Do you prepare for month end by doing these tasks daily?
It’s been a long, hard month, and it’s time to close your books and prepare your financial statements. In an attempt to gather the big picture of your business, you find yourself combing through every number and percentage you see. Here’s a cheat sheet containing five steps to check off your list at the end of each month to ensure optimal accuracy in your financial statements.
In preparation for end-of-the-month accounting make sure you do the following daily:
One of the most important items to be recorded each month is your sales. As you may know, with restaurant sales, it is vital to record a daily sales journal entry. You'd be surprised how many sales you have coming in. Procrastinating could result in two things: late nights playing catch-up at the end of the month or missing sales altogether. Unless you want unaccounted for negatives popping up in your books, I advise you stay on top of recording your sales, lest you get buried underneath them.With profit margins being so tight in the restaurant industry, you do not want to let your bookkeeping slide.
Adjust for Inventory
Adjusting for inventory is at the top of the list of important things to consider. We all know this is not necessarily one of the reasons you dove head first into this business because it can be a little painful, right? Especially since we all know inventory is directly related to cost of goods sold, which in turn, is directly related to your net profit. Some restaurants will physically count their inventory, which is a great idea, and others may rely on an inventory management system. Either way, you’ll need to adjust for cost of goods sold depending on the changes in your inventory. If, for instance, your inventory falls by $8,000, then you should adjust this by increasing your cost of goods sold and decreasing your inventory. Your balance sheet exists to do just that—balance.
Check for Missing Credits or Payments
The last thing that you, as a business owner, operator, or manager, want to do is spend your valuable time swimming through numbers and making decisions on what could be false figures. Invoices and credits will eventually surface, and we all know big invoices can cause drastic swings in your gross profit and net profit margin. You may not need to hunt down every single invoice, but you should talk to your vendors and be certain there are no missed confirmations. To avoid all this together, you could start the implementation of software as a service to track every single invoice right after you place an order, or even if you have changed that order. Some apps also records your order history so you can always go back to retrieve any missing links in your accounting statements.
Factor in Accruals
An accrual of an expense means the payment is made after the period in which the expense has occurred. A common example of this is your December electricity bill in which the payment will be made in January, but the usage was all throughout the month of December. This concept will become a bit more complicated once you accrue for items such as payroll. For a restaurant owner, it would be wise to make entries for items occurring during the period that you have yet to be billed for, but the expense still applies to multiple periods. A great goal is to account for estimated expenses you have incurred so you have an honest and true picture of your net profit for the month.
Allow Deferrals for Future Statements
An accrual occurs before a payment or receipt, while a deferral occurs after a payment or receipt. A deferral is considered a prepayment of an expense or revenue. It is not immediately recognized on the income statement because it is prepaid. As a result, the expense or revenue is deferred to a balance sheet account that will make its appearance later on the income statement. A common example of this can be illustrated with a company whose accounting year ends on December 31. On the first of December, let’s say that this company pays a six-month insurance premium of $10,000.
One-sixth of that ($1,666.67) will appear in the December income statement while the remaining will be deferred and reported as an asset in the prepaid insurance account on the December 31 balance sheet. Be on wide alert because these deferrals must be recorded appropriately in order to prove maximum accuracy in your statements.
Accounting can be one of the more complicated languages in the realm of business, and there is a good reason for that, as it is very valuable. It pulls together a great deal of information and insight for you as a restaurant business owner and operator. Your accounting reports drive your business decisions. If you feel you have been making poor decisions in the past, you may want to take a look at your accounting procedures and numbers to see if there are any errors within them orany trends you may have overlooked in the past that can help you make decisions moving forward.