The Balance Sheet Sweep Before the Accountant Arrives

At the end of this sweep, every balance sheet account carries one of three words: supported, rebuildable, or unknown. Not “reconciled”. Reconciled is a description of a process that was performed, and a great many accounts have been reconciled every month for years while remaining completely unsupported, because the reconciliation compared the ledger to a spreadsheet that the same person maintained.

The distinction is the point of the whole exercise. This is a completeness sweep, not an accuracy one. Accuracy asks whether the number is right, which is a question the person who built the number can usually answer and is usually the wrong question. Completeness asks two different things: is everything that belongs in this account actually in it, and is everything in it supposed to be there. Those two are what an outside reader tests, and they are the two nobody inside the company has been asked in eleven months.

This is the work a close remediation spends most of its time on, and running it in the weeks before the year end rather than after it matters for one reason that has nothing to do with tidiness. Before the cut, an unknown balance has runway. Somebody can telephone the supplier, open the filing cabinet, ask the person who left. After the cut, the same unknown has no runway, so it gets written off or carried forward, and both of those are decisions taken by a calendar rather than by a person. Where this sits in the quarter is set out in the ninety days before year end.

The three verdicts

Verdict	What it means	What it costs you
Supported	A document that did not originate inside your ledger agrees with the balance, and it is filed where somebody else could find it	Nothing further. Note the reference and move on.
Rebuildable	No supporting schedule exists, but the underlying records do, and a named person could construct one in a stated number of days	The stated number of days, booked into a specific week. A rebuildable account with no date against it becomes an unknown in about a fortnight.
Unknown	Neither the support nor the records to construct it exist, or they exist and do not agree, or nobody can say what the balance represents	An escalation, with a name, a decision route and a deadline. This is the only verdict that leaves the finance function.

Two rules keep the verdicts honest. A schedule maintained by the person who posts the entries restates the entries rather than supporting them, so if the only evidence for an account is that spreadsheet, the verdict is rebuildable at best. And “the balance has been the same for three years” is not support either. It is usually the strongest available evidence that nobody has looked.

The number of accounts on the unknown list is the actual output of this sweep. Everything else is bookkeeping. A company that finishes the sweep with four unknowns, each with an owner and a date, is in good shape whatever the amounts are. A company that finishes with none has almost certainly not run the sweep, because a real balance sheet at this size has some.

Cash, debt and the accounts that settle themselves

Start here. These accounts are the ones where outside evidence exists whether or not you asked for it, so they are quick, and they establish what “supported” actually looks like for everybody working through the rest.

Account	What supported means	Where it goes wrong
Every bank account, including the dormant one	A reconciliation to the statement, with the outstanding items listed individually and each of them subsequently cleared	Stale outstanding cheques carried forward for years because nobody will decide what to do about them. Also the account nobody reconciles because it barely moves, which is the one most likely to be carrying something.
Corporate cards	Statement reconciled and every line carrying a receipt and an approval by someone other than the cardholder	The card treated as a payment method rather than an account, so the balance is whatever the feed produced
Term debt and equipment financing	The lender’s own amortisation schedule, showing the principal balance at the date and the split between the current and long term portions	Interest and principal posted as one amount to one account all year, which is quick to fix now and slow to fix later
Operating line	Statement, plus a check that the drawn balance is presented correctly rather than netted against cash	Netting, usually by accident
Sales tax accounts	Filings for the year reconciled to the account balance, with any difference identified rather than plugged	A rolling difference that grows each period because a prior adjustment was never traced
Payroll liabilities	Remittance confirmations reconciled to the payroll register, not to the ledger accrual	Reconciled to itself

The sales tax and payroll rows are the two where a difference is worth investigating properly even when it looks small. Both accounts settle against an outside party on a schedule, so a persistent difference in either means something upstream is producing an error every period, and the balance is only the visible part of it.

The accounts that need somebody outside finance

This group is where the sweep stops being bookkeeping. Every account here needs a judgement from a person who is not in the finance function, and the sweep’s job is to get them the question early enough to answer it properly.

Account	The evidence	The question, and who owns it
Trade receivables	Aged listing agreeing to the control account, plus receipts after the date against the older items	Which of these is actually collectable. The person who owns the customer relationship owns this answer, not the bookkeeper. Ask for it in writing.
Deposits paid to suppliers	The purchase order or contract, and confirmation from the supplier that the deposit is still held and still applies	Is the thing we paid for still coming. Operations owns it. This is the account that most often contains something the company has already lost.
Prepaid expenses	A schedule showing opening, additions, the amortisation basis and closing, per item	Does each item still relate to a future period. Whoever bought it knows.
Inventory	Count records, the costing basis, and a review of anything slow moving	Is it saleable above cost. Operations owns it and finance cannot answer it.
Work in progress and unbilled revenue	The contract, the delivery record, and the basis for the amount	Has this been earned, and if so why has it not been invoiced. Delivery owns the first half, sales the second.
Customer deposits and amounts billed in advance	The contract terms and the delivery status, per customer	Same question from the other side. This account is read closely by every outside reader, every time.
Accrued liabilities	A schedule naming each accrual, its basis, and the invoice or event it anticipates	Is anything missing. This is the only completeness question on the liability side that anyone can actually act on, and it is answered by asking department heads what they have received and not yet been billed for.
Capital assets	A register that ties to the control account, with additions matched to invoices	Does it exist and is it still here.
Lease and long term commitments	The signed agreements, all of them, found by searching rather than by asking	Which of these exist at all. Discovery is the hard part.

