End-of-the-month accounting procedures, typically called month end close, are the tasks required to ensure that all of a small business’ financial records are balanced before the start of a new month. In most environments, a bookkeeper or accountant typically carries out these duties. Although end-of-the-month accounting procedures can be performed manually, computer software commonly is used to ensure accuracy and allow for ease of reporting. There are three major procedures an individual must complete to successfully perform the end-of-the-month accounting process.
The first step to take when completing the end-of-the-month accounting procedures of a small business is to account for any necessary financial adjustments. Throughout the month, revenue is collected and expenses are deducted. The amount of certain financial transactions, however, may differ from the time they were originally made. For example, if an entrepreneur used a debit card to treat a client to lunch, the original amount deducted from his checking account may have been $100. However, once the dining establishment settles the transaction, his final bank balance may also have included a tip. As a result, if the final debit is $120, the person performing the month end close must correct the original entry of $100. Adjustments also must be made for interest-baring accounts. If interest has been paid on monies held in a business savings account, it must be added to the financial ledger. Alternatively, if interest has been charged on credit card purchases, these transactions also must be entered onto the spreadsheet.
Once all adjustments have been made, the individual charged with performing the end-of-the-month accounting procedures must then calculate the balances of each account held by the business, including checking, savings, credit and investment accounts. Starting with the opening balance of the month, she adds all deposits and subtracts all debits. Deposits consist of any revenue generated by the small business. The firm’s debits include any expenditures, such as rent, payroll and advertising costs, as well as incidental purchases, such as office supplies. The final number is the current value of the organization’s net worth. It also will be the opening balance of the following month.
Once the balance of each account is calculated, all numbers are entered into the small business’ accounting database. The individual responsible for the organization’s end-of-the-month accounting procedures then runs various reports that highlight the company’s current financial position. He may create a profit-and-loss statement. He also may generate a report that indicates the total revenue generated by sales. These reports then are presented to management.
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