It is good to have an actual checklist of the things you need to go over once every month is over. This checklist is going to act as a guide either for you or your bookkeeper, to ensure that everything looks perfect. Doing this on a monthly basis can help you figure out where the money went, whether it was spent effectively, and identify errors or even theft or fraud.
Monthly Checklist
It is good to have an actual checklist of the things you need to go over once every month is over. When creating a monthly bookkeeping checklist, you can obviously add items that are applicable to your particular organization. However, there are some tasks that are common for most businesses.
Reconcile all accounts
The first thing on your checklist would be reconciling all accompanying accounts to make sure they are accurate. This should include loan accounts, company bank accounts (credit card accounts included), payroll, etc. You would also make sure all direct deposits and direct debits have been entered from the bank statements. You need to perform bank reconciliation as of the last day of the month.
The goal of reconciliation is to make sure you have not missed any entries and that you and any other party involved (bank, employee, creditor, etc.) are on the same page when a new month starts. It allows preventing any seemingly small mistakes, errors, or even fraud to snowball into something hardly manageable over a longer period of time. After all, bookkeeping is a very tedious task and if you are just starting out or have a small business and doing all the bookkeeping yourself on top of running the company, it is easy to miss numerous transactions (and possible tax deductions later on).
Financial statements
Obviously, it is great to check every single item on your financial reports. For this, it is helpful to create reconciliation summaries for the biggest and most important accounts on every document. For instance, you might want to have sales and purchase reconciliation done (which is when you compare cash and credit card sales and purchases against the receipts), as well as payroll and interest. Also, review all the items that go into the calculation of the cost of goods sold.
Besides simply checking for correctness, it is recommended that you look at all the numbers a little closer for evaluation and analysis purposes. Thus, reports should be prepared for the owner or management for review. Have there been significant changes in any of the line items compared to the last month? If yes, is there a good cause for the change? Reevaluating your spendings and income sources will help you adjust the business strategy for the rest of the year.
Accounts receivable
You would need to make sure all accounts receivable invoices have been entered into your bookkeeping records, checked by individuals responsible for authorization of such documents, and mailed to the customer. It is also necessary to see if there are overdue invoices. Unless you have a system already in place, contact all the customers with a reminder about upcoming invoices. Clients who have not paid by the due date would need special attention because you are risking that these accounts receivable will become uncollectible.
When you are checking your accounts receivable, see if there are checks that have been mailed by your customers but not yet deposited or if there were any direct deposits that did not yet get into your bookkeeping records. This will ensure that your customers and you are on the same page and you do not demand a payment which you failed to record.
Accounts payable
It is always more pleasant to receive money, however, remember that you also have some obligations before your suppliers, lenders, and customers. You do not want to pay any late fees or spoil your relationship with the suppliers. Thus, go over your liabilities and first check if you have missed paying something. If yes, get the payment sent right away.
Every dollar counts and you do not want to have late fees accumulating on your account. This is especially true if you have any type of loan as the interest can grow tremendously in a very short time. Also, check for any upcoming payments and make sure you will have enough money in your bank account to fulfill these obligations. Making payments earlier will allow your company to take advantage of early payment discounts when possible.
Payroll
Although payroll falls under accounts payable, we wanted to bring special attention to it as it involves many details. Check against the Profit and loss statement that the wages are equal to the gross amount paid per payroll summary report for the month. Besides making sure your employees are paid the right amount and that the timesheets are filled out correctly.
Payroll taxes are also a huge part of the payroll process. Thus, go over the tax calculations to see if everything was calculated properly and all the money you have withheld from your employees’ paycheck along with your portion of the payroll taxes is paid by the due date every single month. On that note, review your workers’ compensation payments and make sure that if you take any other deductions, the money is paid to the appropriate entities (e.g. 401K plans).
Inventory
It is also a good practice to update the information on your inventory, if the business requires inventory, and make sure that what you actually have sitting on the shelves, so to say, coincides with what your bookkeeping records say. Of course, depending on the size of your business and inventory management system, this process can be quick and easy or it might take too much time for you to do on a monthly basis.
Nonetheless, it is something to consider when creating a monthly bookkeeping checklist. After all, inventory can be lost or damaged and if you do not have the right inventory amounts on your books, your cost of goods sold will not be accurate and your income, accordingly, will be understated or overstated. Plus, it might be harder to track everything down if you wait longer and do it every other month, let’s say. Finally, it is a great opportunity to review inventory reports for any potential shortages and reorder if needed.
Deductions
If you have bookkeeping software, it might be easier to track all the items that you can deduct later on when you file your tax return. Nonetheless, the end of the month is a good place to ensure that you have all your deductible mileage recorded in a mileage log or a special journal. If you plan to deduct the actual expenses, then check that everything you spent related to your business vehicle is recorded in your accounting books. This would be your gas, insurance, parking, receipts for repairs, tires, and so on.
Depreciation is another item you would want to make sure is recorded for the month for all the assets you have according to the right depreciation schedule. It is easy to miss this bookkeeping item because no real cash transaction is happening, but this is an item that will allow your business to pay less taxes once the year is over.
Backup
Whether you have a computerized bookkeeping system or do bookkeeping manually, make sure you backup your data regularly. Having bookkeeping done completely online with a reliable bookkeeping platform provider means that most of the work is already backed up for you. However, you might still have physical receipts, petty cash records, payroll slips, vehicle mileage records, and other data that was not entered into the system. There are many apps that allow you to scan and save the receipts and digitize any information that you might possibly need later on.
