A little terminology first...

A Balance Sheet (also known as Statement of Financial Position), comprises Assets (what you own), less Liabilities (what you owe) to give a Net Assets figure.  The Net Assets represent Owners Equity, or what's left over for the owners of the company at a point in time.

The Income and Expense report is also referred to as the 'Statement of Financial Performance'; 'Income Statement'; 'Profit and Loss'; or 'P&L'.  It is the Income less Expenses and equals a profit or a loss over a period of time.

The tyranny of the BAS: "What doesn't kill you makes you stronger" (or some such nonsense)

In Australia, we business owners have the delightful Business Activity Statement (BAS), which must be submitted to the Australian Taxation Office (ATO) monthly or quarterly.  It is a mechanism to collect a range of taxes.

The introduction of the BAS in 2010 meant that business owners who might have previously only tackled their P&L report annually before visiting their tax accountant, had to prepare their P&L at least quarterly.

That's great that the BAS creates a good habit around the P&L, but where does that leave the Balance Sheet?  In a mess, I contend!  I would go further and say that, in my experience, most Balance Sheets are not worth looking at because they are riddled with errors and omissions.

The only bit that might be OK are the bank accounts in the Current Assets section and credit cards in the Current Liabilities section because the bookkeeper usually reconciles these as part of the BAS preparation.

Why bother?

So why bother with the Balance Sheet?  Why even care about it? Answer: because you want to be ready to pounce on opportunities like:

• using it as a tool to better control your finances;

• attracting investors to your business;

• impressing bankers when applying for loans;

• valuing the business;

• reporting to stakeholders.

And if you have the pleasure of being audited every year, the auditors will be all over the Balance Sheet like a dog with a bone, probing and asking questions.  Also, Cash Flow Forecasts depend on the accuracy of both the P&L and Balance Sheet.

A Current Liability is money that's supposed to be paid out within the next 12 months.  The Current Liability called Superannuation Payable  is special because of the laws around superannuation.  You can't just write off amounts if you find an error - that will bring you all kinds of grief.

How does the Superannuation Payable account work?

Every time an employee is paid, the Superannuation Expense increases on the P&L, and the obligation to pay that money to the employee's super fund goes up by the same amount over on the Balance Sheet in the Super Payable account.  The amount of the Superannuation liability piles up over time until it is paid to the employee's super fund.

It's all about dirt...

Imagine you're digging a hole and piling up the dirt.  Each spadeful is a payrun and the pile of dirt (super liability) mounts up.  When you start a new period (usually monthly or quarterly), start a new pile of dirt.

After the end of period, the truck comes and collects the dirt and takes it away to the super fund.  It should take the right pile of dirt and it should take the whole pile of dirt, no more, no less.  When you make the payment to the super fund, the bank account goes down, and the Superannuation Payable  goes down by the same amount.

How to check the Super liability figure

Ask your bookkeeper/accountant (or yourself), to run a report which produces a list of what is due to be paid to each of the super funds and add it up.  The total should match the Superannuation Payable line on the Balance Sheet, dated the corresponding period.  It should look like this:

Find and correct errors

1. If there is a difference between these two figures, the error is probably caused by the truck, i.e. there's an error in one of the payments to the super fund.

2. Your bookkeeper will have to find the last time the account matched the payment, then work forward to find the error.  It's quicker to go back to the start of your financial year.  If that doesn't match, go back to the year before that until it is found.

3. Once you have a starting point, it will be relatively easy to find the error.  And the error will be an under- or over-payment to one of the super funds.

4. Once the amount of the error and which employee and super fund it belongs to is ascertained, include that manual adjustment in the next payment.  That will ensure that the liability account is once more correct.

5. A helpful report is the General Ledger Detail report (MYOB) or the Account Transactions report (Xero), customised for the Superannuation Payable account.  It shows the Opening Balance, the Closing Balance, and all the movements in between.

How to stop this happening again

1. Ask the responsible Team Member to present you with reports that will demonstrate that the payment will match the liability, before you sign off on the payment.  I usually use a Super Accrual by Fund Summary and compare the total to the Super liability account on the Balance Sheet, as in Illustration 1 above.

2. Automation of super payments helps a lot, because the postings to the General Ledger are automatically calculated.  For example, MYOB's M-Powered Super, or Xero's AutoSuper.

3. Even with all the automation in the world, it still doesn't hurt to do a quick manual check.