The term ‘Bookkeeping’ refers to the recording of the transactions. In any business, whether small or large, every transaction is recorded, than is carried forward for further accounting process. It is both mandatory and important to record every transaction precisely and periodically.
Preparing monthly financials is very much beneficial for the business. It makes the comparative study of the finances easy and accurate up to great extent. The details regarding the allotment of finance, how much every department is conceiving and effectively yielding from it, shall be sorted and there will be not placed for any kind of confusion or chaos.
Let us dig deeper as to why any business should prepare their business’s financial statement monthly:
Businesses, especially companies, manage hundreds, or even thousands of transactions on daily basis. Recording and cross-checking those will prevent missing of any transaction. If in any circumstances, the process of bookkeeping is skipped or postponed, the business might lose the hold of some of the transactions, which may prove a great loss to it.
Usually financial statements supposed to be prepared at the end of the financial year for the sake of evaluation and publishing. But it is suggested that they should be prepared in short-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, following methods can be applied:
comparison of the financial with of current year with that of previous years is known as trend analysis. Ideally, it is made at end of financial year, but having it done frequently throughout the year may prevent the business from allotting finances in out-of-trends or any unforeseen subsequent loss.
Ratio analysis is used for quantitative analysis of data in the financial statement of the company like its liquidity, income-expense ratio etc. Evaluating financial statement monthly let us know the performance of the business. It will eventually help in taking corrective measures, if there seems like any problem.