Truing Up Accounting: Simple Steps for US Businesses

Truing up accounting is vital for US businesses, especially when considering Generally Accepted Accounting Principles (GAAP) which ensures financial statements are accurate and consistent. Bookkeepers play a critical role in this process, diligently reconciling accounts and verifying transactions. Software like QuickBooks can significantly streamline the process, automating many reconciliation tasks. Ignoring this aspect can also have implications for the Internal Revenue Service (IRS).

Truing Up Accounting: Simple Steps for US Businesses

"Truing up accounting," in its simplest form, means ensuring your financial records accurately reflect your business’s actual financial position at a specific point in time. For US businesses, regular truing up is essential for accurate tax filings, informed decision-making, and maintaining compliance. This guide outlines simple steps to achieve this.

Understanding the Importance of Regular Truing Up

Consistent truing up isn’t just about avoiding headaches at tax season; it’s about fostering a healthy financial foundation for your business.

• Accurate Financial Reporting: Reflects a clear and reliable picture of your business’s assets, liabilities, and equity.
• Better Decision-Making: Provides the data you need to make informed choices about investments, expenses, and pricing strategies.
• Compliance and Tax Preparation: Simplifies the process of filing taxes and reduces the risk of audits or penalties.
• Investor Confidence: Instills trust in potential investors or lenders by demonstrating financial responsibility.

Step-by-Step Guide to Truing Up Your Accounting

The following steps outline a practical approach to truing up your accounting records, suitable for most US businesses, especially small and medium-sized enterprises (SMEs).

1. Reconcile Bank Statements:

   • Compare Bank Records to Internal Records:

     • Match every transaction listed on your bank statement with the corresponding entry in your accounting software or spreadsheet.
     • Identify any discrepancies – amounts that differ, missing transactions, or duplicated entries.

   • Investigate Discrepancies:

     • Common causes include outstanding checks, bank fees, deposits in transit, and data entry errors.
     • Contact your bank if you suspect errors on their end.

   • Make Necessary Adjustments:

     • Record any missing transactions in your accounting system.
     • Correct any data entry errors.
     • Create a bank reconciliation statement as a record of the process.

2. Reconcile Accounts Receivable (A/R):

   • Verify Outstanding Invoices:

     • Compare your A/R ledger with your customer payment records.
     • Identify invoices that are past due.

   • Follow Up on Overdue Payments:

     • Contact customers regarding outstanding invoices.
     • Document your communication efforts.

   • Write Off Uncollectible Accounts:

     • After exhausting collection efforts, write off accounts deemed uncollectible.
     • Consult with a tax professional regarding the tax implications of writing off bad debt.

3. Reconcile Accounts Payable (A/P):

   • Verify Outstanding Bills:

     • Compare your A/P ledger with vendor statements.
     • Identify any discrepancies in amounts owed.

   • Prioritize Payments:

     • Pay bills according to payment terms and due dates.
     • Take advantage of early payment discounts when offered.

   • Resolve Discrepancies:

     • Contact vendors to resolve any billing errors or disputes.

4. Reconcile Inventory (if applicable):

   • Perform a Physical Inventory Count:

     • Count all inventory on hand.

   • Compare Physical Count to Inventory Records:

     • Match the physical count to your inventory records.
     • Investigate any discrepancies (shrinkage, obsolescence, etc.).

   • Adjust Inventory Records:

     • Update your inventory records to reflect the actual inventory on hand.
     • Consider implementing inventory management software for more accurate tracking.

5. Review and Reconcile Fixed Assets:

   • Update Asset Register:

     • Add any newly acquired fixed assets to your fixed asset register.
     • Remove any disposed-of assets.

   • Calculate and Record Depreciation:

     • Calculate depreciation expense for each fixed asset.
     • Record the depreciation expense in your accounting records.

   • Verify Asset Values:

     • Ensure the book value of each asset is accurately reflected on the balance sheet.

6. Review Accruals and Deferrals:

   • Identify Accrued Expenses:

     • Identify expenses that have been incurred but not yet paid (e.g., salaries, utilities).
     • Record accrued expenses in your accounting records.

   • Identify Deferred Revenue:

     • Identify revenue that has been received but not yet earned (e.g., prepayment for services).
     • Record deferred revenue as a liability until it is earned.

   • Adjust for Prepaids:

     • Allocate prepaid expenses (like insurance) across the periods they benefit.

Frequency of Truing Up

The optimal frequency depends on your business size, transaction volume, and specific needs.

Frequency	Pros	Cons	Recommended For
Daily	Real-time financial insights, immediate detection of errors.	Time-consuming for smaller businesses, may not be necessary for all transactions.	Very high-volume businesses, those needing constant monitoring.
Weekly	Provides frequent updates, allows for quick correction of errors.	Requires dedicated time each week.	Medium-sized businesses with moderate transaction volume.
Monthly	Balances frequency with efficiency, provides a regular snapshot of financial performance.	Errors can accumulate over a month, requiring more effort to correct.	Most small to medium-sized businesses.
Quarterly	Less frequent, but still provides periodic updates.	Can lead to a significant workload at the end of each quarter, errors can be harder to trace.	Small businesses with relatively low transaction volume.
Annually	Minimal time commitment throughout the year.	Can result in significant stress during tax season, makes informed decision-making throughout the year difficult.	Not recommended except for the very smallest businesses.

Choose the frequency that best suits your business while ensuring accuracy and minimizing the risk of errors.

And there you have it – some straightforward steps for truing up accounting! Hopefully, this helps you keep your books balanced and gives you more confidence in your financial picture.