Transcription
Okay guys, let's go ahead and get rolling on this. Today, we're going to cover the topic of the month-end close process. This is meant to be your standard, kind of basic process. Uh, we'll mention here that a lot of people will have a need to do cross-reference with final, full documentation behind it. We certainly do that for a lot of folks too. I'm not covering all of the cross-reference uh process in this. I'm just want to go through the basics for everyone.
All right, let's get rolling. So, before we get started, just want to let you know a little bit about Forlane and what we're about. We do have what we see as four uniques in this space. Uh, this is what really helps us to stand out. First of all, we are the number one QuickBooks Enterprise team. Um, we're really proud that we have eight of the top 100 ProAdvisors with us here. Um, we've been a number one Intuit partner since 2010, so we've been doing this a while. We're also experts in accounting and software. So, it's not just the ERP, it's not just selling the software, it's not just doing the accounting. We actually do it all. So, that is uh, one of those ways we stand out. Um, in addition to QuickBooks, we also support other systems. So, we're not locked into just one particular product. In fact, we are um, we support and um, implement NetSuite, Acumatica, and Zero, as well as QuickBooks. So, we've got um, a lot under our belt there. And uh, uh, the fourth one is that we are strategic partners for change management. Um, I think everyone recognizes that change can be difficult, especially in an organization. So, we stand in uh, and we're proud to be your partner in helping you implement those changes easily.
All right, so let's go into the process. I'm going to be covering monthly adjustment entries, how to reconcile your balance sheet, just doing a brief P&L review, reports we recommend, and last, closing date. This is all the the pieces that go into that month-end close process.
So, let's talk about the monthly adjustments. So, this usually happens once all your transactions are in and categorized, right? So, now you're ready to kind of go and make any additional adjustments needed. So, what do you look for? Um, prepayments, right? So, you had some prepayment expenses, you need to allocate for each month. Now's the time to do it. Uh, similarly with accruals, you're going to want to make any adjustments for accrued revenue and expenses, any unearned revenue, anything like that that needs to get allocated out for the month. Um, and also think about any non-cash expenses like depreciation, um, or interest that you want to post. Interest, I think most people are familiar with as we do loan reconciliations, but don't forget depreciation. It doesn't have to be um, once a year kind of thing. In fact, it's good to break that out each month.
Okay, so now that you've done that, let's start talking reconciliations. One thing not everybody knows is that you can reconcile more than just the cash accounts in QuickBooks, and it's highly recommended. There are some accounts you you can't reconcile, um, use the reconciliation screen, I should say, like, um, accounts receivable, payables, uh, unposited funds, those kinds of things. But outside of that, you could actually use that same reconciliation screen that you do your bank reconciliations on for just about every other account, and it's a really good practice to get in the habit of. Uh, even if not, I'm going to talk you through some ways to verify those accounts, and that's really the primary goal here is to go through that balance sheet each month and make sure everything is as accurate as it can be, right? We're using double checks here.
So, how do we do this? Bank accounts, I think everybody's pretty pretty um, fluent on what to do with those. Obviously, we need to reconcile the bank accounts against the source document, which is going to be your bank statements. So, you go through that monthly process. Little note, I always tell my people, it's not reconciled unless you are taking into consideration what is uncleared. If you have uncleared transactions and you haven't verified them, it's not fully reconciled. So, make sure you're not just skipping things and just checking what's clear. The B uh, the bank account statement, sorry, um, what you want to make sure of, you're not um, leaving duplicates sitting on the books, um, things that should be voided, anything like that. So, you want to make sure your reconciliation is clean. The um, exception to that are checks, right? Sometimes it just takes checks a couple months to clear. That's normal, that's expected. Anything beyond that, you want to take a look at and investigate.
Okay, petty cash. You got cash sitting around the office. How much do you got? How much do you have? Um, that's what you want to reconcile to. So, you're want the books to reflect the actual. Again, you can use the same reconciliation screen to do this.
Okay, accounts receivable. This is one that gets a little bit different. So, what do we do with accounts receivable? A few things. This account uses a sub-ledger. What we're looking at is like your accounts receivable aging. So, the first thing you want to do is make sure your sub-ledger and your balance sheet match. This may seem um, elementary, but honestly, I see it all too often enough that they do not match. And when that happens, that needs to be investigated and fixed. It can mean a myriad of things, um, which gets well beyond the scope of this presentation. But what you're looking for is that your accounts receivable balance on your balance sheet for the same day, of course, matches what is showing on your accounts receivable aging summary, right? That's a good check mark. Go on to the next thing. Take a look at anything that's over 90 days. You don't want your accounts receivable to get too far um, out there, right? We don't want those old accounts. So, take a look at it. Does it need to be followed up on? Reminders? Does it need to be written off as bad debt? Whatever it happens to be. Sometimes I'll see people leave five cents on the account, but it clearly needs to be adjusted. So, let's keep it clean, clear that off. Um, another thing that people tend to miss is look for anything that's showing up that has a zero, right? If it's showing on your aging report with a zero, that means that there's something on there that is not attached. In other words, you might have a payment um, and an invoice that have not been attached to each other, but the overall difference comes to zero. So, it's about making sure that those are applied, right? There is a, by the way, in the accountant's toolbox, will help you do that really easily. But, uh, again, we want to make sure everything's applied.
