Month end closing is an essential component of any business’ financial reporting process. It guarantees your company has accurate records and sets you up for future analysis and planning.
Reconciliation typically entails reconciling cash accounts and balance sheets with subsidiary ledgers and bank statements, as well as journal entries for recurring monthly transactions.
Reconciling Accounts
Reconciling accounts is an essential process that involves comparing financial records to verify if they are accurate and in agreement. It also assists businesses identify fraudulent or inaccurate credit card transactions or other irregular spending in a timely manner.
Reconciliation is typically performed monthly by companies to guarantee all accounts appear correctly on their balance sheet. Inadequate or improperly recorded balances can lead to costly issues for a business, such as overcharges on cash accounts and unaccounted-for deposits in transit.
Reconciliation can usually be handled using built-in tools in accounting or ERP systems. You can visit this link: https://www.techtarget.com/ERP-enterprise-resource-planning for more information about ERP systems. However, if the setup is complex and prone to errors, specialized account reconciliation software may be more beneficial.
As part of this process, an accountant must verify the account balance in their records matches the bank statement. To do this, they can compare the ending cash balance on the statement with that on a trial balance in their accounting system.
Though a simple mistake is unlikely to be the cause of the discrepancy, unexplained or mysterious differences in records can indicate there may be fraud going on. This is especially true if the difference is substantial and requires further investigation for confirmation.
Completing the Financial Statements
A company’s financial statement speaks volumes about its operations, disclosing revenue sources, spending habits, assets and liabilities, as well as cash flow management. Furthermore, this information can assist business owners in making informed decisions that will enhance the overall performance of their organization.
Reconciling accounts is the foundation for producing accurate and dependable financial statements for any type of company. It helps you check and verify all transactions recorded in your records, making sure they match up with what appears on bank statements and other accounts.
Once all accounts have been reconciled, you can compile financial statements and present them to stakeholders and investors. Doing this gives them a comprehensive view of your company’s financial condition and guarantees them that investing in it is worthwhile.
Reconciliation software streamlines the entire reconciliation process and helps eliminate human error from the equation, saving you valuable time. This makes your monthly close smoother and faster than ever before.
Reviewing the Financial Statements
No matter if your company has its own accounting team or outsources it, creating a month end close checklist for everyone in the organization is essential. Doing this will ensure all tasks are completed promptly and help prevent any issues down the line.
If your business is small, it is especially essential to review its financial statements regularly. Doing this gives you a comprehensive view of your company’s health and enables you to make more informed decisions for its future.
Comparing your financial statements with prior years and the budget can help you identify any necessary adjustments that need to be made.
It is wise to review both fixed assets such as vehicles and buildings, and any intangible ones like trademarks you own. You can learn more about fixed assets by clicking the link. Doing this can help determine if they’re worth the cost and prevent you from overpaying for them.
Communicating with the Auditors
The month end closing process necessitates close coordination between various departments within an organization, particularly the accounting team. It also necessitates gathering and analyzing data from multiple systems like accounting software or ERP programs.
Unfortunately, this complexity can lead to a lengthy and laborious close which puts strain on team members as well as negatively affect the company’s profitability.
A well-organized and documented process for month end closing can help minimize the risks of errors or delays that could cause major issues for the team. It will also save them valuable time compiling and reviewing financial statements at each month’s end. You can click the link: https://signatureanalytics.com/get-your-month-end-close-process-right/ to learn more about this process. There are many benefits to this procedure.
At the end of every month, businesses must record all cash receipts and payments made during that period. Furthermore, they should cross-reference these records with bank statements and other sources of information in order to create a balance sheet – which provides an overview of their overall financial health and performance.
Another step in the process involves comparing this data with previous months to confirm there are no errors. This can be done manually by re-consolidating it or by using automated tools.
A well-crafted and implemented month-end close checklist can significantly reduce the time, effort, and expense involved in preparing a company’s annual financial statements for audit. It also boosts the efficiency of the accounting team while guaranteeing that each month’s company is audit-ready at the end of it.