Accounting Questions to Ask
These are accounting questions to ask the person who keeps, prepares or signs off the numbers. They are for anyone who has to rely on a set of accounts without having prepared them: a business owner at a year-end meeting, a manager reading a monthly pack, a small investor, a board member, or a student sitting with an accountant. The 61 questions open with the ones worth asking first, then work through cash, profit, the balance sheet, and tax and records, and end with where the soft numbers are. Each has a note on what to listen for in the answer or what to ask next, and where tax or company rules differ by country the note says so. They are about the figures themselves: choosing an accountant, or interviewing one for a job, is a different conversation.
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The questions
Each question, and why to ask it
Start here
In plain words, what do these numbers say about how the business is doing?
Why ask it
Ask this before any single line. A good accountant can answer in three or four sentences without reading from the page: what was earned, what was kept, what is in the bank and what changed. If the reply is a tour of every heading, ask what they would tell a friend who was thinking of buying the business.
In this business, where does the gap between profit and cash come from?
Why ask it
There is nearly always a gap, and naming it tells you what kind of business you are looking at: stock sitting in a warehouse, customers paying late, or big upfront spending being spread over years. If the answer is that there is no gap, the two figures have probably never been set side by side.
How much do we have to sell each month before the business breaks even?
Why ask it
The answer is one figure built from two: the costs that arrive whatever happens, and the margin left on each sale after its direct costs. Check which costs were counted as fixed, because moving a salary or a lease from one side to the other shifts the figure a long way. Once you have it, each month's sales can be read as so far above or below the line.
Are the books kept on a cash basis or an accrual basis, and is that still the right choice?
Why ask it
Cash basis records money when it moves, accrual when it is earned or owed, and the same month can look healthy on one and poor on the other. Small businesses often start on cash because it is simpler, then outgrow it once they hold stock or give credit. Which methods are allowed depends on the country and sometimes on turnover, so ask what applies to you.
How much should be set aside for tax, and when does each payment fall due?
Why ask it
You want an amount and a calendar, not a percentage quoted from memory. Tax on a good year often falls due after the cash has gone into the next one, which is how a profitable business ends up borrowing to pay it. Whether payments on account or estimated instalments are required differs by country and by type of business, so have the accountant list the ones that apply to you.
If this were your business, what would you change first?
Why ask it
Accountants see inside many businesses, and plenty of clients only ever ask them for a filing. The first thing they name is often small and dull, such as invoicing weekly instead of monthly or dropping the customer who always pays late. If nothing comes to mind, they may only ever have seen your year-end totals, which is a reason to show them more.
Which of the three statements do you look at first, and why that one?
Why ask it
The three are the profit and loss account, the balance sheet and the cash flow statement, and there is no correct order. The reason is the lesson: someone who starts with cash or the balance sheet will usually say that profit has the most judgement in it. Read a set in that person's order once and see what you notice.
Which three or four figures should I be checking every month?
Why ask it
Few people running a business read a full set of accounts every month, so the short list has to fit this one: perhaps cash in the bank, money owed by customers, gross margin and the wage bill. The list only earns its keep if each figure comes with the level at which you should pick up the phone.
How do our margins and costs compare with other businesses like ours?
Why ask it
An accountant with several clients in your trade can say whether your wage bill or your gross margin is out of line, without naming anyone. Published industry averages are rougher, since they mix firms of different sizes and different ways of counting, so find out where a comparison comes from before leaning on it. The same ratio can matter in one trade and mean little in another: stock turnover says a lot about a shop and nothing about a consultancy.
How current are the books, and when was each bank account last reconciled?
Why ask it
A report is only as good as the date the records were last agreed to the bank. Books three months behind cannot tell you whether you can afford something today. Get the date for each account separately, cards and loans included, because the one nobody reconciles is where errors collect.
How often should we go through the figures together, and what should I bring?
Why ask it
Once a year at filing time means every conversation is about a year that is already over. How often is right depends on how fast things are changing and on what each meeting costs: a steady business may need a quarterly look, one that is growing fast or short of cash a monthly one. Agree what arrives beforehand, such as bank statements, unpaid invoices and your own list of questions, so the hour is not spent finding papers.
Cash
What is the quickest way to improve our cash flow from here?
Why ask it
The honest answer is specific to the business and usually comes from a short list: invoice the day the work is done, take a deposit, chase at 30 days instead of 60, hold less stock, or move a large bill onto instalments. Have each idea put as an amount of cash and a date so they can be ranked. Cutting prices to bring money in sooner is the one to query, since it gives up margin for good to fix a problem of timing.
