Every business must go through accounting procedures at the end of the month to balance the books. Usually a bookkeeper handles the day-to-day accounting, but an accountant usually handles the end of month accounting procedures. However, a bookkeeper may be able to handle the month end accounting procedures with software such as QuickBooks. Assign a time for this each month, like close of business on the last day of business for the month. Whoever is doing the work should be working late that day.
Every day post transactions to the general ledger then check them periodically. Weekly is the best way to check these transactions since you don’t want to check too many transactions at one time. Check each transaction against the original receipt for errors. Bank statements are helpful and so are charge account statements. If you find a mistake, make a journal entry to the right of the previous entry. Never change an original entry. Also, make adjusting entries, such as depreciation expense, at this time. Charge-offs for accounts receivable are also done at this time.
Month end accounting procedures include closing all accounts for this accounting period and opening new accounts in your general ledger. For example, cash should be accounted for, both on hand cash and what is available in the bank accounts the company has. The balance will go into the cash account to start the next month. Handle each account in this manner. The balances go in the trial balance and the balance sheet also.
Although you may only do a physical count of inventory quarterly, you must do some inventory adjustment monthly. Adjust monthly counts by using receipts; check sales against orders and adjust monthly counts. In other words, if you have ordered 5,000 pieces of inventory, sold 3,000 and given samples of 500, your inventory would total 1,500 pieces. Enter all this information into the books to have an account of cost of goods sold for the month and a write off for the samples. Classify samples as advertising expense.
Trial balance, balance sheet and owners’ equity statements should be prepared monthly. These financial statements help you understand the health of your business. Doing financial statements monthly gives you a chance to adjust the way you run your business so you don’t end up too far in the red. In addition, if you have stock owners, it gives them a picture of your business each month.