The financial statements of every business are critical to understanding the financial health of a company. Additionally, these month and year-end checklists allow business owners the ability to make solid financial decisions on a consistent basis. The details of all transactions should be accounted for in these reports which will allow an owner to efficiently manage their business. Understanding the month and year-end checklist, and why they are so critical can help you ensure your business operates as effectively as possible.
Benefits of the Month End Checklist
The month-end closing is a process and procedure taken by accountants or business owners at the end of the month to “officially” close out the accounting records for that month. Having a checklist will detail every schedule or custom-designed need regarding the specific financial needs of a company regarding their month-end procedures. There are several benefits to the month-end checklist for business owners including the following:
Reduction of Accounting Mistakes
Depending on the amount of financial reporting that needs to be done on a monthly basis, the creation of accounting reports can reduce the potential for omissions or errors. In some cases, these errors or omissions are legitimate, which is why a month-end reporting and checklist are so critical. If an accountant fails or simply forgets to note a transaction, this error or omission could result in large financial challenges at the end of the month or quarter, specifically when an owner is making an attempt to evaluate how profitable their business is, or what amount they owe in monthly or quarterly taxes. In other cases, the mistakes may be due to an attempt to conceal some type of theft or fraud. Either way, the end of month accounting allows for a reporting every single month so that any discrepancies or errors do not continue unnoticed for long periods of time.
Improved Financial Results
While the financial statements of a company cannot make a company have more or less money, it can help management make serious financial decisions regarding their business which can then translate into profits or losses. The importance of financial accounting is critical to a business, and if the month-end checklist makes sure that all of the financial reports are in order, and are correct, it can improve the profitability, financial position and performance of the company over time.
Increased Efficiency
If accountants take the time to do a month-end checklist, it will ensure that all of the proper documents are handled every single month, and nothing falls through the cracks needing immediate or emergent attention at a later time. Additionally, having month-end reports will help a company recognize any financial challenges or problems sooner rather than later, such as a liquidity problem, or a challenge with certain invoices actually being paid properly. The month-end checklist allows for consistent upkeep of financial records, which not only can help business owners throughout the year, but can also increase the efficiency of year-end accounting and financial reporting that needs to be done. Because all of the finances for each month (and therefore each quarter) are done and accurate, the year-end accounting will go smoother, faster, and be more accurate than if this month-end checklist was not completed.
Audit Preparation
No business wants to go through an Internal Revenue Service (IRS) audit, however, if your business is selected for such an audit, or the IRS has questions regarding your taxes, you will be able to quickly and easily access your financial records. Additionally, each company should be auditing itself to ensure compliance with federal and state regulations, as well as make sure that all of the books are balanced and that all transactions and errors are immediately resolved at the end of every month.
Month-End Checklists
To understand how a month-end checklist can help your business, you should understand what one of these checklists actually contains. In order to complete a month-end checklist, you will need to ensure all financial and accounting areas are documented correctly and any mistakes corrected.
Items Included in Month-End Checklists
While every business will have a different set of financial records that relate specifically to their company, the following are financial items that should be addressed within a month-end checklist:
Cash transactions
When closing monthly books, you need to record any funds received throughout the month which may include revenue, loans, and invoice payments. Make sure to always check your invoices against your customer payments to ensure that they match. Additionally, take this time to send an invoice to every customer for any work that was completed during the month. Any discrepancies should be immediately fixed. Verify that any restricted cash amounts are in order and flag anything that is not reconciled to fix immediately. Also, account for all checks in sequence, and make sure to determine whether they were posted or not. Any outstanding checks that are more than 60 days old should be assessed, and possibly voided depending on the company’s policy. Any undeposited funds should be recorded and a note should indicate that they will clear in the following month. At month-end also make sure to check the prior month’s undeposited funds to see if those funds actually cleared in the current month.
Petty Cash
Also, review all petty cash accounts to make sure that they are reconciled with any purchases made with cash throughout the month. Make sure that the receipts match the purchases made with cash and that you are not missing any transactions. In order to make sure this is absolutely accurate, if you keep cash on hand, physically count any leftover cash in a fund. If there are any discrepancies, you may have missed recording a receipt for an earlier purchase.
