Fall in Love with Your Balance Sheet
I have worked with well over a thousand churches and often find that the leadership team is solely focused on the Statement of Activity (also known as the Profit & Loss), and possibly the Budget vs Actual report (which pulls from the Statement of Activity). Unfortunately, this practice only tells part of the story.
All too often, the bookkeeper - knowing that the leadership team is looking primarily at the Statement of Activity - may also focus on that report, ignoring the Statement of Financial Position (also known as the Balance Sheet). These two reports work hand-in-hand; therefore, if the Balance Sheet figures are incorrect, you cannot have confidence in the figures shown on the Profit & Loss report.
Your Balance Sheet is the litmus test as to whether your Profit & Loss is correct.
Let’s think about this.
If the Checking account balance on your Balance Sheet says you have more money than you actually have, there’s a chance that a duplicate deposit was recorded, or perhaps a withdrawal (check, debit, or transfer) was made from the Checking account, but not recorded in the books.
If your Balance Sheet shows that your Credit Card balances are overpaid, there’s a good chance that you are missing the corresponding expenditures on your Profit & Loss report.
I want my clients to “fall in love” with the Balance Sheet.
The person “doing the books” needs to have complete confidence in the balances shown on the Balance Sheet (aka Stmt. of Financial Position) before printing out a Profit & Loss (aka Statement of Activity) for the leadership team.
The good news is that you can “prove” the balances you see on the Balance Sheet. The bad news is that it’s easy to trust technology and believe that your numbers are right simply by doing a bank reconciliation on the primary checking account.
Realizing there is often much more to consider is important.
Proving the figures on the Balance Sheet gives the person doing the books the confidence they need.
A lot of the accounts on the Balance Sheet can be reconciled based on a statement from a financial institution. This includes checking accounts, savings accounts, investment accounts, and credit card accounts. The key is to not only formally reconcile each of these accounts every month, but to also make sure that there are no old lingering transactions that will never clear, such as stale checks or duplicate transactions.
If you are using the 2-step method of paying bills - where you Enter a Bill and subsequently Pay a Bill - you will likely see an amount showing up as Accounts Payable on your Balance Sheet (if the Balance Sheet is prepared on an Accrual Basis).
The Accounts Payable figure can be “proven” by looking at a subsidiary report called “Unpaid Bills”. This report serves as your “backup” to the number on your Balance Sheet. Be sure to look at the report on a regular basis and confirm that the Bills are, in fact, due to the respective vendors. All too often, I’ll pull this report with my clients and see Bills dating back several years, if not decades.
When was the last time you looked at your Fixed Assets balance and Depreciation Schedule? Do you still have that 12-passenger van that you purchased 20 years ago? If not, why is it still showing up on the Balance Sheet? Even if the van is fully depreciated, the asset and offsetting depreciation should be removed. Going forward, fixed assets should be removed when they are sold, donated, or otherwise disposed of. More on this topic in an upcoming post.
Your Balance Sheet is as important - if not more important - than your Profit & Loss.
Fall in love with your Balance Sheet. You will gain confidence in your reports and your leadership team will appreciate your diligence.
If you have questions about your Balance Sheet, or you know your numbers are wrong but don’t know how to get them fixed, let’s connect. My goal is to empower you and help you gain confidence in your numbers so that your leadership team can make wise decisions.
