Your monthly close tells how your business faired during the course of the month. It is the process where you record and reconcile all the transactions that took place in the course of the ending month. At this point you are involved in book closing, or, closing the related temporary accounts.
The process will guard you from conducting a blind business as it portrays the financial standing of your business. It also provides you with a fresh start to the new financial period. You will be relying on your closing figures to create accurate financial reports. And you will depend on these financial statements to track the performance of your business and manage your finances. Here are some steps you may need to observe.
Start off with a good system. A good system in this case comprises the people, your accounting software, the processes and the timelines. You can make this effective by first outlining and communicating the key steps and accountabilities involved.
Determine the closing date. This must be a standard date you will consistently follow from month to month.
Outline the best practice. This involves setting up your business cycle. You should be in a position to complete the whole process within the stipulated timeline.
Carry out a review. Your kickoff to the monthly close should always involve a thorough review of changes that occur on your balance sheet. Look at your cash amounts to ascertain that they reflect the exact transactions that took place during the month. This you can do by checking the transactions against the bank statements. Then, you can proceed to the items on your income statement. Your objective here should be to ascertain the roper categorization of the expenses and their relationship to recorded sales.
Make necessary adjustments. Adjusting and reconciling your records is one of the key reasons why you make the statements in the first place. You view your revenues against the expenses to balance them out.
Document your statements. The only way to monitor the progress of your business is by keeping a neat record of its activities. These records are kept in your books of account such as the general ledger where the records are considerably permanent.
At the end of all these, you must make a report of all the activities of the month. The report is critical for tax compliance, and can open up your chances for accessing financial services including ACH business loans in case you are looking for capital.