With accounting software now firmly entrenched in the cloud it’s worthwhile to revisit the benefits of having a single ledger, or a single point of information for your accounting records:
- Collaboration - better information sharing between you and your finance team
- Flexibility - can communicate from anywhere and in real time
- Save time - no need for any adjusting entries between systems
- Process review - Finance team can communicate back on financial processes within your business
Adjusting Journals are Evil
In the past a business would have a separate accounting system running at their office, while the accountant would take a copy at year end, make any adjustments and send an adjusting journal back to the client to make sure their figures were up to date.
The only problem with an adjusting journal is nobody remembers what they mean.
The client would often be left in the dark as to what the updated figures meant, and not being tied to regular operations such as invoices and purchases it’s often hard for the accountant to track back and determine what was actually being done to certain accounts.
Adjusting Journals more Common
Even though more businesses are using cloud based software such as Xero, we’re still coming upon clients who receive annual financial accounts and tax returns that don’t accurately match to whats online in the accounting system.
Some accountants are still using the old system of adjusting journals, or not adjusting the clients accounting system at all.
This is because accountants are using separate software to draw the information out of Xero and not keep the single ledger accurate or well informed.
Why this is dangerous
You’re not seeing what is being filed with Inland Revenue, and if you are to take online information to investors, lenders, or even judge the performance of your business then this might not be accurate.
If your online information isn’t being updated, nobody might be reviewing or checking your financial processes are giving the right information.
What to do
When you get a set of financial accounts it’s useful to check that you can see this information online. Also ensure that you understand any end of year adjustments posted by your accountant so you can accurately determine how these affect your business.