Obtaining the Accounting Information
Efficient accounting services depend on the timely receipt of information. Starting and stopping the process because all the necessary information was not submitted is both frustrating and inefficient. To overcome such delays, many accountants establish due dates for receiving information. That practice is not always enough, however. Even if due dates for receiving the needed information are established, all the necessary information may not be submitted because (a) the individuals do not understand the importance of submitting the information, or (b) the accountants do not precisely specify the information that should be submitted. Therefore, to provide efficient accounting services, it is important to communicate not only when the information is due, but precisely what information is needed and why.
What Information Should Be Provided?
The information needed to perform accounting services varies depending on the types of transactions the company enters into and the basis of accounting used. For example, if a company receives a long-term loan, the accountants would need to review a copy of the loan agreement to properly record the transaction. If a company uses the accrual basis of accounting, information about accounts receivable and accounts payable would be needed. Generally, the following information is needed to process a company's general ledger.
Bank statements — Cash Basis - Yes — Accrual Basis - Yes
Check register or check stubs (including information about transactions involving petty cash) — Cash Basis - Yes — Accrual Basis - Yes
Paid invoices — Cash Basis - Yes — Accrual Basis - Yes
Deposit information — Cash Basis - Yes — Accrual Basis - Yes
Sales information — Cash Basis - Yes — Accrual Basis - Yes
Accounts receivable information — Cash Basis - No — Accrual Basis - Yes
Accounts payable information — Cash Basis - No — Accrual Basis - Yes
Inventory (or cost of sales) information — Cash Basis - Yes — Accrual Basis - Yes
Information about other transactions — Cash Basis - Yes — Accrual Basis - Yes
Bank Statements Bank statements for the period (month, quarter, or year) should be obtained and reconciled to the general ledger. (Accountants in public practice should either reconcile the cash accounts or determine that the client has done so.) Accountants also should consider requesting paid checks since paid checks often provide specific information that may be omitted from the check register or check stubs.
Some accountants in public practice request that bank statements be sent to their offices unopened. They view that as a control over cash. However, accountants in public practice should not be responsible for maintaining internal controls. Instead, they should instruct their clients on the importance of cash controls. An authorized client employee that is not involved in the cash receipt or cash disbursement function should be given responsibility for opening the bank statement and reviewing its contents.
Check Register or Check Stubs If the company uses voucher or multipart checks or issues checks by computer, the check register should be furnished to the accountants. Check stubs should be furnished if the company uses a checkbook that includes check stubs. In either case, the date, amount, payee, and purpose of each payment should be provided. Accountants in public practice may request the client to code each disbursement with the appropriate general ledger account number. However, that unless the client's staff is well-trained and familiar with the general ledger accounts, the codings may often be incorrect. Identifying and correcting numerous incorrect codings can be time consuming for the accountants.
In addition to information about disbursements from checking accounts, information about disbursements from petty cash accounts should also be obtained. Most companies with petty cash accounts maintain petty cash logs that list (at a minimum) the beginning and ending balance of petty cash and each disbursement or addition's date, amount, and purpose. Obtaining a copy of such a log normally will provide sufficient information to properly record petty cash transactions.
Paid Invoices Paid invoices should be obtained to determine that (a) invoices are paid when due and (b) the purpose of the payment is properly described in the check register or on the check stub. By having immediate access to paid invoices, the accountants can save valuable time if a description of a disbursement is not complete. The accountants can continue processing the information without waiting on additional information.
Deposit Information Deposit information should be submitted with the check register or check stubs. Each deposit should be identified with a clear description of its source. Care should be exercised when describing deposits since incorrectly coded deposit information can lead to overstating the company's income and distorting operating statistics.
Sales Information The information needed about the period's sales varies with each company but may include totals for cash sales, sales on account, credit card sales, and sales taxes collected. The “Cash Receipts Summary” at Appendix 2A in PPC’s Guide to Write-up Services presents a reconciliation of sales to cash deposits that generally will provide the needed information about sales.
