Even though business owners may be reviewing their interim financial statements regularly says Edmonton bookkeeping. If they are not reviewing those statements to fix errors that may occur on them. They may not be better equipped to make more informed financial decisions.
In fact, while 50% of all Canadian entrepreneurs fail in business within five years. The second most common reason why these failed entrepreneurs say they were not successful. Is because they ran out of money.
And while running out of money can have many different causes. If business owners have inaccurate interim financial statements. Or if they are not using their interim financial statements to make financial decisions.
This can cause business owners to make poor financial decisions says Edmonton bookkeeping. That can have them spending more money than they have. Which will result in running out of money.
Therefore, not only is this important to do. So that business owners can make better business decisions. Such as understanding if there pricing is accurate.
Or if they should minimize their expenses, by reviewing their accounts payable aging summary. But so that when they do review these reports. They will be able to make the best decisions for their business. And avoid causing problems, like spending more money than they have.
The first thing that business owners need to be able to do when they go to review their accounts payable aging summary. Is understand the information that it is communicating.
This report has a list of all of the suppliers that an entrepreneur owes money to in the first column. The second column will show entrepreneurs all the money that the business owner owes them that is not overdue.
The third column shows invoices that are up to thirty days past due. And the fourth column will show invoices that are up to sixty days past due. The fifth column will show 60 to 90 days past due. And the sixth column will be invoices that are over ninety days.
When looking at this report, Edmonton bookkeeping says business owners should first look at the ninety days plus past-due column. Because this is where mistakes often happen.
The reason why mistakes happen here, is because an invoice may have been entered twice. And while an entrepreneur might have entered the payment. That payment will only be applied to one of those invoices.
Therefore, the second invoice that was entered will remain on the accounts payable aging summary. Showing up as an overdue invoice. When it simply needs to get deleted from the accounting software instead.
This can also happen if a suppliers invoice was avoided for any reason. And an entrepreneur has not voided it in their accounting system. Or if they have made a data entry error. And entered the wrong amount on that invoice.
In this case, even when the entrepreneur enters the payment that is on the invoice. It will show an amount left owing, which is what causes the overdue amount.
By learning how to read their accounts payable aging summary. As well as fix common errors. Can help entrepreneurs end up with more accurate statements. That can help them make better financial decisions. And understand what is going on in their business better.
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It is very important that entrepreneurs not only are using their accounts payable aging summary says Edmonton bookkeeping. But that they are troubleshooting this report for errors.
Mistakes can frequently happen. But without anyone reviewing the statements to fix them. They can create problems. And end up with business owners making decisions that may not be optimal for their business.
Therefore, prior to an entrepreneur reviewing statement in order to make decisions. They should first review the report for errors. And only once they have verified that there are no errors. Or fixed any errors that exist.
Will a business owner be able to use that report to make a financial decision, that is not going to negatively impact their business.
When looking at the report as a whole, Edmonton bookkeeping recommends that entrepreneurs look for round numbers. Because that can be an indication that there is a mistake on the report.
Since invoices typically have sales-tax such as GST added to them. Most numbers that are going to be reflected in the accounts payable aging summary are not going to be perfectly round with no cents.
Therefore, business owners should look for the invoice that goes with that amount. To ensure that it was not an estimate. Or that it was not entered incorrectly by the business owner.
By finding the invoice and entering the correct amount. Business owners are ensuring the accuracy of this simile. However, if that round number is accurate, it will give these of mind to the business owner that it is not a mistake.
The next thing that Edmonton bookkeeping recommends entrepreneurs scan the report for. Are any negative numbers. Negative numbers typically indicates a deposit has been made.
It will be very easy for an entrepreneur to verify if there was a deposit made or not. If there is a deposit. Business owners need to be very careful that they actually enter the invoice when they receive it.
Because it is a common tendency for business owners to receive the invoice showing nothing owing. And than they think that they do not need to enter the invoice.
By entering the invoice that not nor has placed a deposit on. Can help zero out that negative number, so that it is not impacting the overall accuracy of the AP report.
Also, if an entrepreneur notices that there is a negative number. But it is also followed by a positive number for the same supplier. That means that the invoice was entered, and a payment was made. But that payment was not applied against the invoice in the accounting software.
When business owners understand that that is simply an accounting error that they can fix easily. They can easily find those mistakes on their AP report.
And fix them, so that their report is more accurate. And can help them make better decisions in their business.