Know Your Numbers – #1 Check Your Opening Balances… And How!
When it comes to calculating how much money your business has made, most business owners just hit the “Profit & Loss” button in their Accounting software and assume that figure is correct.
Unfortunately, like most things, if your starting position is wrong, the likelihood is your end position will also be wrong. Once you’ve signed off your year end accounts, it’s vitally important to ensure you correct your starting position for the current year for any adjustments your accountant will have made. The most common adjustments made to your accounts relate to Corporation Tax Provision, Accruals, Prepayments and Capital Expenditure.
The first check you should do is easily done, if you follow these simple steps;
1. Obtain a final copy of your accounts (once these have been signed off and submitted)
2. Turn to your balance sheet and highlight the “Profit & Loss Reserve” figure
3. In your accounting software package, run a “Trial Balance” for the current year you are trading in.
4. Again, highlight the “Profit & Loss Reserve” figure in your accounting package. This can be called several things, including Retained Earnings or Profit & Loss Account.
These should balance as in the example above. If your Profit and Loss Reserve is showing a profit, then this will appear as a credit figure, and if it’s a loss, then this will appear as a debit figure (as above). If this doesn’t balance, then you need to speak to your accountant and ask them to post an Opening Balance Journal to correct these.
If you would like to get to Know Your Numbers, either complete the call back form below or call us on 01926 671870.