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As CFO and Accountant, I created the books, cleaned the books, and used the books to inform management of their business. To me, a company’s accounting books are sacrosanct. They contain 100% of the company’s financial facts – the truth, the whole truth and nothing but the truth.

Until they don’t.

Lately, I’ve met client after client who maintains several sets of books. Some are not even aware that they are doing it. Here are four reasons why your business may end up with more than one set of books and, if this sounds like your business, what you can do to fix the problem:


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Reason #1: You and your tax preparer are out of sync

Any business that pays income taxes runs the risk of creating a second set of books. All tax preparers, even smart, well-meaning CPAs, make changes to the books they keep for you that will never be reflected in the books you use to run the business. For me, this is a terrible practice.

Let’s take depreciation as a simple example. Tax law has all sorts of things to say about depreciation. It’s only natural that your tax preparer will want to maximize your capital cost allowance each year, and they should. But they should also report any adjustments so your accountant can make the same adjustments.

And depreciation is just one example. A good CPA can find all kinds of errors, adjustments and simplifications. But unless they bring them back in a few simple journal entries – and unless you capture and copy those entries – you’ll end up with two very different sets of books.

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Too often, a company’s management books and tax books drift apart, year after year, until they are so far apart that they are, literally, irreconcilably different.

Why should you care? You should care about this because banks do this and will want you to be able to “tie” your management books to your tax returns. Every time you apply for a loan, they will want to know why there are differences. And the IRS will ask the same question if they ever audit your taxes.

And frankly, YOU should care. Part of running a business is optimizing tax impact and if your management books diverge from the numbers you report for taxes, you will find it difficult to plan accurately. Additionally, you may find yourself in a situation where only your tax professional knows the real numbers and how to calculate them…a dangerous situation for many reasons.

What to do with met: To resolve this issue, you will need to obtain the adjustments from your tax preparer. Then ask your accountant to make the same adjustments using a “13-period year.” Each month is a period (it’s 12!), and the last day of the year is period 13 itself. The last period should include all tax adjustment entries so that on December 31 your books look like the tax return. Be careful to postpone ONLY the tax adjustments to December 31 in order to maintain your operating results over the first 12 periods.

If this seems to mess up the way you like to see your books, just run your reports for the year without the tax adjustments (i.e. Jan 1-Dec 30 only). Note: Do NOT let your accountant “reverse” the New Year’s entries without consulting the tax preparer, as this may eliminate the changes and return you to where you started: with two diverging sets of books.

Reason #2: You keep a second set of books just to comply with GAAP

Like their tax preparation cousins, some particularly strict CPAs will insist that your books be GAAP compliant. GAAP, or generally accepted accounting principles, uses a book full of rules that dictate how income and expenses are recorded.

Why should you care? Although GAAP is very useful for public companies, it is neither a requirement nor a best practice for most small businesses. A number of CPAs will probably send me angry comments about this advice, but I strongly believe that you should craft your own books in a way that makes sense to you. As long as you follow basic accounting principles, you are free to make your financial statements tell you what you want. And if it’s against the intricacies of GAAP, no one should care.

What to do about it: No matter how you hold your books, do NOT let someone else hold a second put simply to comply with GAAP. It’s a waste of resources and will probably only serve to confuse you. If you’ve ever fallen victim to an overzealous accountant, my advice is to just stop. Stop spending money on separate GAAP reports and find a new accountant who will give you the tools and guidance you need to run the business with the one set of books you have.

Reason #3: You have security issues

Some executives and business owners believe that keeping certain records “off the books” will prevent staff from seeing sensitive financial details (like payroll, benefits, or ownership details). Bullshit. Once an executive starts keeping spreadsheets or, as I’ve seen in the past, filling out QuickBooks files filled with “secret” details, the integrity of financial reporting disappears. (And unnecessary complexity sets in!)

Why should you care? Keeping a second set of books will always lead to errors, duplicate data entry, and a general lack of clarity and accuracy. Your books should be clean, clear and complete. You shouldn’t have to go through three spreadsheets and two QuickBooks files to find out if you made a profit this month!

What to do about it: Let go of the reins a little. If there isn’t a single person in the company you can trust to keep the books honestly and with a full and clear view of expenses, then try outsourcing your bookkeeping to a reputable company. As an added benefit, you may find that when you stop doing extra bookkeeping work yourself, you’ll have more time to focus on much more important tasks.

Reason #4: You are using too much software

Having a single set of books means having only one software at the heart of the accounting process. Unfortunately, some companies use an ERP system that, for example, issues invoices but does not track receipts or deposits. Or they have a point-of-sale (POS) system that tracks inventory quantities but doesn’t report cost of items sold. There are a hundred stories like this: multiple systems in a company that don’t integrate tightly. Be careful!

Why should you care? Any time you have two systems running the business, you’ll end up with two sets of books that can never be put back together. Each may be correct and tell part of the story, but you’ll miss the granular details that come from combining all your data in one place, such as customer profitability, detailed cost of goods sold, or yearly turnovers. stocks.

What to do about it: This is the trickiest problem on our list. If you have multiple people and multiple software platforms each producing part of the financial picture, it is imperative that you work towards closer integration. Fortunately, there are often technological solutions: synchronization tools and cloud platforms that bring together multiple data streams. However, if your systems aren’t working together, it might be time to delete them and start over.

It’s time to get together

No matter why you have multiple sets of books, now is the time to do something about it. Commit to having a set of clear, concise and complete accounting documents as soon as possible. There’s simply no other way to find out what you need to know about your business: the truth, the whole truth, and nothing but the truth!

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Read all of David Worrell’s articles on AllBusiness.com.