What is a Diagnostic Review of Your Books?
Many people associate a diagnostic review with their cars. You take it to the shop, and they “run” a diagnostic on your vehicle. I can do the same thing with your financial statements and books. With my accounting background and degree, I know what is needed to file your taxes at year-end. Why not have a mid-year review done and make sure you’re on the right track? No need to why until year-end and put unnecessary pressure on yourself.
What did you need from me, and what do you review?
First, I request the following information from you.
- Access to your QuickBooks Online (QBO)
- Bank and Credit Card statements for the period in question
- Loan statements or original documents when assets were purchased – auto, real estate, any asset on the books.
- Type of entity
- Last tax return
Review List
- Last date bank and credit card accounts were reconciled
- Uncleared items in the bank reconciliation – old, duplicates
- Undeposited funds – old balances
- A/R and A/P aging reports
- Profit & Loss review
- Uncategorized income
- Uncategorized expenses
- Unusual or unexpected balances
- Large negative balances
- Miscategorized transactions
- Miscategorized fixed asset added as expense, not asset
- Balance Sheet review (accrual basis)
- Unusual or unexpected balances
- Large negative balances
- Negative balances in A/R
- Miscategorized transactions
- Accounts with old balances
- Miscategorized fixed asset added as an asset, should be expense
- Loans/Notes payable – principal balance, interest expense not recorded correctly.
- Sales taxes and payroll taxes
- Owner distributions – equity, owners draw
- Personal income or expenses
- Profit & Loss review
Oh my – How do I hire you to do this?
Well, this is the easy part. I would love to have a connect with you and hear more about your business. You can either email me at NicoleA.CO2000@gmail.com or schedule a meeting with me via phone or zoom at https://calendly.com/excelbook. I look forward to hearing from you soon.
What Do Apple Trees and Financial Statements Have in Common?
First, I need to give Intuit QuickBooks credit for this metaphor. I heard them explain Financial Statements in this manner at a conference. I have taken their explanation and added more juice. So, think of the five top Financial Statements as parts of an apple tree.
The apples are your Profit and Loss Statement. Also known as the Income Statement. The Profit and Loss report tracks the business income and expenses by month, quarter, or annually. The branches are all the people that need to read your statements, investors, bankers, and tax preparers. There will be years you have a good harvest and other years where you will not. You want to sell more apples (profit) than what hit the ground and rot (loss). At the end of each year, the Net Income or Net Loss will move to the Balance Sheet as Retaining Earnings. Make sure you review this report monthly and check that your expenses are in line with your income.
The trunk of the tree is the Balance Sheet. This report reveals the health and stability of the business. It’s the strength of the business, just like the truck of the tree. It holds up the whole tree. This statement tracks the annual yields and company value. The Balance Sheet is read at a point in time, usually at the end of the month, quarter, or year. It tells investors, bankers, and lenders what your company OWN’s minus what your company OWE’s equals the Value of your Business. Investors want to make sure that if they loan you money, they will get it back plus interest.
The roots are the Statement of Cash Flows. This statement shows you where the money was absorbed into the company. Just like watering a tree, the roots need water or “cash” to live. The tree needs water to thrive, and a business needs cash to grow. The Statement of Cash Flows will show you where the cash was spent based on three areas; operating, investing, or financing activities. This statement using the information from both the Profit and Loss and Balance Sheet to show you how this happened.
Account Receivable reports are the apples you have sold on credit. It’s a detailed report of the Accounts Receivable asset account from the balance sheet. Who do you need to receive money from? Review this report often and make sure your receivables don’t get old. Keep them under 30 days.
Accounts Payable reports are the seeds, fertilizer, tools that you have purchased on credit until the apple tree products apples. Again this is a detailed report of the Accounts Payable liability account from the balance sheet. Who do you need to pay? Once you have some sales, you can pay back the vendors that helped you get started.
If you need more help understanding your statements, please email me at Nicolea.co2000@gmail.com.