All right, inventory. Inventory is very important, and I'm going to take just a couple extra minutes to talk about inventory. For those of you who do not know, inventory needs to be maintained carefully in QuickBooks. Uh, it's easy for balances to go into the negative, and when that happens, it can cause um, data corruption, particularly over time. If there's a lot of it, um, it will cause your financials to be inaccurate. It's going to mess up like your average cost of goods sold calculations. So, it's important to stay up on that inventory value. This is one that we often will see fall um, out of discrepancy between the sub-ledger and the balance sheet. So, it needs careful consideration. When that happens, there's a, there's several steps that need to happen to get it aligned. Um, again, beyond the scope of this presentation, but we could certainly help you with it. So, what do you want to do? You want to start with your balance sheet. Take a look at that inventory asset value and make sure it matches to your inventory valuation summary, right? Is everything aligned? In this case, it is, so great. We go on to the next thing. Take a look at your quantity on hand. Look for anything that's negative. If you've got something negative, that needs to be fixed, right? You want to do this on a monthly basis. I can't emphasize that enough. If it starts getting out of control, it's really hard to catch back up. So, let's get that under control. The other thing that's good to do is just keep an eye on your average cost and see if anything has made a um, significant change. So, kind of look through it. Anything jump out at you that maybe needs to take a a look at to make sure your average um, value is reflecting correctly?
Okay, let's move on. The next one I want to talk about is undeposited funds. This is another very important account that people tend to miss. Further, uh, just for um, understanding, in case you don't know, undeposited funds is an account used in QuickBooks to hold payments um, that have been received but have not yet been identified as deposited directly into the bank account. This is very useful when you're doing like batched payments. So, you have like 10 checks sitting from different people on your desk, it's going to go into one deposit. You want the bank statement to reflect what's actually, or you want your books to reflect what's going to happen in your bank statement. So, so that everything comes across in batch for one transaction versus 10 individual ones. Otherwise, it makes reconciliation very difficult. But you have to remember to do that. So, it's an extra step from taking um, the payments in undeposited funds and moving them into bank deposit.
Okay, that said, you want to go ahead and look at your undeposited funds account. Uh, as before, we want to check the sub-ledger. So, if you look at your balance sheet, in this case, $88,500 is showing for undeposited funds. If you go to the make deposit option in QuickBooks, you should have a popup that comes and shows you all the outstanding checks that have not yet been identified as deposited. Quick little tip, if the box doesn't pop up, there is um, a selection you can choose to show make, uh, show the payments. Click that screen. Sometimes, whatever reason, popup this doesn't automatically pop up. So, check that. If it's not showing, what you want to look for is making sure the value is the same. So, what you're showing outstanding is what is showing on your balance sheet. That's the first thing. The next thing is to make sure that there's nothing old sitting out here. Okay, in this situation, in this example, everything looks good, right? Um, nothing's too old. It's very possible that these payments are sitting on, sitting on the desk, not yet deposited. Except for maybe this, I, I said that, but I'm just looking here and I said this January 1st. That one's old. That one's, I'm sure have been already deposited. So, that needs to be taken care of. That's what you want to look for. You want to make sure that it's accurate.
Okay, um, fixing stuff that is sitting in undeposited funds that is old takes a little bit of expertise and again, it's something that is out of scope for this presentation, but it is something that needs to be taken care of. And reach out if you need help. We can help you with that.
Okay, all right, moving on. The next thing, prepaid expenses, right? Those type of expenses are showing up on the balance sheet. You want to reconcile those as well. Um, again, situation where you can use that reconciliation screen to make it nice and easy for yourself. However, the little, the little caveat in this prepaid expenses and accounts similar to this, uh, is that there isn't a source document to tie it to, right? So, think like employee, not employee advances, but, um, insurance, right? You've got some prepaid expenses that you've allocated out. There's a way that you can check those, and what we recommend you do is to do an actual reconciliation and put the ending balance to zero. Okay, that's going to apply in several situations that we talk about today, and this is the, the first of one of those. So, you're going to reconcile to zero. What is your goal? The goal is to reconcile what has come in to what has gone out. Like, if you look at the bottom of this page, you'll see a, a snap, a, um, snippet that I took showing an in-and-out. So, you could see we've got a debit of $10,000, a credit of $10,000 for this reconciliation. What you're going to do is you're going to check it. This came in, right? And then it came back out. So, it was used as a clearing, and that cleared. So, the end result is going to be, the only thing that remains uncleared are those things that did not match. So, now you know what is pending, and that's the ultimate goal when you're doing this. That's what you're going to be checking. And I'll show you here in a few minutes how you can run a report to really give you some, uh, control over that. Uh, also on prepaid expenses, when you do run the report, you could also um, group it by the vendor, so you could see actually how much for each vendor is outstanding, which is very helpful.