What sits in working capital, and how long is cash tied up before it comes back?
Why ask it
In its simplest form, working capital is stock plus what customers owe, less what is owed to suppliers. The days it takes to turn back into cash are days the business has to fund itself, which is why a growing company can run out of money while profitable. If nobody tracks that as a number, growth is being financed by luck.
If sales stopped tomorrow, how many weeks could we keep going on the cash we have?
Why ask it
It is a blunt measure, and the bluntness is the point: a number of weeks, worked out from the costs that cannot be switched off. No single figure is right for every trade, so the useful follow-up is what they would call thin for a business with your pattern of sales. A seasonal firm should hear the answer for its worst month, not its average one.
Who owes us money, and how much of it is more than 60 days overdue?
Why ask it
A total hides the answer, so have the list printed by age. Old invoices usually belong to a handful of names, and each has a story: a dispute, a missing purchase order, a customer in trouble. A debt nobody expects to collect still counts as an asset until someone writes it down, so check whether that has been done.
Are we paying suppliers earlier than their terms require?
Why ask it
Plenty of small businesses pay bills the day they arrive while waiting two months to be paid themselves. Moving to the agreed terms costs nothing and wrongs nobody, unless a supplier gives a discount for paying early, which can be worth more than holding the cash. Paying late is another matter, since it strains suppliers you may one day need a favour from.
What does the cash forecast show, week by week, for the next three months?
Why ask it
A profit forecast will not show the week when payroll, a tax payment and a quiet month land together. If no weekly forecast exists, that is the finding, and a rough one can be built from the bank statements and the list of bills due. The two things to take away are the tightest week and the balance expected on that day.
If cash ran short, which options would be open to us, and which should be arranged now?
Why ask it
An overdraft, a credit line, invoice finance, longer terms from a supplier and the owner's own money each cost a different amount and take a different time to set up. Borrowing is generally easier to arrange before the need is urgent. An accountant who knows your bank can often say which of them your figures would support.
Can the business afford this hire or this purchase, and how long before it pays for itself?
Why ask it
Bring the real cost, including the parts that are easy to leave out: employer taxes, equipment, training time, maintenance. A useful reply gives a payback period and the extra sales needed to cover it, set against the cash forecast. Be wary of a yes that rests only on last year's profit, since profit already spent cannot pay a new salary.
Profit
At what point does a sale count as revenue?
Why ask it
Order taken, goods shipped, service delivered and cash received can be months apart, and the choice moves the top line between periods. Watch for anything counted well before the work is done: that is the timing an auditor, a lender or a buyer will push back on.
What is the gross margin, and what has moved it since last year?
Why ask it
Gross margin is what remains of each sale after the direct cost of making or buying what was sold, and a small shift in it can outweigh a large saving on overheads. A change has only a few possible causes: prices, input costs, discounting, waste, or a different mix of what sold. If the accountant cannot say which, some costs may be landing in the wrong lines.
Are we charging enough to cover what each sale really costs?
Why ask it
An accountant cannot tell you what the market will bear, but can show what a job or a product costs once labour, materials, delivery and a share of the overheads are counted. Work priced below that figure loses a little more with every sale. Have them run your own numbers on a small price rise, including the case where a few customers leave because of it.
Which products, services or customers still make money once their full costs are counted?
Why ask it
Many businesses have a line that sells well and earns little after delivery, support and discounts are set against it. The books can only answer if sales and costs are coded by line or by customer, so a common first reply is that the records need setting up differently. Better to hear that now, since the coding has to be in place before the year you want to analyse.
Which costs stay exactly the same if sales halve next quarter?
Why ask it
This turns the cost lines into something useful: the fixed base the business has to cover before it earns anything. People often underestimate it, because leases, software contracts and salaried staff are less flexible than a budget spreadsheet suggests.
Which costs have grown faster than sales over the past two years?
Why ask it
Set each cost line beside sales as a percentage for each year and the answer fits on one page. Subscriptions, freight, card fees and agency staff are frequent culprits, because nobody ever approved them as a single decision. A cost rising ahead of sales is not always waste: some of it was spent to win future sales, and the accountant can help you tell which.
What is in other income and exceptional items this year?
Why ask it
These lines are where things get parked, and a recurring exceptional item is not exceptional. Check whether the same category appeared last year, because one-offs that repeat belong with the ordinary running costs.
Is the owner's pay in these figures set at what the job would cost to fill?
Why ask it
A business whose owner works full time for little or nothing reports a profit that would vanish if a manager had to be hired. The reverse happens too, where a large salary hides a healthy business. Anyone lending to, valuing or buying the company will adjust for it, so it helps to know the adjusted figure yourself.
