Preparing Monthly Finances
Do you want to know all about Preparing Monthly Finances then read this blog post by Meru Accounting and learn more
The term ‘Bookkeeping’ refers to the recording of the transactions. In any business, whether small or large, we record every transaction, then carry forward for the further accounting process. It is both mandatory and important to record every transaction precisely and periodically.
Preparing monthly financials is very beneficial for the business. It makes the comparative study of the finances easy and accurate up to a great extent. The details regarding the allotment of finance, how much every department conceived and yielding from it, shall be sorted. Then, there will be no place for any kind of confusion or chaos.
Let us dig deeper into why any business should prepare their business’s financial statement monthly:
1.Importance Of Regular Bookkeeping:
Businesses, especially companies, manage hundreds or even thousands of transactions daily. Recording and cross-checking those will prevent missing of any transaction. If in any circumstances, we skip or postpone the process of bookkeeping, the business might lose the hold of some transactions, which may prove a great loss to it.
2. Check-list For Monthly Financials
Usually, we prepare financial statements at the end of the financial year for the sake of evaluation and publishing. But they should be prepared term time also like monthly or forth-nightly. It will help detect any loophole that may adversely affect your business in the long run.
In order to do so, we can apply the following methods:
- (a) Bank Reconciliation Statement: Checking the compatibility of business transactions with that of the bank reconciliation statement can prevent many missing of payments or advance payments made through the bank. Like for instance, a cheque made in favour of any creditor may get bounced. Your books of accounts will treat it as a debit. But it is still not paid and can only be cross-checked through reconciliation statement.
- (b) Checking Control Accounts: ‘Control Account’ is an account in the general ledger for which a corresponding subsidiary ledger has been created(wiki).’ It provides in-depth details about transactions in the corresponding subsidiary ledger. Having complete data even for the small sets of transactions eliminates the chances of omission and increases efficiency.
- (c) Checking Clearing Accounts: They are a kind of temporary account created to carry amounts that are to be transferred to another account. They have the same nature as suspense accounts. When we evaluate financials monthly, we transfer all the clearing accounts to their respective accounts. It lessens the burden of transferring accounts in bulk, which will make it a mundane task, increasing efficiency and accuracy.
3. Trend Analysis
We know a comparison of the financial with of current year with that of previous years as trend analysis. Ideally, we make it at the end of the financial year, but doing it frequently throughout the year may prevent the business from allotting finances in out-of-trends or any unforeseen subsequent loss.
4. Ratio Analysis Made Easy:
We use ratio analysis for quantitative analysis of data in the financial statement of the company like its liquidity, income-expense ratio etc. Testing financial statement monthly let us know the performance of the business. It will eventually help in taking corrective measures if there seems to be any problem.