This article is for you if you do your own accounting or if you are looking to figure out what mistakes your in-house accountant made. Accounting is fun but challenging. Especially for you, Ivan Kosterin, Chief Accountant of TIM, will tell you about the most common mistakes - so that your business can avoid them.
1. Incorrect reflection of debts
When you work closely with any partner, sometimes happens that you are on the debt him under one contract, and under the another - he to you. In that cases, debts cannot be offset against each other. Proficient accountants know that offsetting between assets and liabilities is unacceptable. To prevent this mistake, it is necessary to build an analytical accounting of settlements with your partners under contracts.
2. Lack of analytical accounting
Analytical accounting is a detailed disclosure of information about an accounting object by type, size, grade, storage location. Unorganized analytical accounting will become an obstacle, for example, in obtaining reliable information on the value of unfinished production. To ensure the reliability of financial statements, you should elaborate in detail the accounting policy in terms of analytical accounting for certain types of assets and liabilities and comply with it consistently from period to period.
3. Incorrect classification by item
Let's give an example of a popular mistake: issued interest-free loans are classified as financial investments. This is incorrect. Interest-free loans are not investments. Only those assets that generate income for the organization in the future are recognized as investments. Interest-free loans should be classified as debt. This is not the only example of mistakes in classification: someday we will write an article about it!
4. Short-term or long-term loans?
Organizations give and receive loans with different return period. Sometimes the parties repeatedly extend the return period. It is important for every director to know: a short-term loan is a loan that is scheduled to be repaid within 12 months after the reporting date. Even if this loan was made about 100 years ago.
5. Lack of bad debts reserve.
Bad debt is a debt that is not guaranteed and is overdue by the debtor. If you have such a debt, then you must create a reserve. This reserve is classified as “Other expenses of the company” and accounts receivable are reduced by this amount. An unformed provision distorts information about the financial performance and accounts receivable of the company.
6. Debt arrears
You must cancel the debt if the statute of limitations (3 years) has expired. Take a real inventory, identify debt arrears and cancel them. After all, neat, understandable, reliable financial statements are one of the signs of a successful business!
If you have any questions about accounting, then write to us - we will be happy to advise!