Where did the results differ most from the budget, and was that timing or a lasting change?
Why ask it
A variance that comes from an invoice slipping into next month corrects itself; one that comes from a lost customer does not. Start with the three largest differences in money, not percentages, since a huge percentage on a tiny line wastes the meeting. Having no budget is an answer too, and the same period last year will do as a stand-in.
How much of the growth came from price, from volume, and from acquisitions?
Why ask it
Same revenue increase, three completely different businesses underneath. Growth that is all price may not survive a competitor, and growth by acquisition needs the cost of the deals set against it. In a firm that has bought nothing, split it between new customers and existing ones instead.
What does the trend look like over three years rather than one?
Why ask it
One year set against the last can be thrown by a single large order or a one-off cost. Three years of the same lines side by side show whether margins are drifting or wages are creeping up as a share of sales. If the comparison is hard to produce, find out why: a change of software or of account codes part way through is a common reason, and worth knowing about.
Balance sheet
Which assets on the balance sheet might not be worth the figure shown against them?
Why ask it
Most balance sheet figures start from what things cost, which is not what they would fetch. Old debts, slow stock, goodwill from an acquisition and loans to directors or sister companies are the usual places to look. Have the accountant rank them by size, then ask what evidence supports the largest.
How is inventory valued, and what happens to the numbers if some of it has to be written down?
Why ask it
Stock is normally carried at what it cost, worked out by a method such as first in first out or average cost, and which methods are permitted depends on the accounting rules the business reports under. It stays at that figure until someone decides it will not sell for as much, and the write-down then hits profit in one lump with no cash moving. Slow lines that have never been written down are a deferred problem, not an asset.
How were the depreciation lives set for the largest assets, and when were they last reviewed?
Why ask it
Lives are estimates, and stretching them lifts reported profit without changing anything real. An answer that dates back to a decision made years ago, for assets that have changed since, means the charge may no longer reflect how the assets are used.
Which costs were recorded as assets this year instead of being charged against profit?
Why ask it
Equipment is the obvious case, but software development, a website build and fit-out costs can be treated the same way, and each one lifts this year's profit and lowers later years'. The rules allow it for spending expected to go on earning over several years, within limits that vary between accounting frameworks. A list with amounts, set beside last year's, shows whether the treatment is a habit or a new idea.
What is owed, when is it due, and are there covenants attached?
Why ask it
A comfortable debt figure and an uncomfortable repayment date can sit in the same set of accounts. Covenants are conditions written into a loan, such as a minimum level of profit or cash, and breaching one can make long-term debt repayable at once. Find out how much room there is under each before a poor quarter uses it up.
Is anything owed or promised that does not appear on the balance sheet?
Why ask it
A personal guarantee, a legal claim, a long supply contract, a warranty promise and some leases can bind the business without showing as a liability. They are described in the notes, if anywhere. For an owner the guarantee matters most, because it can reach past the company to their own home.
What has moved between the business and its owners, their families or their other companies?
Why ask it
A loan to a director, rent paid to an owner's property company and sales to a relative's firm can all be legitimate, and all are worth seeing on one list. What you are checking is the price: were these dealings on terms an outsider would have got? In many countries money an owner borrows from their own company has tax consequences, and the accountant will know the rule where you are.
How much have customers paid in advance, and what do we still owe them for it?
Why ask it
Deposits, annual subscriptions and gift vouchers put cash in the bank before the work is done, and they sit in the accounts as a liability until it is. A business that spends that cash as if it were earned can be caught out when the deliveries fall due. The figure worth having is how much of today's bank balance is really customers' money waiting to be earned.
How much profit has been left in the business over the years, and how much has been taken out?
Why ask it
The equity section answers this, and it is a part of the balance sheet that often goes unread. Retained profit that keeps shrinking while trade is good means more is being withdrawn than earned. A negative figure deserves a direct question about whether the company can still meet its debts, and in some places it limits what may legally be paid out, so ask.
Tax and records
Which deductions are we missing, and which of the ones we claim would be hard to back up?
Why ask it
Missed claims tend to be dull: mileage never logged, costs paid from a personal account, a workspace at home nobody thought to mention. The second half gets skipped, yet a claim with no receipt or no business reason behind it is the kind most likely to be refused if anyone looks. What counts as deductible is set by each country's tax rules, so the list has to come from someone who knows yours.
Is the legal form of the business still right for what it earns now?
