Reviewing financial statements is a monthly process that goes on without end. There should always be something new to learn and a search for the truth of the driving factors behind the numbers. For small companies, financial statements can be fairly simple. It’s a matter of properly coding invoices sent to customers, bills received from vendors and payroll. Some bills won’t even arrive, such as rent to your landlord. They usually expect a check or ACH to show up without actually sending a bill.
It doesn’t take long for things to get a bit more complex, however. Those end of year CAM (Common Area Maintenance) bills and real estate taxes are better recorded monthly as an accrued expense so as not to distort a single month (usually December). That means the use of estimates and year end true-ups. And a large bill for an annual license might better be recorded as a prepaid expense to the balance sheet and charged off over the applicable number of periods. It’s easy if you set up a recurring journal entry but I’ve often found people forgetting about them and they continue to post automatically because no one is reconciling the balance sheet accounts.
Dealing with large contracts? Well, to do so properly requires percentage completion accounting which means estimating revenue and expenses. And each contract needs to be closed out at completion and someone has to make sure nothing was ultimately over or under recorded.
Inventory? As one colleague often said, “Inventory needs a den mother.” If inventory is wrong, then so is your income statement. You need a plan to make sure the general ledger matches what is actually in the warehouse or on the shop floor.
More than one company? I can’t tell you how many times I see “due to” and “due from” accounts between parent and subsidiary or related companies that just don’t match. It takes minutes to balance these at the end of each month. But going back and balancing an entire year or more can be incredibly time consuming because errors have compounded and it’s much harder to remember the details of a transaction that occurred two years ago compared to one that was two weeks ago.
People make mistakes. I have seen people who have done things correctly for ages make a mistake and then follow the same pattern multiple months into the future. After a while, the “mistake” becomes the new normal. Or something simply gets missed. Friday I noticed that rent was lower at one of my companies. Simple mistake and easily fixed. But the deeper question is always, “how did the mistake happen?” That’s not asked with the goal of being critical but rather with an eye toward preventing reoccurrence.
The bottom line is that reviewing financial statements requires constant diligence and even then mistakes are bound to creep into the system. But the sooner caught and fixed the better.
For those wishing to read about my monthly review process, follow the link to a prior article.
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (513) 225-8657 or send an email to [email protected]
The archive of these monthly newsletters is posted at the Resources section of homza.com
your cash is flowing. know where.®
Ken Homza
Copyright @ 2026 Kenneth M. Homza