of the debit balances should equal the total of all of the credit balances. If the debits do not equal the credits, then an error has occurred somewhere in the process. The total of the accounts on the debit and credit side is referred to as the trial balance.
The more often that the trial balance is calculated during the accounting cycle, the easier it is to isolate any errors; more frequent trial balance calculations narrow the time frame in which an error might have occurred, resulting in fewer transactions through which to search.
Interpreting Balance Sheet
1. ASSETS DEBIT balance = positive amount. CREDIT balance = negative amount
Cash Always review the status of your cash. A cash deficit should rarely
occur. Cash represents the liquidity of your fund and its ability to pay its expenses. It is very important to make sure your cash remains
positive.
Petty Cash Periodically review the level of your petty cash fund. Remember that
petty cash is quite vulnerable to loss through fraud or error. Can you reduce the size of the fund without affecting efficiency?
Receivables When you review your receivables balance, make sure your
receivables are realistically valued. If you have anything more than a negligible amount in receivables, you should have an allowance for uncollectibles. It should have a credit balance, offsetting the debits to receivables. If you do not have an allowance for uncollectibles. your receivables are probably not worth what your balance sheet shows. Receivables should show a realistic expectation of future cash.
If your receivables balance is growing it could mean the following:
1. Your business is growing in size. Check if the other numbers, such as supplies expense, are growing also.
2. Receivables are increasing in relation to your other assets. Perhaps your customer types are changing. Be careful not to let receivables get out of proportion. You can't pay vendors or staff with receivables!
3. Your customers are paying more slowly and your receivables are staying on the books longer than before. You might need to speed up collection or you might need to extend credit less readily.
If your receivables balance is getting smaller, it could mean the following:
1 .. Business is falling off. You have fewer customers and thus fewer people asking to be invoiced. Check your customer base. Has your customer mix changed? Is your product or service still needed? p> 2. The amount of business you are doing is staying the same. But more customers are paying in cash.
4. You are collecting your receivables quickly. This is good! p> Inventory Inventory consists of items that you will sell, or the raw materials for making those items. Because you are going to sell it, it represents future cash for your organization. Inventory items are very vulnerable to "shrinkage" - meaning deterioration, becoming outdated, and theft. You should have a tracking method and periodically you should physically count the inventory items. The value of your inventory should appear on your balance sheet and you should be able to document that the value shown on the balance sheet is correct.
Prepaid Items Prepaid items such as maintenance agreements are important assets because they represent something you have already paid for. You need to check that you are receiving the appropriate value. For example, if you have a maintenance agreement as an asset on your balance sheet, you should check if you really are receiving the service you paid for.
Amounts in prepaid expense balances are generally transferred to expense over the term of the related maintenance agreement, insurance policy, etc. There should be zero balances in the prepaid accounts once the agreements have expired.
2. LIABILITIES A CREDIT balance shows there is a liability. A DEBIT balance shows a liability is negative (often meaning it has been overpaid).
Sales Tax If you sell items that are subject to state sales tax, the sales tax should be paid monthly. The Office of the Treasurer processes the payments and remits sales tax to the state of Ohio, based on the amounts you tell them are owed. You should review the balance sheet each month to make sure the payment is being made. Otherwise you might be misled into thinking that all the cash on the balance sheet is yours to use, whereas in reality some of it belongs to the state.
Salaries In the OSU General Ledger, Salaries Payable or "Accrued Salaries
Payable Payable "occur only at year-end and only for bi-weekly Classified
Civil Service employees and Nine-month Faculty (faculty who work three of the four quarters of the year, but are paid over 12 months).
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