Accounts Receivable Information If the general ledger is kept on the accrual basis of accounting, information about the period's accounts receivable balances is also needed. If the general ledger is kept on the cash basis or modified cash basis, information about accounts receivable is only necessary if supplementary schedules presenting receivable information are prepared. Information about most of the accounts receivable activity during the period (that is, sales on account and payments on account) can be provided by completing the “Cash Receipts Summary” at Appendix 2A in PPC’s Guide to Write-up Services. In addition, any other activity during the period that affects accounts receivable (for example, write-offs or other adjustments of accounts receivable) should be provided.
Accounts Payable Information If the general ledger is maintained on the accrual basis of accounting or if supplementary schedules presenting accounts payable information are prepared, information about the period's accounts payable balance is needed. The information about accounts payable should include a listing of each payable, its balance, and a description of its purpose. Many companies maintain a tickler file of unpaid invoices. As a result, they can easily obtain accounts payable information by summarizing the invoices in the file. Other companies may enter vendor invoices as they are received in a manual or computerized accounts payable journal. Consequently, those companies can obtain the necessary accounts payable information from the information contained in their accounts payable journals.
Inventory Information Inventory information is helpful to adjust inventories to their proper levels and record cost of sales. Many small to medium-sized companies do not have the resources to maintain perpetual inventory records, however. Instead, they take physical inventories periodically (that is, they count the inventory on hand) and use estimates to adjust inventory and record cost of sales in other periods. Thus, rather than provide information about inventories at each interim period, they provide the information only when physical inventories are taken.
Information about Other Transactions Companies may enter into transactions that are not reflected in the information about cash receipts and disbursements, accounts receivable, or accounts payable. For example, a company may finance the purchase of assets or enter into capital lease agreements. Accountants should inquire about any such transactions and obtain the necessary information to properly record them.
Avoiding Delays in Receiving Information
Providing efficient accounting services depends on the timely receipt of information. Delays in receiving the needed information can often be avoided if the accountants:
•• Obtain an understanding with the individuals involved about the information that is needed and the consequences of providing that information late.
•• Educate the individuals involved about why the requested information is needed and provide assurances that confidentiality will be maintained.
•• Clearly state when the information is needed.
Use Transmittal Forms Some accountants in public practice provide transmittal forms to be returned with their clients' information. The transmittal forms serve as memory joggers for their clients to help ensure that all information is provided. A supply of transmittal forms can be given to a client at the beginning of each year or, as an alternative, a new transmittal form for the next period may be included in the processed accounting information for the current period when it is returned to the client. Appendix 2C in PPC’s Guide to Write-up Services contains such a transmittal form.
Review the Information When It Is Received Delays in receiving all of the needed information can also be avoided if accountants review the information for completeness as soon as it is received. Generally, such a review will involve only a minimal amount of the accountants' time, particularly if a transmittal form accompanies the information. Any additional time used by such reviews, however, is often offset by the time saved by not having to start and stop an engagement because of incomplete information.
Accountants in public practice should document any additional efforts required to obtain complete accounting information from a client in a memo to the client's file. By documenting those efforts, accountants are in a much better position to explain why:
•• An extension of time is necessary to complete the processing of the information.
•• Additional fees are needed (assuming that the accountants ultimately had to provide information that initially was to be provided by the client).
Lack of Cooperation Occasionally, accountants may encounter an individual that will not cooperate—either intentionally or because of lack of training. Accountants should clearly establish an understanding with the individual about the need for cooperation and communicate any lack of cooperation. If the problem is intentional, the accountants should request that the individual's supervisor take immediate action to remedy the problem. Explaining the additional costs and time delays that lack of cooperation causes often hastens a solution. Lack of training can be overcome by working with the individual.
When accountants in public practice encounter clients that will not cooperate, withdrawal is usually not necessary unless such situations deteriorate and become serious problems. Some clients simply will not cooperate regardless of the accountants' efforts to get them to do so. In those situations, the accountants should consider withdrawing from the engagement, because it is extremely difficult to provide acceptable services to such clients.