How Good is Your Analysis?

With Making Tax Digital (MTD) approaching, many practices will have looked to update their accounts software, or perhaps they want to make their current system work better for them. This often leads to questions from our clients about how best to categorise the various types of transactions that occur. For the most part, the headings in your annual accounts is a good place to start, but there are benefits to be had from breaking some of these categories down further. It can help with year on year analysis by breaking a high volume of transactions into more manageable chunks. It also allows you to have more clearly defined categories which can aid consistency.

Let’s take shredding costs as an example. I have seen this grouped with stationery, refuse, maintenance and cleaning costs amongst others. All these options have validity, but that also means that where the input goes is at the discretion of the user at that time. Where this is only an occasional expense, this should not cause too many problems, however, with GDPR, shredding has become a more prolific occurrence, so may be a good candidate for a separate category.

Breaking down categories with a high volume of transactions can simplify analysis by making them less cluttered, but having too many categories will become difficult to manage and will not produce meaningful results.

So, what are the factors to consider?

Regular payments - where payments are made monthly for instance, keeping them separate makes it easier to check for any missing ones.

Significant amount - if the sum of the transactions is quite small, then there is no real benefit in having a separate category.

Identification - if you are never quite sure where to put something, then naming your own category is an easy way to rectify this.

One-off or recurring - with one-off payments (usually income), it is usually easier to put to a category specifically used for such items, but always remember to include as much relevant details in the referencing and notes as possible so that it can be easily identified later.

The unknown - again, this will usually apply to income. The temptation will be to put this in with the one-off items, but these should be put to an “Unidentified” heading of their own. That way, you can easily review these at a later date and it also lets your accountant know which items need investigating.

Review reports - you should review the nominal ledger and/or analysis reports to check for inconsistencies and if there are areas that need streamlining.

Report structure - before adding categories, consider what type it is (e.g. income, overhead, asset, etc.) as this will impact on the reports it produces. An easy option can be to edit a pre-existing category and then all you need to do is to change the category title. Obviously, you would need to select one of a similar type and one that you have no plans to use.

Refunds and reimbursements - any refund of a cost should be allocated against the cost so no separate heading for refunds should exist. Reimbursements from the NHS should each have their own separate heading.

Consistency - one of the most important things to remember is to be consistent with where you finally decide to analyse an item. It may be useful to keep a list of where you analyse less common receipts and payments.

By tailoring your system to work better for you, it cannot only help with day-to-day transactions, but also enable you to produce better quality accounts. This will make the end of year process smoother for all parties concerned, so do not hesitate to contact us if you are unsure about any of this, or need further guidance.