If you use a bookkeeper, you probably see the end result each month: your financial reports arrive, your accounts are reconciled, and another month is officially finished.
But there’s quite a bit happening between the last day of the month and that finished set of reports.
Monthly bookkeeping isn’t simply a matter of downloading transactions from the bank and assigning categories. A good month-end close includes a review of the books as a whole to make sure the numbers are complete, reasonable, and ready to be used.
Here’s what that process typically involves:
First, the accounts have to be reconciled
Bank reconciliation is one of the most important parts of monthly bookkeeping.
A reconciliation compares the transactions recorded in QuickBooks with the activity reported by the bank or credit card company. The ending balances should agree, and any differences need to be investigated.
That process can uncover missing transactions, duplicates, transactions recorded for the wrong amount, old items that never cleared, and other problems that aren’t always obvious from looking at the bank feed.
A bank feed is useful, but it isn’t a substitute for reconciliation. Seeing transactions come through QuickBooks tells us what the bank sent over. Reconciling confirms that the accounting records actually agree with the bank statement.
Those are two different things.
Then comes the cleanup
Once the accounts are reconciled, I review transactions and balances for anything that looks unusual.
Maybe an expense landed in an account where it doesn’t belong. Perhaps a payment was duplicated. There may be something sitting in Uncategorized because I’m waiting for information from the client.
Sometimes an account balance simply doesn’t make sense. That doesn’t automatically mean something is wrong, but it does mean it’s worth taking another look.
This is where bookkeeping requires more than knowing which buttons to click in QuickBooks. You have to understand how the different pieces of the financial statements work together and recognize when something looks out of place.
The balance sheet deserves attention too
Business owners naturally tend to focus on the Profit and Loss Statement. It tells you how much revenue came in, what you spent, and whether the business generated a profit.
But the Balance Sheet can reveal bookkeeping problems that the Profit and Loss Statement won’t.
I look at things like bank and credit card balances, loans, accounts receivable and payable when applicable, owner equity, and other assets or liabilities.
If an account has a strange balance, a negative amount that shouldn’t be negative, or something that has remained unchanged for months when it shouldn’t have, it deserves investigation.
A clean Profit and Loss Statement doesn’t necessarily mean the entire set of books is clean.
Questions are part of the process
Sometimes I simply don’t have enough information to know what a transaction is. That means asking the client.
Bookkeepers can recognize patterns and make educated observations, but we can’t know who you had lunch with, why you sent someone $750, whether the purchase from an unfamiliar merchant was business-related, or what that oddly named deposit represents unless there is documentation or you tell us.
Getting those questions answered is part of keeping the books accurate. It’s also one reason prompt communication between a business owner and their bookkeeper makes the entire process run more smoothly.
Finally, the financial reports get a reasonableness check
Once everything is reconciled and reviewed, I look at the financial reports themselves.
Does revenue look reasonable compared with previous months? Did an expense category suddenly jump dramatically? Is something missing that normally appears every month? Are the numbers telling a story that makes sense based on what I know about the business?
This isn’t an audit, and a bookkeeper isn’t responsible for predicting every unusual event in a business. But financial reports shouldn’t simply be generated and sent without anyone looking at them first.
That review is one of the most valuable parts of ongoing monthly bookkeeping.
Why a monthly close matters
When books aren’t reviewed regularly, small problems have a way of becoming large ones.
One incorrect transaction isn’t usually a disaster. Neither is one unreconciled account or one expense sitting in the wrong category. But give those problems six months or a year to accumulate and suddenly cleaning up the books becomes a much larger — and more expensive — project.
A regular monthly close creates a checkpoint.
The accounts have been reconciled. Questions have been addressed. Problems have been corrected. The reports have been reviewed. Now the business owner has financial information they can actually work with.
And that’s ultimately the point.
Financial reports aren’t useful simply because they exist. They’re useful because they help you understand what is happening in your business, spot changes, plan ahead, and make better decisions.
The work that happens behind the scenes during month-end close is what gives those reports their value.
Gwinn Bookkeeping 