Why ask it
Sole trader, partnership, limited company, LLC and their local equivalents are taxed differently and leave the owner with different amounts of personal risk. A form that suited the first year can become an expensive one as profit grows. Three things settle it: the level of profit at which the answer changes, what switching costs, and the paperwork that follows every year after.
What is the most sensible way for the owner to take money out of the business?
Why ask it
Salary, drawings, dividends, pension contributions and repayment of money the owner lent are each taxed in their own way, and which are available depends on the legal form and the country. A comparison in figures at your own level of income is worth more than a rule of thumb. The other half of the answer is how much can come out without leaving the business short of working cash.
What has to be done before the year ends that cannot be done afterwards?
Why ask it
Once the year closes, the accounts mostly record decisions already made. Buying equipment, paying a bonus, making a pension contribution or writing off a bad debt can fall into one year or the next depending on a date. Have this conversation two or three months before the year end with estimated figures on the table, and ask which moves change only the timing of tax and not the amount.
Do we have to charge sales tax or VAT, and in which places?
Why ask it
Registration is usually triggered by a threshold, and selling online can create an obligation in a state or country where the business has no premises. The thresholds differ from place to place and change. You need to know how close you are to each limit, who is watching the running total, and what happens if a registration turns out to be overdue.
Are the people who work for us correctly treated as employees or as contractors?
Why ask it
Calling someone a contractor does not make them one. Tax authorities and employment law apply their own tests, often about control, hours and whether the person could send a substitute, and those tests are not the same in every country. If the label is wrong, unpaid payroll taxes can become the business's bill, so raise it before the arrangement has run for years.
If the tax authority asked to inspect our records tomorrow, what would worry you?
Why ask it
Put this way, it gets a more candid reply than asking whether everything is in order. Typical worries are cash sales with no till record, mileage estimated after the fact, and round-number claims with nothing behind them. What triggers an inspection, how far back it can reach and who may represent you all vary by country, so have the accountant set out how it works where you file.
Which records do we have to keep, in what form, and for how long?
Why ask it
The legal minimum varies by country and by type of record, and payroll, sales tax and asset records often carry longer periods than everyday receipts. Whether scans or photographs are accepted in place of paper also depends on where you are. A one-page list from the accountant, kept where the filing happens, prevents both hoarding and shredding too soon.
Is any personal spending going through the business, and how is it being recorded?
Why ask it
It happens in plenty of owner-run firms: a family phone plan, fuel, a holiday booked on the company card. Left unrecorded it overstates costs and can make a tax return wrong, while recorded as money the owner has drawn it is merely untidy. Last year's total tells you whether a separate card would cure most of it.
Who can pay money out, who records it, and who checks one against the other?
Why ask it
When one person raises a payment, approves it and reconciles the bank, an honest mistake and a dishonest one look alike and neither gets caught. A small business cannot split every duty, but an owner can open the bank statements unprompted or approve each new payee. Ask which single check would close the biggest gap here.
Is our accounting software still the right fit, and are we using what it can already do?
Why ask it
Often the trouble is the setup and not the software: a bank feed never connected, invoices typed in twice, stock kept in a spreadsheet beside it. An accountant who works in several packages can say whether to fix what you have or move. If a move is right, find out what history comes across, since some switches carry over the balances but not the detail behind them.
Is the chart of accounts arranged so that the reports answer the questions we actually have?
Why ask it
The list of account codes decides what any report is able to show. Forty codes for office costs and one for all sales says nothing about what sells. Codes are best changed at the start of a year so comparisons stay clean, and the accountant will know which of your questions the present layout cannot answer.
Soft numbers
Which figures in this set are estimates that will be revised later?
Why ask it
Provisions, accrued income and revenue on part-finished contracts are all somebody's best guess, and they will move. Follow up with how last year's estimates compared with what happened. Guesses that keep landing on the same side of the outcome tell you which way to lean on this year's.
Which accounting policy choices here would another company make differently?
Why ask it
Two honest companies can report different profits on identical trading, mostly through revenue timing, depreciation lives and what gets capitalised. Knowing which choices were made is what makes a comparison with a competitor worth anything.
Which entries were posted after the period had closed, and who asked for them?
Why ask it
Late adjustments are normal: an accrual somebody forgot, a correction the accountant spotted. They are also the route by which a result gets nudged towards a target. A list of the final journals with a reason beside each is quick to produce, and reluctance to produce it tells you more than the list would.
Has anything in last year's accounts had to be corrected since they were signed off?
Why ask it
A large correction to a closed year appears as a prior year adjustment or as restated comparative figures, while small ones are absorbed into the current year, so neither is obvious unless you ask. One honest mistake put right is a good sign. The same kind of correction two years running points to a process that is not catching it.
