Accounting Clean-up can mean slightly different things to different people, but it comes down to making your books GAAP presentable.
GAAP means Generally Acceptable Accounting Principles. Investopedia defines GAAP as:
Generally accepted accounting principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.
What is an Accounting Clean-up
SBA * Consulting will endeavor to bring your accounting records up to a minimum level of consistency (GAAP) so that your financial statements, which your investors, the bank and other creditors will rely on and analyze provide an accurate picture of your company. Our clean-up will enable these users of the financial statements to cross compare your performance across different companies.
The clean-up consists of going through every account and verifying that the transactions recorded are a) correct and b) posted to the proper account.
- We check that retained earnings agree with your tax returns, and if they don’t why (this may not be wrong in and of itself).
- Cash accounts are reconciled and agree with bank statements. Outstanding items are investigated and are either verified (as in a check that hasn’t cleared) or corrected.
- Fixed assets are appropriately capitalized.
- Other assets are appropriately stated (recorded correctly).
- Business Credit cards are reconciled (we find Expensify a great tool for this, but it is not the only tool.).
- Loans need to agree with the loan statements. All the interest must booked appropriately.
- Intercompany loans agree on both sets of accounting records.
- SBA * Consulting checks for contra accounts (i.e., you don’t have negative assets and no negative liabilities).
- We then do a sanity on your Income Statement and Statement of Cash Flows. Our CFO‘s want to see not only that they tie into your Balance Sheet but make sense.
Why an Accounting Clean-up?
As we said, your books are needed by multiple parties outside your business, but they are also needed internally. Bad accounting information breeds bad business decisions. Also, bad accounting records will make it very tough to get a loan. In addition it will turn off investors and make it harder to sell the business.
It also makes it quite impossible to move from one accounting system to another. There are many reasons for changing accounting systems but there is an old programming cliche: “Garbage in is Garbage Out”. Some accounting systems, like Xero have conversion utilities to assist in migrating from one accounting system to their accounting system. These programs don’t work correctly when the source material (your current data) doesn’t balance. They also don’t work well when you have a faulty chart of accounts. SBA * Consulting has help make that process as pain-free as possible.