Why is it important to clean up and close accounting books monthly basis?
Businesses today, whether big or small, make numerous transactions every day, which results in many entries in the entry book. With so many transactions, chances of error can be increased if the transparency of the cash flow is not there in the business. One of the best ways to avoid such errors and situations is through clean-up of your accounting book every month. If the accounting book is not cleaned up regularly, it will create a mess at the last moment, which can be bad for any business. That’s why a good amount of importance should be given to the cleaning of accounting monthly before closing accounting books.
However, cleaning up the book of accounts regularly is time-consuming and requires a lot of focus. Businesses can save time by outsourcing their work. Many offshore bookkeeping services can take the work, which saves you time and effort that can be used to improve business productivity.
Key benefits of cleaning the account book every month
No last moment rush:
One of the most hectic times is during the time of taxation and audit. Many people take it lightly, but irregularity and error in the accounting system can be disastrous for any business. If the accounting book is cleaned every month, it will reduce a lot of effort and make the auditing and taxation process much easier, saving you from the last moment rush.
One of the biggest advantages of the account book clean-up regularly is that it allows the business owners and executives to make the right decision, suitable for the financial health of their business. Generally, business owners make a purchase based on the amount in their bank account, which can be disastrous and can put you in debt since many things have to be considered before purchasing, such as account payable, account receivable, and many others. A cleaned account book will allow you to know all of these factors, allowing you to make the best decision as per the financial health of the business.
Information of Real-Time Performance:
Business can track their profit and performance if the cash flow is transparent in the business. A cleaned account book allows the executives and business owners to find out any error from the system before it becomes large. Sometimes lack of such clean-up can even lead to an accounting black hole, which can destroy a business. Thus real-time performance is crucial in any business.
Internal Control through Good Business Practice:
The end of the financial year is a good time to examine business performance. You don’t want to make the mistake of rushing to correct an incorrect accounting technique or a balances mismatch at the end of the financial year. You should analyze crucial areas on a more regular basis if you want to improve your company practices. Internal control can be enhanced by integrating monthly bookkeeping with the best business practices.
Support and Advisory from the Accounting team:
When you are using monthly outsourcing bookkeeping services, it allows the accounting team of that firm to develop a good knowledge of the nature of your business as well as they become more comfortable with the work allowing them to do the work more efficiently. Moreover, based on their understanding, they can provide valuable insights about the business, which can be utilized for the growth of the business. Clean up of the accounting book monthly enables the firm to go through the documents and various essential files of the business each month, allowing them to develop the understanding of your work from the first month only.
Here is the Bookkeepers To-do List: 21 Bookkeeping Tasks You Should Perform Daily
Process of Book of Accounts Clean Up
Now that we have understood the advantage of monthly clean-up of the accounts book, it is important to understand how to ensure a clean book. Bookkeeping can be a very hectic and time-consuming process. However, with the given step-by-step procedure, it can be done properly.
1. Account Receivable:
Using software like QuickBook, the account receivable process can be made less complicated. Monthly bills of a business for services done for clients should be inspected, and all deposits and cash should be checked in QuickBooks. Making revisions to General Ledger and Balance Sheet to balance your accounts receivable report is crucial.
2. Account Payable:
Recurring monthly expenditures and payments, such as insurance, Utility Bills,loan payments, etc. must be recorded appropriately in the accounts book. Vendor bills and statements that have not been paid should be reconciled with the Balance Sheet and Accounts Payable. It is essential for a business that during month-end, account reconciliation and record of the vendor should be the same.
3. Reconciliation Statements:
For future reference, print and file the reconciliation statements for all of your bank accounts and credit card activities for a certain month. If you want to make the bookkeeping process easier during the end of the financial year, then, it’s a good idea to fill out your loan balances and credit against monthly bills.
4. Prepaid Income and Statement:
To reduce the bookkeeper’s burden, the business should look for journal entries for planned income and cost adjustments that are appropriate.
5. Write off bad debts:
It is essential to write off Bad debts that remained uncollected. Using Credit Memo,QuickBooks can write off bad debts.
6. Monitoring the Fixed Assets on the regular interval
Monthly updates are required for any changes in your fixed assets, including depreciation.
7. Going through all the Invoice Numbers and Cheques:
Whenever dealing with checkbooks and invoices, there is always a numerical order of generation in it. Thus it is crucial to check whether all the invoice numbers and checkbooks are in proper order or not. If any number is missing, it should be taken into account. Moreover, all the canceled cheques must be present in the record as well.
8. Financial Statement Review:
Examine all financial statement entries for mistakes, missing records, and unusual balances. If any unexpected transactions were discovered, double-check them and make the necessary modifications. For a perfect clean-up, printing and filing financial statement is essential.
9. Close Books and Backups:
The QuickBooks Closing Date function allows you to lock past months and is password secured. The bookkeeper closes the books for the month and performs a backup of the books once all of the adjustments for the month have been finished.
After all the given steps, it is important to reassess the real number with the given budget number. You’ll see why there’s a difference and how to reinforce and manage a manageable budget for the next month.
Account clean-up is an essential process, and it is good to do the clean-up of your books of accounts monthly than to rush at the end of the year. You don’t have to hire accountants for this; rather, you can use bookkeeping outsourcing services to close accounting books saving your valuable time and resources. CapActix can help you in cleaning and closing your books monthly.