I’m brilliant at Accounts Payable, Accounts Receivables, Banking and Reconciliations; I would love to say it’s because I am a genius but it’s not.
I got good at them because of a tutor I had at the now closed London School Of Accountancy and Management, one Raj Kumar, who’s weakness was Digestive Biscuits Lol, he was a character: confident, passionate and full of accounting stories from his past career, a great teacher he was.
He taught us in the 1st or 2nd level of AAT, that when you are in the exam and they present you with a accounting entry, that’s gone wrong, ask yourself these three questions:
- What should have happened?
- what actually happened?
- what’s got to be done to fix it?
I apply these three questions to most of my accounting problems, I’ll give you two simple examples:
Example 1
A supplier sends you a statement (a statement is a list of invoices & credits which are raised on the account, it should also show payment due date etc), the statement shows you owe the supplier £30.
This is the statement:
Invoicea, £10, Past due, was due 10/Jan/21
Invoiceb, £10, Past due, was due 10/Jan/21
Invoicec, £10, Past due, was due 10/Jan/21
Total outstanding – £30
You complete your reconciliation, and this is what you find:
Invoicea, £10, Has not been received by Accounts
Invoiceb, £10, Has not been received by Accounts.
Invoicec, £10, Has not been received by Accounts.
What should have happened?
these invoices should have been sent for approval and if approved, paid.
What actually happened?
Accounts department has not received the invoice,
What’s got to be done to fix it?
Attain the invoices, get them approved and get them settled for payment; once the account is cleared do a Root Cause Analysis (RCA), to reduce the chances of slow payment/missing invoices happening again in future.
This is a simple example but take my word for it, it can be applied to A LOT (not all) of accounting issues you have, these questions are your friend.
I have literally done so many reconciliations in my time, it might even be over a thousand! When I’m in reconciliation hell, this method has helped me keep my sanity.
Example 2:
There is an accrual for £10 on a department you are doing the management accounting for, your predecessor got away with it, but unfortunately you have been asked what is it for?, and it was not covered in the handover.
What should have happened?
The £10 accrual should be known to your line manager and department, there should be supporting documents in the monthly journal files explaining what the amount is for.
What actually happened?
The accrual has gone on unchallenged, but it was picked up in this year’s internal audit.
What have I got to do to fix it?
Locate when this was entered, see what information is included in the supporting journal/accrual files, if there is not sufficient evidence to justify the accrual, talk to colleagues in your team and/or the budget holder and see what they know, hopefully this should bring to light what the accrual is, if this still fails, ask for approval to release the accrual.
Thoughts:
Hopefully this works for you, these questions have helped me in my exams, jobs and some non-finance problems I’ve had to resolve; I’ve also used them on the odd occasion to reflect or review past DIY jobs that I mucked up, helping me learn a lesson in the process.
Brainthrough 