We’re often strongly encouraging our clients to validate their Balance Sheet to find the inevitable errors in processes and configuration so your financial statements will be correct and you can make accurately informed decisions. Because if your Balance Sheet is completely validated then you can be confident that the bottom line of your Income Statement is correct—which has direct consequences for corporate taxes owed!
It’s simply a matter of creating a spreadsheet that lists all accounts on your Balance Sheet, their values in GL, their values from the validating reports and then a column calculating any variance. This is usually updated at the end of every month, but it can be done anytime.
What does that look like? Like the example below, which has been simplified to exclude payroll:
Values for the blue Column B, labeled “GL”, come straight from the Balance Sheet, and can even be pulled dynamically via Infor’s F9 add-on for AccountMate.
Values for the green Column C, labeled “Validating”, take a little bit of work as you need to run the respective “Validating Reports” listed in the last column and manually enter them. Reference our Handy Recap of Closing Articles and Videos, and here are notes on some of those:
- Cash: Don’t have the Bank Reconciliation module? Use your bank statement, add in outstanding checks, and subtract floating deposits.
- Accounts Receivable: Some clients include customer open credits in the AR asset, while others have them in a separate “Customer Deposits” liability—be sure to run your report including/excluding open credits as appropriate.
- Inventory: Have more than one inventory account? Then run the Warehouse Quantity Listing sorted by “GL Account ID”.
- New Equipment Purchased: As capital equipment is purchased through the year, book the purchase to a “holding account” in the assets section. Then at the end of the year, print the General Ledger Listing and have your CPA review each purchase to then categorize it and apply the appropriate depreciation method.
- Fixed Assets and Accumulated Depreciation: These don’t typically change during the year, but you should have a list from your CPA to ensure items are removed as they’re retired or scrapped.
- Aged Payables: If you have open prepayments be sure to sort the report by “AP Account ID”.
Values for the yellow Column D, labeled “Variance”, are automatically calculated as “Column C minus Column B” for assets, but “Column B minus Column C” for liabilities. Thus, it always shows positive numbers for debits and negative numbers for credits for creating the correcting journal entry. The bottom of this column is the sum of all rows above—which is the amount to book to a variance account on the Income Statement.
Variance, you say? But there shouldn’t be any variance! True, but human error is inevitable and if you haven’t validated the Balance Sheet in quite a while there may be erroneous entries or misconfigurations of the system which cause discrepancies. Then it’s a game of finding the needles in the haystack to resolve past issues and bring everything into sync—which can be a tedious cleanup project if you haven’t validated in a while. If that’s the case, then the best path is usually to make a journal entry to force the Balance Sheet into agreement with the validating reports and then “draw a line in the sand” to know there’s no errors prior to that date—and when you do the validation later there will be many fewer transactions to look through.
It’s a good idea to use <Posting Period Restrictions> to keep only a small window of months open, and thus prevent accidentally posting to prior or future periods. Also, it’s a good idea to avoid “as of” reports as they can include/exclude transactions you might not want included/excluded. Of course you’ll want to generate the Balance Sheet and all validating reports at the same time, ideally at the physical month end.
It can be a hassle to do this every month, but the longer it’s put off the more difficult the task is. And if you don’t validate the Balance Sheet then you can’t really be sure the financials are correct.
Have a question? We’re always here to help.