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Tidying up your internal accounts: our top ten tips

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5 June 2013
Within our Health and Social Care team a significant proportion of our clients have either a 31 March or a 30 April year end.  In the run up to this year’s visit from your accountants, now may be a good time for you to tidy up your internal accounts.
Aside from making the year end accounts process easier, and helping to minimise the amount of time that you accountants spend onsite asking questions, the key benefit from keeping tidy internal accounts is that it can help to bring a company’s internal management reports closer to the annual financial accounts. Directors can therefore have a better understanding of how the business is actually performing, and can plan more effectively for the future.

The following list is not exhaustive, but here are our 10 top tips:
1) Ensure that your opening balances have been corrected. If you have not already done so, ask your reporting accountants to provide you with a list of adjustments to bring your nominal balances into line with the year end accounts. This should include correcting the opening profit and loss reserves figure to that shown in the statutory accounts.
2) Revisit the format of your standard reports. Most accounts software packages allow you to customise the format of the Profit and Loss Account and Balance Sheet reports, and it may be easier to do than you think.
3) Consistent postings. Have you posted items to the same nominal code every time? If not, now would be a good time to correct any inconsistent postings.
4) Use clear narratives. From experience, the easier it is to understand what an entry is, the easier it is to produce a set of accounts. Narratives don’t need to be too long - something fairly short and to the point should suffice. Where payments relate to more than one month, for example subscriptions, it is useful to include the period covered in the narrative if possible.
5) Reconcile your control accounts. Bank, debtors (sales ledger), trade creditors (purchase ledger), VAT (if applicable) and PAYE/NIC should all be reconciled every month.
6) Identify any prepayments, and adjust for them if possible. Usually we would not adjust for small prepayments, but if you can adjust for larger balances such as annual insurance premiums, registration fees, rent and subscriptions then it can help avoid fluctuations in your monthly Profit and Loss Account.
7) Capitalise new fixed assets. Where items costing more than about £250 have been purchased, and they are capital in nature, e.g. beds, hoists, cars, new phone system, etc., these should be posted to fixed assets in the Balance Sheet, rather than to repairs in the Profit & Loss Account. If possible, it would be a good idea to maintain a separate file of purchase invoices for these items, as your accountants will need to see them to claim capital allowances on them. Maintaining a fixed asset register and posting depreciation every month is also a good idea. Failing that, ask your accountants to provide you with an estimated monthly depreciation charge, and set up a recurring monthly journal.
8) Separate out postings of allowable and disallowable expenses. Often, it can be difficult to establish whether an expense is allowable or disallowable for tax purposes, i.e. whether tax relief is available. As a general rule, tax relief will be available where a cost is “wholly and exclusively” for business purposes. Non staff entertaining is never allowable, but staff entertaining is. Directors’ personal expenses are not allowable, but their business expenses are.
9) Review your aged debtors listing. Any amounts not received in accordance with your usual credit terms should be considered for bad debt purposes. Any negative balances (e.g. amounts overpaid by service users/local authorities, or potentially omitted sales invoices) should also be reviewed at this point.
10) Maintain a file of copies of loan agreements, lease agreements and bank mandates. Your accountants will probably ask for them, and having them in one place is always useful.

Andrew Brookes - Partner and Head of Healthcare
Andrew Brookes
Partner and Head of Healthcare Contact details