Accounts Payable and Accounts Receivable
Most companies do not have the resources or time to ensure that all transactions are recorded on a daily basis. Take the time at the end of the month to write down all purchases and compare them against any receipts. Make sure to record all of these transactions for the end of the month and ensure that all bills are paid, and invoices are sent. Always take time to ensure that the accounts receivable aging report balance agrees with the trial balance. For any past due receivable, notate the collection status, and if it is past due for a considerable amount of time consider writing these amounts off.
Account Reconciliation
The reconciliation of your accounts is one of the most important tasks of a business owner at month-end. Make sure to match all of your financial records to your actual account statements from outside entities, such as your bank account records. Always perform a bank account reconciliation as well. Bank accounts that need to be reconciled can include cash, savings and checking accounts. Also make sure to do a reconciliation regarding any outstanding bank notes or bank loans, or prepaid or accrued accounts. While this may take a considerable amount of time, staying organized and taking time to do this will ensure that your quarterly and year-end accounting will go much smoother.
Fixed Assets
Fixed assets are items that are generally large purchases that lose value over time, however, add value to your business. For example, any purchases of buildings, furniture, equipment, land, or vehicles for your company would be considered a fixed asset. You will not need to convert these assets directly into cash. Instead you will want to record any apply any payments made regarding these purchases onto your accounting records, as well as attempt to estimate the depreciation values of that fixed asset.
Inventory
Monthly inventory counts are critical for the financial success of a business. Counting any inventory every month allows a business to understand with complete accuracy the levels of product and goods within you company to record those accurately in your financial books at year-end. This is important not only for finances, but also to help a business owner make crucial decisions regarding replenishing stock, and how frequently that stock needs to be replenished. Additionally, it can show a business owner what types of products are more popular in order to purchase more of those (and less of the unpopular ones) which will drive profit up as well. Some inventory may need to be monitored more than others; however, all inventory needs to be tracked in order to prevent any kind of inventory shrinkage. Inventory shrinkage, even in small amounts, can affect the profitability of a business.
Financial Statements
All financial statements should be carefully examined at year and reviewed. These financial statements can include a general ledger, a profit and loss statement, and a business balance sheet. Make sure to be extremely organized throughout the month, so that month-end financial statement accounting does not take longer than it needs to take and you are scrambling to find important documents. Basic accounting software can help ensure that all of your financial statements are recorded throughout the month and can create easy reports to help make this part of the month end accounting much simpler and quicker. An examination of financial statements at the end of the year can help ensure that you know where your profits are coming from to increase those areas and decrease the areas that are less profitable. Reviewing financial statements often helps a business owner from overspending on unnecessary or unpopular times and prevent financial challenges in the future.
Revenue and Expense Accounts
Revenue and expenses accounts should also be examined at month-end to ensure that they are accurate and that the correct amounts were recorded for the month. While this may take some time, it is important to ensure that these accounts are accurate as they affect many other areas of a business.
Final Review
Before you make the decision that your books for the month are complete, take time to do a final review. A best practice is to actually have another person review all of your work with fresh eyes to attempt to find any possible errors and ensure the accuracy of the entire month-end report.
Next Month Preparation
To ensure that the next month-end checklist operates in a smooth manner, make sure to create a monthly financial calendar. This will help you prepare for your closing every month and help you avoid falling behind throughout the month regarding all of these areas, which will help make the month-end closing out go much smoother and quicker in the future. Make a plan on the calendar when you plan to collect all financial reports, record all transactions and when you plan to close the books. If you establish closing dates for these types of records every month, communicate these dates with any other persons that need to adjust any ledgers or records. As time goes on, you will be able to make adjustments to your calendar for efficiency and accuracy purposes.
Year-End Checklists
While year-end checklists may seem more daunting that month-end checklists, when the checklists and financial records are completed every month, the year-end checklists are much easier to compile and complete. The items you should have for your year-end checklist should include your financial statements for every month (and quarter), all past due invoices, all W-2 forms, W-9 forms, and 1099 forms, complete payroll records, business receipts, inventory count for year-end, and the reconciliation of bank statements. As you can imagine, if a business owner has been handling their finances throughout the year, this process becomes infinitely easier.
Seek Expert Guidance
When it comes to keeping precise books, there are a lot of factors at play. Our experienced team of real estate bookkeepers would welcome the opportunity to visit with you regarding your business and bookkeeping needs. You can schedule a consult or call 866.896.6141.
