If you are running a business, do not wait till the end of the year to do your accounts. Give your business with an edge by preparing monthly financial statements. Accurate and timely monthly statements are strategic tools that will help you make fiscal decisions, prevent costly mistakes, and prepare you for the tax season. Monthly reports also help you develop year-end financial statements quickly, and put you on top of your organisation’s key performance indicators (KPIs).
A good monthly closing process requires good daily and monthly habits. This includes well thought-out record-keeping processes and procedures across your organisation. It is also essential to introduce good internal controls in your company from the onset, such as segregating duties across key functions. In this article, we break down the different tasks in eight simple steps.
- Record daily operational financial transactions
To create timely and accurate financial statements, consider embedding the necessary procedures into your daily operations. For instance, activities should be recorded as they happen, rather than waiting until the end of the month. If you have just incorporated your company in Singapore, give these processes a greater focus to ensure that your accounting department receives complete and accurate source documents for recording purposes. Implement good processes from the start, and watch your staff work like clockwork.
- Reconcile subsidiary and general ledgers
Depending on the accounting software or method you are using, some may require you to reconcile subsidiary ledgers with the general ledger. This is because your accounting software may only manage specific arms of your company and leave out transactions relating to other areas, such as investments or gifts. For example, you may have revenue streams coming from online sales but your accounting system only integrates point-of-sale purchases and inventory control. In this case, consider making it a daily habit to capture, reconcile and record sales summaries from your online sales channels to the general ledger.
- Record monthly journal entries
In order to present a complete and accurate representation of your business, ensure that you follow up with monthly journal entries for accrued expenses, amortisation, depreciation, and other activities. Each transaction that you enter into your general ledger should begin with a journal entry that includes the date of the transaction, amount, accounts affected, and item description. If you are using an accounting system, you should be able to generate recurring journal entries.
- Reconcile your balance sheet
Despite Singapore’s cashless momentum, plenty of day-to-day transactions are still performed using cash. One of the easiest ways to locate missing or incorrect entries is to reconcile cash accounts. If you deal with numerous monthly transactions, you will benefit from reconciling cash on a daily or weekly basis. This gives you visibility over the amount of cash you have on hand at all times. Upon reconciling your cash accounts and making the necessary adjustments, you may proceed to reconcile the rest of your balance sheet accounts.
- Review revenues and expenses
The next step is to review your revenue (sales, service, interest, etc) and expense (advertising, wages, rent etc) accounts: Finalise them each month and check for accuracy. Most organisations link their revenue account to a subsidiary ledger, but expenses may not be properly and accurately recorded. Check that your expense amounts are accurate and reflected in the correct accounting period. Any accruals or prepaids should also be accurately recorded.
- Prepare financial statements
Once you have reconciled and are satisfied with your general ledger, you are ready to prepare your financial statements. Organisations using accounting systems can easily generate these statements, though others will need to manually prepare reports and compile their data, typically on an Excel spreadsheet. Do not forget to compare actual revenue and expenses to your initial budget using your income statement. This will reveal how profitable your business has been over a given reporting period.
- Management review
As part of their internal controls, most companies are required to submit their financial statements and documentation to their senior management for their review. Management review involves top management and should take place at regular intervals throughout the year to help your business evaluate its financial goals and objectives. The person reviewing the statements should not be part of the preparation process to maintain objectivity.
- Close accounting for the month
Upon your senior management’s approval of the financial statements, your team may proceed to close the accounting period in your system. This is important to prevent future transactions from being inaccurately recorded; for example, costs of goods purchased should be recorded in the same month as the goods are added to your inventory. Think of this monthly closing process as a mini audit, or a proper cut-off for the month. Begin each new accounting period with a balance of zero.
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While many businesses may hire in-house accountants to watch over their finances, start-ups and lean micro-businesses may prefer outsourcing accounting to professionals who have a high level of accounting expertise. Outsourcing will allow you to enjoy lower fixed-cost service without the burden of maintaining a full-time employee salary. Accurate and timely financial reporting will also be overseen by qualified accountants who are up-to-date with financial reporting standards in Singapore.
At Corporate Services Singapore, we have successfully completed more than 20,000 financial statements and tax returns for Singapore companies. We put more time in your hands by taking care of all your corporate services needs including accounting, auditing, tax services and company secretarial services. If necessary, we can help you sort through your accounting processes and review your workflow to produce quality financial statements that help you gain insights into your company’s financial health.
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