Once a month, check four lines of your balance sheet: what customers owe you, what you owe suppliers, advances you have paid to suppliers and advances customers have paid you. Between them, they show the money, goods and work still to change hands between you and your customers and suppliers. For each one, ask two questions. Does the balance agree with a list you can see, customer by customer or supplier by supplier, on the same date? And is anything on that list old, on the wrong side or unexplained? Whatever fails either question goes to your accountant as a question. You are not expected to correct the entries yourself.
The four lines in plain words
- Debtors: customers who owe you money. Your accountant's balance sheet may call this "Sundry debtors".
- Creditors: suppliers you owe money to, sometimes shown as "Sundry creditors".
- Advances paid to suppliers: money you paid before the goods or service arrived. It is waiting for a delivery.
- Advances received from customers: money a customer paid before you did the work. It is work you still owe.
Ask your accountant which lines in your balance sheet correspond to these four, and to send the customer-wise and supplier-wise lists behind them, all at the same date.
The check, line by line
| Line | It should agree with | What to look for on the list |
|---|---|---|
| Debtors | Your list of unpaid customer invoices | A difference between the two totals; a customer with a credit balance |
| Creditors | Your list of unpaid supplier bills | A difference between the two totals; a supplier with a debit balance |
| Advances paid to suppliers | A list of each advance: date, supplier, purpose, what it is waiting for | Advances with no bill or delivery for months |
| Advances received from customers | A list of each advance: date, customer, the order or work it relates to | Advances you cannot match to any order |
Debtors. Compare the balance with the total of your unpaid-invoice list. If they differ, find out why before reading further down the list. Following up individual overdue invoices is a separate routine.
Creditors. Compare the balance with the total of your unpaid-bill list. Then look for any supplier whose balance is on the wrong side. Normally a supplier's balance shows what you owe them; a debit balance means the books show you have paid that supplier more than the bills recorded. That can be an advance, a payment made twice or a bill not yet entered. Each has a different answer, so treat it as a question, not a correction.
To check one supplier's balance, compare it with the supplier's statement.
Advances paid to suppliers. For each one, note when it was paid and to whom, what it was for and what it is waiting for. If one has not moved for months, ask whoever placed the order: has the supplier delivered and the bill simply not been entered, was the order cancelled so the money is due back, or is the work still in progress? Send what you find to your accountant. Whether an old advance should be recovered, adjusted or handled in another way is their decision.
Advances received from customers. For each one, note the order or work it relates to and how much of that work you still owe. If you cannot match an advance to any order, first find out who paid and for what. How an advance is recorded, and when it stops being an advance, is for your accountant to decide.
Other balances worth a question
None of these is necessarily wrong, but each needs an explanation:
- A customer with a credit balance: the books show they have paid more than you have invoiced. It may be an advance, a receipt recorded against the wrong customer or an invoice not yet entered.
- Suspense or "unidentified" lines: money that came in or went out before anyone knew what it was for. Ask what is in the line and what your accountant needs from you to clear it.
- The same customer or supplier listed twice under slightly different names, with a balance on each.
For each one, write down the name, amount, date and what you already know.
Worked example: an event-management company at 30 September
Illustrative example: a fictional event-management company in Pune. The business and figures are invented.
The owner asks the accountant for the 30 September balance sheet and the customer-wise and supplier-wise lists behind it.
| Line | Balance or item | What the list or evidence shows | Question raised |
|---|---|---|---|
| Debtors | ₹8,40,000 | Unpaid-invoice list totals ₹8,15,000 | Where is the ₹25,000 difference? |
| Creditors | One supplier with a debit balance of ₹12,000 | No advance agreed with this supplier | Was a bill paid twice, or is a bill missing? |
| Advances paid to suppliers | ₹60,000 to one supplier, paid in March | No bill or delivery recorded since | Was anything delivered? If not, is the order still live? |
| Advances received from customers | ₹1,00,000 from one customer | Linked to a project starting in November | None: the project is work still owed |
- Debtors: ₹8,40,000 − ₹8,15,000 = ₹25,000. The owner does not try to explain it on the spot; it goes to the accountant as a question.
- The ₹12,000 debit balance: since no advance was agreed, the owner searches the bank statement for payments to that supplier and asks whoever handles bills whether a recent bill is waiting to be entered. The findings go to the accountant as facts; the ₹12,000 stays a question until they reply.
- The ₹60,000 advance: paid in March, unmoved for six months or more. The owner asks the person who placed the order what happened and sends the answer to the accountant.
- The ₹1,00,000 customer advance: nothing is wrong. The company has been paid ₹1,00,000 towards a project it has not yet started.
The four items sit on different lines and are checked against different lists, so their amounts are never added together.
What to send your accountant
Send one short note, with the same headings each month:
Balance check: [Business name], balances at [date]
1. Debtors: balance [₹], list total [₹], difference [₹]
2. Creditors: balance [₹], list total [₹]; suppliers with a debit balance (name, amount, what we found)
3. Advances paid to suppliers: any with no movement (supplier, date, amount, what we found)
4. Advances received from customers: any with no matching order (customer, date, amount, what we found)
5. Other balances: customer credit balances, suspense lines, duplicate names
6. Questions for you
Keep every heading, and write "None" under any with nothing to report, so your accountant can see that line was checked rather than skipped. Stick to what you found, and leave how it should be recorded to your accountant. If you already keep a running list of questions with your accountant, add these to it.
Doing the check on the same day you look at the month's profit and loss, with balances at the same month end, keeps the two reviews together. In the first month you may have to build the advance lists from scratch; after that you are only updating them.
Discuss your balance review in a demo
If you would like to talk through how you check customer, supplier and advance balances each month, and ask whether FastComply Books currently supports that routine for your business, request a demo and choose "Book a demo" on the form. FastComply Books is in an invitation pilot in India, so the demo is where we confirm what is available for your business.
