to a failure in your process.

The next process is procure to pay. This process controls how we spend cash

We order an item from a vendor, receive it, enter a bill then pay for it. We’ll also include things like payroll and tax payments here. 

The most important piece of information here is the vendor. Most people tend to measure spending by who they are paying so we can figure out if we’re getting value from them. 

If you are just entering transactions from a QuickBooks bank feed, make sure a vendor is entered every single time. If you don’t you’ll get a Not Specified amount when you run an Expenses by Vendor Summary report.

Sometimes our vendor list can get big in a hurry, so here’s a pro tip: organize vendors such as restaurants into a single Food & Beverage vendor so you don’t have to create a new vendor every time someone dines out.

Within each of these transactions you have the ability to capture and easily report key information that helps improve your company’s performance. It has to be correct, however, so I’m going to share with you one thing you can do to make sure your bookkeeper is properly tracking your cash..

Once a month review a bank reconciliation report for each bank and credit card account. This is easily generated by QuickBooks and looks like this. 

Go to the uncleared items section. Question any uncleared deposit more than 5 days old and any uncleared withdrawal more than 30 days old. These transactions are in the cash balance on your balance sheet so if they are no longer valid they need to be removed. Otherwise, the cash balance reported in your accounting system will be incorrect

I hope you found this video informative. Check out our next Pillar, Reporting, by clicking the link below.

The Four Pillars

The Four Pillars

Learn about the Four Pillars of Every Great Financial Department.

Reporting

Reporting

Timely, accurate and insightful financial information to inform your decisions.

Planning & Analysis

Planning & Analysis

Develop a roadmap to scale with measurable objectives that track progress.

Advice

Advice

Practical advice, backed by financial data, to help you grow your business.

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