Putting Together An Estimate
Once we gather the information and comb through the transactions, we will make an assessment of the quality of the accounting records and if reconstruction or revision is needed. In case the books were maintained professionally, we should be quickly positioned to move directly to tax preparation.
At this point, we will present you with our professional assessment and an explanation of all accounts involved and each one’s condition.
A typical estimate will go over each account, starting with the balance sheet report.
Balance Sheet Accounts – The balance sheet has Asset, Liability, and Equity accounts displayed and allows for assessing the accounting records’ overall condition.
Assets – Items like banking, accounts receivable, and equipment are all examples of assets found in this section of the balance sheet.
By looking at this section, we can quickly tell if we are looking at well-kept records or not.
Liabilities – Items like credit cards, accounts payable, and loans are all examples of liabilities found in this section of the balance sheet.
Equity – This ins and outs of investment into the business, as well this section would include distribution of profit from the company.
Indications of poorly kept accounting records found in a QuickBooks file would include the following:
1) Negative balances in multiple accounts
2) Switching the books and records accrual to cash accounting and seeing accounts receivable or payable go negative when they should zero out
3) Large undeposited funds account balance
4) Income or expense accounts sitting in the balance sheet
5) Duplicated accounts
6) Unreconciled accounts
Profit and Loss Accounts – The Profit and Loss Statement or the P&L as it is called for short will have a simpler review process and we will test the P&L accounts in some of the following ways.
1) Are the accounts telling an accurate story, stated differently, are expenses for rent sitting in the rent expense account, or have they been miscategorized into an office supplies account mistakenly?
2) Are there consistent transactions for each expense, for example, are there 12 rental payments in one year or are there 13, and so on.
3) Tax implications of transactions, are there many comingled expenses? and will there be a need for sorting many and moving around of transactions?
4) Do any accounts need to be consolidated for tax preparation?
5) Are there many uncategorized transactions?
The above is not an all-encompassing list of items we will encounter, but the list is by far the most common items we will find.