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We use a number of cloud-based software packages for our clients and I have noticed a rather potentially dangerous problem with some of the reporting. ClearBooks and FreeAgent both have reports that calculate the retained profits available for distribution, however, it is not possible to change the dates of these reports so as to include only the period for which the bookkeeping has been completed.
Most of our clients enter the own sales on a daily basis, but we, naturally, turn around the remainder of the bookkeeping for most clients on a monthly basis - i.e. the purchase ledger, depreciation, other book entries, tax provision and bank recs etc etc.
So, for example, were we to look at one of these reports today, it would include all the sales that have thus far been made in December, but not yet include any of the expenses (and in some cases we may not yet have had November's records from some of our clients). Hence, the profit, and therefore available reserves for dividend distribution are overstated.
Naturally, since I have been aware of this problem we don't rely on the reports that "calculate" the dividend but rather look at the balance sheet taken as at the last date when the bookkeeping was completed up to. As at today, the reality for most of clients would mean that date would be either 31st October or 30th November (depending on where we are with the bookkeeping).
But you can see how these reports are surely quite dangerous? There is the potential there to declare and illegal dividend if all the retained profit is distributed before all expenses and liabilities are recorded.
I can't believe I am the first person to have noticed this? Or am I missing something?
Would love to hear others' observations and thoughts.
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