All right, what's we've got next is the fixed assets and accumulated depreciation. Annually, or whenever you post depreciation? No, annually. Let me back that up. Annually, I recommend you go ahead and do a reconciliation on your depreciation or amortization, right, as that may apply based off of your tax return schedule. All right, that way you know what's in QuickBooks matches what was on that tax return. Since taxes are filed annually, I would just do that reconciliation annually. That said, we still should look at this account on a monthly basis. Other things to look for when you're looking through fixed assets, make sure that everything that has been posted into your fixed asset accounts are truly assets. What you wanted to focus on are transactions that may have posted that actually do not meet your internal capitalization threshold and maybe need to be expensed instead. For example, uh, typically we use a $2,500 threshold, right? For one item, someone has come in, right? You had someone helping you, a clerk, come in and they posted a $500 computer to fixed assets. That's something you're going to want to reallocate over to expenses. That's the kind of thing I'm talking about, making sure there's nothing in there that shouldn't be.
All right, and then other assets. This is another one that you're going to reconcile to zero and clear off anything that goes in and out that matches. Again, the goal here is to look for anything pending.
Okay, so remember I told you I was going to tell you a little bit about how to do that report that's going to be helpful? Here's how we do it. So, as a reminder, this is what we had on the other screen. You're going to do that reconciliation first. Again, your goal is to mark off anything that came in and came out. In this example, we're using an employee advance account. So, one place we saw where it came out of the account and then it got replaced, right? They paid it back. So, we have marked it, we check-marked under the reconciliation, those two items, which you would see will leave just one item left. So, after that's done and you hit reconcile, and it's reconciled to zero, nice and clean, you want to go ahead and just run a report. Um, I, I like to use Quick Report. To me, it's just the easiest one to use, but you can do transaction by account, and whatever one you want to do. But you do want to set up a couple uh, custom options so that you can get the information. So, what you're looking for here is to make sure you add a cleared column because that's what we're looking for. We're looking at what is cleared versus what is pending. So, you set the column to clear, then go to filter and set the filter for cleared equals no, because we only want to see on this report those things that have not matched. Okay, you can go ahead and save this report, memorize it, so next time you can come in and just pull this report immediately. But you can see the result of this report. Instead of having all of the transactions listed here, you are only seeing those that remain. One really good ex um, use of this is customer deposits, retainers, anything like that. Great report to use, very, very important.
Okay, let's keep moving. Let's move on down to liabilities. Okay, so accounts payable, basically the same thing as receivable. Keep it the same way. You're going to look at the balance sheet and we're going to make sure that it matches your sub-ledger. Your AP aging matches the balance sheet. All right, good deal. It does here. Same thing with sales tax or payroll liabilities, for that matter. Does it match? Right? So, we're looking at their sales tax liability in this example. We could see 1570 and 48. And if we pull up your sales tax liability report, it matches. So, first, that's the first thing you want to do. Next, take a look at anything older than 90 days. We want to keep um, the accounts clean, up to date. Is there something that needs to be written off? Do you have a couple pennies left on an account that needs to be adjusted? Uh, do you have something that's no longer applicable? Clear it off, right? Just look at this on a monthly basis. Another reminder, if you have zero showing up across the line, right? If your total is zero, which there's not an example in this case, but if you have something that has a total of zero, then you have something unapplied. So, you want to go through and apply those payments against the bill, just like you did in accounts receivable. And just like in accounts receivable, in Enterprise, if you have access to the accountant's toolbox, there is a quick little tool that will let you apply. It'll pull everything up. Really great tool to use, but don't forget to do that. Let's keep everything clean.
Credit card accounts. Apply that exactly the same as a um, bank account, right? Everybody's pretty used to that. Again, don't let things that are uncleared go by without thinking about it. Is this true? Right? If it's the last day of the period, that's probably just going to show up on your next statement. If it's something that clearly should have gone through, investigate it. Make sure you're not dealing with a duplicate or an error, something posted to the wrong account.
Okay, due to and from account accounts. This is used typically with like uh, intercompany transfers, for example. And the trick on this one is to take a look at the other company, right? So, if you have an intercompany and you're saying you have a due to in here, say from Company A, go to Company A. What does that show that they owe? That's what you want to reconcile to, making sure that these accounts, even though they're different QuickBooks files, are still reconciled together. It does take a little bit of extra steps, though, to get to that account to to use it.