The accrued liabilities row deserves more attention than it usually gets, because it is the only place in this sweep where the risk is something that is not on the balance sheet at all. Every other row asks whether a balance is right. That row asks whether a balance is missing, and the way to answer it is not to review the account. It is to walk round the company asking four or five people a single question: what have you received, or agreed to, that we have not been billed for yet. Do it in the sweep and it is a conversation. Do it after the cut and it is a query.

The shareholder account

Its own section, because at this size it produces more year end work than any other single account and because the sweep is the only chance to deal with it while it is still small.

The requirement is unglamorous: every movement, individually, with what it was. Not a monthly total, not a year end balance that agrees to something. A line for each transaction with a description that a person outside the company could read. It gets read that way every time, by everybody, in every kind of engagement, and a single lumpy balance guarantees a slow week for whoever has to take it apart afterwards.

Two things make this account harder than it looks. Payments made directly from a personal account or a personal card on the company’s behalf usually reach the ledger late and in a batch, so the detail behind them is a memory rather than a record. And amounts moving the other way frequently have a tax character that the company cannot determine on its own. Sort the first one yourself, during the sweep, while the person can still remember. Send the second to your accountant with the detail attached, because that determination is theirs and it has a lead time.

The same discipline covers transactions with any related entity or related person. List them, all of them, including the ones that felt too small to mention and the ones that were never invoiced. Those two categories are where the discovery happens.

Suspense and clearing

These should be nil. If they are not, you have a project rather than a sweep item, and it belongs to a separate piece of work with its own sequence: clearing a suspense account walks one through.

What matters for the sweep is only this. Do not net a suspense balance against anything, do not carry it forward on the grounds that it is immaterial, and do not describe it in the file as an item to review, because that is what last year’s file said. Give it a verdict like every other account and let the verdict be unknown if that is what it is.

The escalation route

An unknown that stays inside the finance function is not an escalation, it is a note. The list has to reach somebody who can spend money, release a claim or accept a loss, and it has to reach them with the work already done.

Type of unknown	Who decides	What they need from you
A receivable that may not be collectable	Owner, with the person who owns the customer	The aging, the receipt history, what was last said and by whom, and your recommendation in one sentence
A deposit or prepayment whose counterparty may be gone	Owner	The contract, the last contact, and what recovery would involve
A balance whose accounting treatment is genuinely uncertain	Your accountant	The documents, the amount, the history, and the specific question, sent as a question rather than as an attachment
A difference in a statutory account that will not reconcile	Your accountant, with the bookkeeper	The reconciliation as far as it goes and the period the difference first appeared
A balance nobody can explain at all	Owner, then your accountant	Everything you tried, so the next person does not repeat it

The third and fourth rows are where companies most often go wrong in the same way. They send the file rather than the question, and the reply is a request for the question. Write the question in one paragraph, attach the evidence to it, and say what you propose. A proposal that is wrong gets corrected in a sentence. No proposal at all gets a meeting.

What the sweep produces

Three things go into the year end file, and nothing else needs to.

A one page verdict list: every balance sheet account, its verdict, its evidence reference. A supporting schedule for every account marked supported or rebuilt. And the escalation list, with what was decided against each item, by whom, and on what date.

If the company is heading into a first review engagement, those three documents also answer a large part of the request list before it arrives, which is the cheapest week of preparation available to anyone.

That third document is the one that matters twelve months from now. Next year’s sweep starts by reading it, and the accounts on it are the accounts to look at first, because the reasons an account was unknown rarely go away by themselves.

What we do not do

We do not perform audits, reviews or compilations. This firm builds and runs finance operations. The sweep exists so that whoever does perform your engagement finds a company that has already answered their questions, and it is not a substitute for that engagement in any respect.

We do not write off a balance on a client’s behalf. We assemble the evidence, we state a recommendation and we say what we think, and the decision belongs to the owner and, where the treatment is not obvious, to the accountant who reports on the statements. A write-off is a decision with consequences beyond the ledger, and a finance function that makes it quietly has taken something that was not offered.

We do not accept a spreadsheet maintained by the same person who posts the entries as support for the account it describes, however carefully it is kept.

And we do not mark an account supported because it agrees to last year. Last year is not evidence. It is the same unanswered question, one year older.