Tips For Auditing Your Commercial Accounts Receivable
When it comes to ensuring accuracy in your company's books, you should be auditing your accounting records regularly. While many business owners think of audits as a bad thing, auditing your accounting records is an important process. However, it doesn't do you any good if you don't know how to do it properly. Audit procedures can vary slightly depending on the accounts in question. Here's a look at what you need to know about properly auditing your accounts receivable ledger and reports.
Start By Validating Each Account
The first step in a comprehensive accounts receivable audit is to ensure that each of the accounts currently listed in your ledger is actually owed and accurate. It can be a time-consuming process, but this stage is essential for ensuring the overall accuracy of your reporting and your ledger.
You should be able to match each invoice in your receivables ledger against a sales transaction. Further, there should be shipping information for each of them as well. This clearly shows you that the invoice is for a valid order and that the order was shipped to the customer.
It is important that you match the dates of the invoice in question with a verified order and then confirm that the order did ship to the customer. These are essential steps that can uncover procedural holes and problems that you might otherwise overlook.
Additionally, this single step is a key part of reducing potential fraud at your business. When you can be sure that each invoice is legitimately connected to an order, there's less risk of any kind of theft.
Ensure That The Balances Are Accurate
Once you have confirmed that a receivable is legitimate, the next step of auditing is to make sure that the balance on that particular account is correct. Check for any payment history in the receivables ledger, but you should also reconcile against bank statements to be sure that there were no payments received that weren't properly recorded.
Validate Any Credits Or Adjustments
As you review your receivables, you may find that some accounts show adjustments or credits posted on behalf of your business. Make sure that, should you encounter any of these in the ledger, you investigate and validate each of those discounts.
There should be documentation that proves that each credit was authorized by the proper person within your company. Have clear standards defined, and be sure that the paperwork supports adherence to those standards. If there is no one in your company you feel comfortable with handling this sort of sensitive information, then it might be best to hire a commercial account auditing service.