13. Daily Account Balances

In the preceding post, the production of a trial balance on a daily basis was proposed. By simply using the power of the computer to add a few numbers together, a complete trial balance should be available as soon as the business transactions are recorded. It was also shown how to-date earnings and other information could be produced at little or no cost from this trial balance.

A trial balance, however, has the formality of being part of the official quarterly report preparation process and, since we are just trying to get critical information quickly to the company’s executives, we get dispense with formalities and just talk about producing real information on a real-time basis. Balance sheets, trial balances, and income statements aren’t as important as the information contained in them, and we can produce that information as easily as the dashboards in our car produce current information about speed and mileage. There is no reason why every detail of a company’s financial data could not be made available to corporate leaders on a daily basis.

The general ledger is made up of accounts; each account has entries in it that represent deposits (debits) or withdrawals (credits); and each account has a balance that represents the sum of the deposits and withdrawals. The account balances of the general ledger are really all that is needed to easily produce the information found in the formal GAAP reports.

Because this is the twenty-first century, we can assume that the general ledger is automated and that the entries in each account are recorded by a program. As easy as it is for the program to record the entry, it can also keep the running balance of the account, adding a ten dollar debit entry could automatically update the running balance ten dollars in the debit direction. An automated running balance means that the balance of every account in the General Ledger (representing all of the financial data in the company) is available to us as quickly as the data is posted.

This means that for any company large enough to have its bookkeeping on a machine of laptop power or greater, the account balances should be always available. The account balances are the details of the trail balance that was discussed in the previous post, so we are essentially where we were in the previous post, having the ability to present all of the critical GAAP quarterly report information to executives on a daily basis (see previous post).

More essentially, it can be shown that if we have the account balances available to us, it is simply a matter of grammar school arithmetic to produce totals of assets, liabilities, revenues, expenses, and earnings (revenues less expenses).

Quarterly reports can be converted into real-time dashboard information by simply performing trivial arithmetic on the ledger account balances that should be available and current at any point in time. Greater sophistication can be made real-time by making accrual entries daily (this will be the subject of a later post).