I have previously written about the necessity of performing monthly reconciliations of all balance sheet accounts. I did not, however, express the importance of having, maintaining, and using sub-schedules to perform those reconciliations. So, I want to explain how to effectively create and use sub-schedules.
First of all, What is a sub-schedule? In a big accounting system, each account is summarized at the reporting level and the detail is stored in a sub-ledger that basically acts like a large database. Smaller systems, like QuickBooks, don’t have an organized sub-ledger system. Don’t get me wrong, QuickBooks gives you all the details of all the transactions that go in and out of an account. However, the transaction detail can be overwhelming and hard to track. A sub-schedule is just a way to organize the transactions in a way that makes it easy to track and reconcile the accounts. I like to use sub-schedules for all of my prepaid and deferred accounts, as well as fixed assets. My sub-schedules allow me to clearly see exactly what makes up the balance in each of my accounts so that I don’t miss anything.
The fixed asset schedule deserves its own explanation, so I am going to explain how to create an effective sub-schedule for accounts like prepaid expenses or deferred revenue, which are very similar. There is some important information that you need to include in your sub-schedule to make it effective. For every transaction that you put on your schedule, you need to know: 1) the date of the transaction, 2) the amount of the transaction, and 3) the period in which the revenue or expense will be recognized. I also like to add the vendor or customer as additional detail to identify each transaction. To make it a schedule, you have to identify the period and portion to recognize each transaction and detail it. This schedule now gives you an amount to recognize in each period and identifies the total balance that should show up on your balance sheet when you have reconciled it.
It is not enough to just have a schedule, but you maintain and update it on a regular basis. If you don’t maintain this schedule that you have created, it is useless. You now have details for historical transactions, but you no longer have a tool to use for the current period. It is also important to use it when reconciling your balance sheet accounts. If you don’t use to as a double checks for accounts, then it is just a nice schedule that doesn’t do anything for your financial reporting.
To help utilize and build these kind of schedules, contact one of our experts at TGG Accounting today.Written by: Ashley Peth TGG Accounting