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(April 2006) posted on Tue Apr 11, 2006

Auditing your books can be therapeutic.

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By Judi Smith

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Year-end accounting is a massive undertaking for any business. Some businesses, like my parents' fine-art studio, assemble records solely for tax purposes and only once a year.

We take a broader approach. In December, we audit the year's entries and correct errors. We change our system only at year end. We rarely make mid-year changes, because I insist they're retroactive to January 1.

We keep books for our own edification, not merely for tax payment. Therefore, at the end of a year, these records help us analyze what we've accomplished. We evaluate our strengths and weaknesses, and create new goals based on what we discovered. Then we set the budget and write a business plan for the new year. For example, after the 2005 audit, we planned for 2006.

The budget and plan will change mid-year, or any time they need correction. My audit is extremely thorough, probably excessively so. The annual audit can take me three months of long days and very few interruptions. This year, an efficient office staff helped us complete this in less than six weeks, while we continued normal activities and avoided elongated days.

The Smith audit

Here's a list of records to review:

• Confirm that your journals' bank balances match checkbooks and bank records.

• Check the accuracy of receivables and payables, including year-end balances on notes payable.

• Make sure you've accurately recorded interest charges (earned or paid) and other costs, such as interest, late fees, bank charges, insurance, etc. We review these each year to see if we're duplicating coverage or paying needless fees.

• Asset records, both business and personal, must be in order.

• Regulation expenses (sales tax, use tax, property tax, employee tax, permits, etc.) must match the filed forms. Make sure you have the necessary numbers for year-end filing.

• Review any outstanding receivable balances. Decide which ones should be written off or sent to collections. We track bad debts, including unpaid service charges, and this history may affect future credit availability or the VIP status of the individual customer. $image1