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Small businesses must complete a number of important monthly accounting tasks to monitor and maintain their financial health.
Running a small business involves wearing many hats, and one of the most crucial aspects is managing your finances effectively. Whether you’re a sole proprietorship, a partnership, or a small corporation, staying on top of your accounting tasks on a monthly basis is essential for maintaining financial health and making informed decisions.
Reconcile Bank Statements
At the beginning of each month, it’s crucial to reconcile your bank statements with your accounting records. This process involves comparing the transactions recorded in your accounting software with the transactions shown on your bank statements. Reconciliation helps identify any discrepancies or errors, such as missing transactions or bank fees, and ensures that your financial records are accurate and up to date.
Review Accounts Receivable and Accounts Payable
Keeping track of your accounts receivable (money owed to you by customers) and accounts payable (money you owe to vendors and suppliers) is vital for maintaining cash flow and managing your working capital effectively. Each month, review your aging receivables to identify overdue invoices and follow up with customers to collect payments promptly. Similarly, review your accounts payable to ensure that you’re aware of upcoming payment deadlines and can plan your cash outflows accordingly.
Update Financial Statements
Your financial statements, including the income statement, balance sheet, and cash flow statement, provide valuable insights into your business’s financial performance and position. Updating these statements on a monthly basis allows you to track your revenue, expenses, assets, liabilities, and cash flow trends over time. This information is essential for assessing profitability, monitoring liquidity, and making strategic decisions about resource allocation and investment.
Record Journal Entries
Recording journal entries is the foundation of double-entry accounting, where every transaction affects at least two accounts. Each month, ensure that all financial transactions, including sales, purchases, expenses, and payments, are accurately recorded in your accounting system. Properly categorizing and documenting these transactions not only maintains the integrity of your financial records but also provides valuable data for tax reporting and financial analysis.
Perform Inventory Management
If your business deals with inventory, conducting regular inventory counts and reconciliations is crucial for controlling costs, preventing stockouts or overstock situations, and maximizing profitability. Use your monthly accounting cycle to update your inventory records, adjust for any shrinkage or spoilage, and analyze inventory turnover ratios to optimize stocking levels and improve cash flow.
Assess Budget vs. Actual Performance
Comparing your actual financial results against your budgeted projections allows you to evaluate your business’s performance and identify areas for improvement. Each month, review your budget variance reports to assess deviations from your expected revenue, expenses, and profitability targets. Use this information to adjust your future forecasts, refine your strategic plans, and make informed decisions to drive business growth and efficiency.
Prepare for Tax Compliance
Staying compliant with tax regulations is a critical responsibility for small businesses, and staying organized throughout the year can make tax season much smoother. Use your monthly accounting tasks to gather and organize the necessary documentation for tax reporting, such as receipts, invoices, bank statements, and expense records. Additionally, set aside funds for estimated tax payments and plan for any upcoming tax deadlines to avoid penalties or interest charges.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.