As your year-end reporting is being finalized, you may be asking yourself, “what can I do in 2020 to streamline my financial reporting process?” This is a common question we hear at Cray Kaiser and one worth spending a few minutes discussing.

Each month your company processes many transactions consisting of invoices, deposits and disbursements. The completeness of these transactions is confirmed once the bank and credit card accounts are reconciled. However, as you work with your accountant at year-end, many discoveries take place. As adjusting journal entries are recorded, operating results vary significantly from what was represented in your bank balance. But by taking a few extra steps each month, you can alleviate this issue by gaining consistency in financial reporting, identifying variances more efficiently and streamlining your year-end closing procedures.

Here are a few items to consider as you determine your monthly closing procedures:

1. Review of Pre-Close Financial Statements

Generating financial statements at the start of your monthly close process will allow you to identify the accounts you will need to devote additional time to for that month. The pre-close financial statements should consist of both a comparative balance sheet and income statement. By running these financial statements in comparative form by month and year, you will be able to quickly identify balances that are irregular and may need to be further analyzed.

2. Reconciliation Checklist

The pre-close balance sheet should serve as your reconciliation checklist each month. Each account represented on the balance sheet should be reviewed to determine the appropriateness of the balance held at month-end. In many cases a reconciliation, report, or supporting documentation should exist to verify the balance. For instance, adjusted balances on the bank reconciliations should agree to the balance sheet account and accounts receivable and payable aging reports should agree to the balance sheet.

Unusual transactions such as assets containing credit balances and liabilities containing debit balances should be reviewed as these could represent misposted transactions and corrections may need take place at the transaction level.

3. Utilization of Recurring Journal Entries

The use of standard recurring journal entries can assist in recognizing expenses in the proper period. For example, as invoices for insurance premiums and other prepaid expenses are posted into a balance sheet account, the period the expense relates to should be identified. This period would identify the number of months an amortization journal entry needs. Setting up the amortization as a recurring journal entry will help ensure this transaction is recorded consistently each month. You can also mark the standard journal entry to end at a specific time period, thus reducing errors on the backend once the amortization period has ended. Most accounting systems allow for standard recurring entries (memorized transactions). These entries can also be set up for items such as depreciation and accruals for expenses paid at interim dates (i.e. interest, bonuses, etc.).

4. Post-Close Financial Statement Review/Executive Summary

The end of your monthly close process should allow for a cursory review of the month-to-month variances as reported in the post-close financial statements. These variances should be supported by the reconciliations you performed, or in the case of the income statement, would allow you to drill down to understand the transactions that occurred during the month.

Each month you may discover certain extraneous transactions that occur outside the normal business cycle. These should be documented in a memorandum or executive summary that will help you in future months as you start to trend your business activity and operations.

Initiating a month-end close process such as the one listed above will provide a roadmap to assist you in understanding your business cycle, minimize year-end reporting surprises and help you make decisions throughout the year. Please contact Cray Kaiser if you would like additional assistance in setting up your monthly close process or reviewing your year-end reporting.