How do the monthly management accounts differ from the year-end accounts that get filed?
Why ask it
Internal reports often split the business differently, leave out group charges or year-end adjustments, or use a measure nobody outside would recognise. The differences are where the arguments happen, and a one-page reconciliation between the two stops you comparing two versions of the same year.
What did the auditors spend the most time on?
Why ask it
Auditors concentrate on the areas with the most judgement or the highest risk, so their attention is a free map of where the numbers are softest. A preparer who was in those conversations will remember them clearly. Where the accounts are not audited, as with many small companies, put the same question to the accountant about their own checking.
What would a lender or a buyer question first in these accounts?
Why ask it
Outsiders read accounts looking for reasons to offer less, so this borrows their eyes. Expect to hear about reliance on one customer, the owner's own role, a run of one-off items, or debts that look slow. Each point named is something you can fix, or at least prepare an explanation for, before a bank manager raises it.
If something in these accounts were going wrong, where would it show up first?
Why ask it
Framed this way rather than as an accusation, it tends to get a straight answer. Trouble often reaches the edges of the accounts before the profit line: suppliers paid a little later each month, a tax payment deferred, an overdraft that no longer clears after payday. Whichever sign they name, have it added to the figures you see monthly.
Which single number would you want to be certain of before relying on this report?
Why ask it
For a builder it might be work in progress, for a shop the stock count, for an agency the income not yet invoiced. Whatever they name, find out how it was checked: counted, confirmed with a third party, or carried forward from last time.
What would you need to see next period to change your view of this business?
Why ask it
A useful answer names a specific line and a threshold, which gives you something to check later. An answer that could not be falsified by any future result was an opinion, not analysis.
Getting useful answers about a set of accounts
Practical guidance for the conversation itself
Before you start asking
Get all three statements, and the notes
A profit figure on its own cannot be checked. The notes are where policies, repayment dates, related parties and contingent liabilities are described, and they are often the longest and least read part of the document.
Take each question to the right person
A bookkeeper can explain how a transaction was recorded. A financial controller can explain policy choices. Only the person who set the assumptions can explain a provision. A question put to the wrong one of them gets an answer that sounds confident and settles nothing.
Say what decision you are making
Lending, buying, hiring and approving a budget need different parts of the same accounts. Stating the decision first lets the accountant point you at the numbers that matter and away from the ones that do not.
Send tax and planning questions ahead
Questions about tax, legal form and what to do before the year end need figures worked out, not a view from memory. Send them a week before the meeting with your own estimate of the year's profit, and ask for the answers in numbers. The rules differ by country and change, so treat the notes on this page as prompts for that conversation and not as the answer.
Where to take an accounting question
Anything about your own figures belongs with the person who prepared them, or with an accountant you engage, because the answer depends on records only they can see. For how a rule works, start with what the tax authority or the standard setter publishes itself. Forums and student communities are good for understanding a concept and poor for a decision about your own facts: the people answering cannot see your books and carry no responsibility for the outcome.
How to weigh the answers
- Take one group of questions to a meeting, not the whole page. An hour covers cash or tax properly, seldom both, and the monthly figures deserve a different sitting from the year-end ones.
- Ask for the arithmetic behind any figure you are told, once. If it cannot be produced, treat the figure as an estimate for now.
- Prefer answers that name a period and a number over answers that name a direction. Improving is not a quantity.
- Watch for the switch from the reported figures to adjusted ones mid-conversation. Adjusted figures are legitimate, but ask which costs were removed and why.
- Compare what you are told with the cash flow statement. Cash is harder to present favourably than profit.
- Write down the estimates you were given and check them against the next set of accounts. How close they turn out is one of the better tests of whether the reporting can be relied on.
Common mistakes readers make
Treating profit as cash
Profit can be reported in a period where nothing was collected, and a business can be short of cash while trading well. The two questions are separate and need to be asked separately.
Comparing companies without checking policies
Different revenue timing or depreciation lives can make one company look more profitable than another that trades identically. Compare the policies before comparing the margins.
Accepting a ratio without its inputs
A ratio can be moved by changing either side of it, and definitions vary between reports. Ask which figures went into the calculation before drawing anything from it.
Reading one year in isolation
A large contract, a disposal or one bad debt can dominate a single year. Three years of the same lines tell you what is habitual and what was an event.
Asking the tax question after the year has closed
Many of the choices that change a tax bill have to be made inside the year they apply to. Raised at the filing meeting, the same question gets a description of what could have been done.