Okay, other asset accounts or liability accounts that have a statement, like loans, line of credits, um, anything like that. Use those statements, just like the bank account. Um, easy peasy, do those. If they do not have a statement, kind of like we talked about, like retainers or employee advances, that's where you're going to use that zero reconciliation to reconcile it and verify the data as much as possible.
Okay, last part, equity. This is not one that we will actually reconcile. That doesn't mean it doesn't need attention. Take a look at the equity account. Review those transactions and make sure everything's posted properly. Is it allocated to the right person, right? Not sticking in there um, accidentally, that kind of thing. Uh, is it a business expense that shouldn't be a draw? Those things. Make sure you have no balance in your opening balance equity. This is an account that should always be zero once the file has been established. That account is only used um, to set up a file. After that, it should be zero unless something is amiss. And then annually, at least annually, you want to reallocate draws and contributions to accrued equity for each person, so that you have just a clean value on what's happening on each period.
Okay, now that we're done with the balance sheet, let's move on to a profit and loss review. So, we, what I recommend we do with the profit and loss is just kind of look through it. This is doing a little bit of detective work, just looking at the accounts. There's a couple tricks I use to help, and that's what I'm going to talk about here. The first one is to run a profit and loss for year-to-date and change the columns to months and look through it. What you're looking for here, what I'm looking for when I do this is to see if there's anything obviously missing. If you've got rent for every month except last month, there's a clue that there's something missing, right? Or maybe it's put in the wrong place. So, that's what you're looking for. Consistency. Does everything look reasonable, consistent? Um, if you see something negative, it might warrant investigation. Um, obviously returns and refunds, those kinds of things can happen, but it's not the norm. So, you want to look at it and make sure things are posting correctly. If something is really out of whack, you see a $30,000 entry sitting in auto expense, you might want to look at it. Okay, stuff like that.
So, after you've done that, another uh, helpful hint is to run the profit and loss now, total for the period. So, instead of doing it by month, now just total it up and add that percentage. Now you want to look, see there your profit margin. So, those percentages appear in line. Everything looked good. Double check your income totals. I'd like to open up those accounts and make sure everything is posting consistently. Sometimes what I've seen, for example, are a mixture of deposits and receivables going into income. That's something you would want to investigate, right? Because maybe things are not getting posted properly. Are there payments sitting out there somewhere that haven't been applied to deposit? Things like that. So, you just want to make sure your income postings are consistent. Double check like um, accounts such as office supplies, um, computers, those kinds of things. Kind of like what we looked at on those assets. Let's look on this side also, making sure there's nothing that has been um, categorized as an expense that really should be capitalized. Again, what is your threshold number? Do we have um, an Office Max expense in here for $5,000? Was it one thing? Was it 10 things? Something to investigate. Review anything that's sitting in the for uncategorized, miscellaneous, suspense, and reclassify them. Let's keep it clean, right? Sometimes suspense has to be there for a little bit of time, and that's okay. But if you really want to have a good close, you want the information, you want it clean. Oh, by the way, I didn't put this in the slide, but just as another um, suggestion, you might want to look at vendors. Run a vendor report and make sure that vendor names appear. It's easy, especially in if you're using the bank feed, to miss adding a payee, and that can become problematic at the year-end when you're doing 1099s. So, make sure the vendors are there too. Um, another thing that I see often, verify payroll. Click on the payroll, like wages expense, for example, and make sure that the entries that are making up that wage expense are true gross wages and not like a net check sitting in there. So, there's certainly other things you can look at. These are, this is gen, some of the general ones I like to focus on because they're, they frequently have errors.
Okay, last, let's go ahead and make some reports. At a minimum, I recommend a balance sheet, profit and loss, statement of cash flows, right? Your basic reports. Um, if you're on accrual, make sure you got your receivables, uh, your payables. Any of those other reports that we talked about, like those zero reports, like your deposits or employee advance reports that we generated through the reconciliation process. Let's add those too, right? That's, that's why we do it, and it's helpful. And any other custom reports, maybe you do some job costing, for example, or just have some others. Go ahead and include that in your monthly package. You got it all together. If you, if there's anything that's unusual, you had to run differently, make some notations, right? And congratulations, you are now ready to dive into deeper financial analysis, look at ratios, all that fun stuff. Now you, but this gives you your package.
The final thing, don't forget to go in and set a closing date. We don't want anybody to come in after the fact and start changing things. So, now that everything's nice and clean and tidy, let's go ahead and set a closing date so you can ensure the data stays clean and tidy.
Okay guys, that's the presentation. I hope you have found it um, helpful. It's been my pleasure to present. Thank you very much. [Music]