Posted by: Steve Marr on Feb 11, 2012
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Many accounting statements may be legal and still not reflect the condition of your business accurately.
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Check the value of inventory you carry at cost. One client included over $100,000 in inventory as an asset. However, the cash value was closer to $10-15,000. Could that inventory be sold at cost? If not, write down the true value of your inventory. In this instance, the $100,000 indicated a positive net worth when the actual valuation pointed to negative worth.
Another client owned a construction company and included work in process as an asset.
However, booked work is not completed work and gives a false accounting.
Another small contractor would take money out of the household budget for tool replacement as needed. This placed a strain on the family budget, but also misrepresented true costs in the business.
We need complete, factual financial information to make good decisions. Any fudging, no matter how small, will create an adverse effect in our business.
The Apostle Paul wrote, "All things are lawful, but not all things edify." (1 Corinthians 10:23, NASB) We may not be committing crimes; but accurate, conservative financial statements will keep your business upright.
Steve Marr, Your Christian Business Coach