Guide 07 · Controls
Who owns each balance sheet line
The account that is wrong is almost always the account nobody owns. Assign every balance sheet line an owner, a support schedule and a frequency, and the problem accounts stop being discoveries and become scheduled work.
Why the balance sheet, not the P&L
P&L errors are loud. Somebody notices that supplies expense doubled, asks about it, and it gets fixed. Balance sheet errors are silent: an account sits at a wrong number for years, nobody looks at it because it does not move, and it only surfaces in diligence — at the worst possible moment, in front of the worst possible audience.
There is also a mechanical reason to review it first. Every P&L error eventually lands on the balance sheet. If every balance sheet line is supported, the P&L is constrained to be right; the reverse is not true. Review the balance sheet and the P&L largely reviews itself.
The account inventory
One row per balance sheet account. Not per account group — per account, because grouping is exactly how an account gets lost.
| Account | Owner | Support | Frequency | Expected |
|---|---|---|---|---|
| Operating cash | Controller | Three-way bank proof | Monthly | Reconciled to zero difference |
| Merchant clearing | Controller | Clearing proof per processor | Monthly | Last 1–3 days of batches |
| Patient AR | Billing manager | PMS ageing, tied to GL | Monthly | Agrees to ageing total |
| Insurance AR | Billing manager | PMS ageing by payer | Monthly | Agrees to ageing total |
| Prepaid expenses | Staff accountant | Amortisation schedule | Monthly | Rollforward ties |
| Fixed assets & accumulated depreciation | Controller | Asset register | Monthly | Rollforward ties to register |
| Accounts payable | AP clerk | Open payables detail | Monthly | Agrees to subledger |
| Payroll liabilities | Controller | Liability rollforward | Per run | One cycle or zero |
| Accrued expenses | Staff accountant | Accrual schedule | Monthly | Reverses next period |
| Patient credit balances | Billing manager | PMS credit report | Monthly | Refundable, aged |
| Intercompany | Controller | Intercompany matrix | Monthly | Group total zero |
| Notes payable | Controller | Amortisation schedule | Monthly | Ties to lender statement |
| Equity & distributions | Controller | Equity rollforward | Quarterly | Ties to agreements |
The first time you build it. The exercise of assigning an owner to every account is what surfaces the five or six accounts nobody can explain — and those are reliably where the problems are.
What counts as support
Support is a document that proves the balance from outside the ledger. The ledger agreeing with itself is not support, and this is the distinction that separates a real reconciliation file from a folder of printouts.
Support
A bank statement. A lender's amortisation schedule. The payroll provider's liability report. An AR ageing from the PMS. A carrier invoice. An asset register with invoices behind it. Something a third party produced, or a schedule that rolls forward and ties.
Not support
A printout of the account's own GL detail. A trial balance. "It's always been that number." A spreadsheet whose opening balance was typed in from the ledger it is meant to be proving.
For schedule-based accounts — prepaids, accruals, fixed assets, notes, PTO — the support is a rollforward: opening, additions, reductions, closing, with the closing figure agreeing to the ledger. A rollforward is self-proving in a way a point-in-time listing is not, because it also explains the movement, which is the question anyone will actually ask.
+ Additions this period, with source
− Reductions this period, with source
= Closing balance = general ledger
Setting frequency honestly
Not every account needs monthly attention, and pretending otherwise produces a schedule that gets abandoned in month three. Set frequency by risk and by how much the account moves.
| Frequency | Which accounts | Why |
|---|---|---|
| Per transaction cycle | Payroll liabilities | Statutory exposure; trivial now, hard later |
| Monthly | Cash, clearing, AR, AP, accruals, prepaids, intercompany | High volume or feeds the close chain |
| Quarterly | Fixed assets, notes payable, equity | Low volume, high value, documented movements |
| Annually | Dormant accounts, long-term deposits | Confirm they are still dormant and still correct |
The annual review is not optional busywork. A dormant account is dormant until something posts to it by mistake, and nothing catches that except a periodic look. Two accounts reviewed properly once a year beats twelve accounts reviewed nominally every month.
The usual suspects
Anything named "suspense" or "clearing"
If it is not required to return to a known balance, it becomes the place unexplained differences go. Give every clearing account an expected balance, or close it.
Patient credit balances
A real liability, frequently netted against AR so the gross figure is invisible. Overpayments owed back to patients or payers do not become revenue because time passed, and in several states they carry an escheatment obligation.
Owner and related-party accounts
Draws, loans, personal expenses run through the business. These are where diligence looks first and where documentation is thinnest. Maintain a schedule even when nobody is asking for one.
Accrued PTO
Almost always stale, almost always understated, because it is not recalculated after raises. Hours outstanding times current rates, every month.
Fixed assets nobody has walked
Equipment disposed of years ago still depreciating, leasehold improvements at a location that closed. The register needs a physical check periodically, not just arithmetic.
A deferred or unearned revenue balance that never moves
Prepaid treatment plans and membership programmes have to be recognised as delivered. A static balance means recognition is not happening and revenue timing is wrong in both directions.
Running the monthly review
Day four of the close, before the P&L. Work down the inventory, confirm support exists and ties, and write the exceptions on one list with an owner and a date.
- Every account on the inventory has current-period support attached
- Every rollforward's closing balance agrees to the trial balance
- Every account with an expected balance of zero is at zero, or the residual is named
- Material movements since prior month explained in a sentence, not just displayed
- Exceptions carried forward have an owner and a target date, and are shrinking
- Reviewer sign-off separate from preparer, both dated
Pick a balance sheet account at random and ask for the support. If it arrives within a few minutes and ties, the discipline is real. If it has to be built first, the account was not reconciled — it was simply present.
What this is really for. A supported balance sheet is the difference between a diligence process that takes three weeks and one that takes three months, and between a lender conversation you lead and one you survive. It is the least glamorous work in finance and the highest-leverage.