Are you a busy business owner who’d like a reliable game plan for tackling your bookkeeping each month?
If so, this simple six step workflow can help you to get your bookkeeping running smoothly month after month.
Step One: Record all transactions
This is the first step in the bookkeeping cycle, and if you use QuickBooks Online, it refers to getting every financial event that has occurred during the month into QBO.
During this step, you’ll enter the business’ expenses and income manually or categorize those transactions as they come in through the bank feeds.
If your account has been set up properly, you should be able to add each transaction to QBO that occurred during the month via your bank feeds. If each checking, savings, credit card account, etc. associated with your business is connected to your QBO account, you’ll categorize each transaction by working through each account’s bank feed in the banking center in QBO.
At other times, it may be helpful to enter an expense manually.
For instance, say you withdrew $500 in cash from your main business checking account. You used $250 to pay for cleaning services, and you used the remaining $250 to pay a subcontractor.
It could be best to enter those events manually so that when the $500 transaction pops up in your bank feed, you’re able to match it to those two separate expenses, therefore capturing both events accurately.
Before moving onto the next step, it’s best to make sure that all transactions for the month have been entered into QBO.
You can do this by going to each account’s bank feed, filtering by the previous month (or whatever period you’re working on), and making sure that the bank feeds are completely clear.
Warning: This will only show you whether or not bank transactions for accounts connected to QBO have been entered into the software. If personal contributions were made to the business in the form of purchasing materials or gas/fuel with personal funds, for example, this would not show up in the bank feed.
Step Two: Reconcile all accounts
In this step, you’ll make sure that your accounts match your bank and credit card statements.
Once you’ve received your statements, typically once a month, you’ll be able to work on this step.
If everything has been entered correctly into QBO & it therefore matches your statements, you’ll know that your accounts are balanced and accurate.
Reconciliations are not limited to bank and credit card accounts. If you use vendor accounts or you lease any vehicles for the business, it’s a good idea to be sure that the balance in QBO matches the balance of any statements that you receive.
Step three: Review your QBO account
This is another way to check for the accuracy of your bookkeeping records.
To begin your review, you could go through your Profit & Loss report and Balance Sheet to review the activity that happened in each account during the last month. It’s also a good idea to review any outstanding undeposited funds and uncashed checks.
Has everything been categorized correctly?
Are there any suspicious negatives on your statements?
Are there any outstanding checks or undeposited funds that haven’t cleared the bank yet?
These are just a few questions that are helpful to consider when reviewing your bookkeeping for the month, but putting together an end of the month review checklist to use each month could be extremely helpful.
Don’t skip this step!
This is an important step to catch anything odd or incorrect that may have happened, and it’s a good idea especially if you have other users on your QBO account (for instance, if you have an office manager who collects payments and enters them into QBO, doing a check can ensure that the payments are being recorded correctly.)
If you find anything out of place during this step, make sure to correct it before moving onto the next step.
Step four: Close the books
After recording, reconciling, and reviewing everything for accuracy, you can close your books for the month.
This step prevents any unwanted changes to past transactions. It also prevents any changes that could affect your financial statements, which is especially important when you’re required to file any monthly or quarterly taxes, and equally important when it comes to filing a tax return.
It’s not a permanent event. If necessary, you can “open” the books again to make any needed changes, but you can also make a correction by using the proper accounting method to do so, which typically wouldn’t involve making any edits to a past event.
Step five: Analyze your statements
Now, it’s time for the fun part: analyzing your business’ performance.
During this step, it’s best to review your business’ Profit & Loss report, Balance Sheet, & Statement of Cash Flows.
If you invoice your customers and/or enter bills into QBO, it’d also be helpful to review your accounts receivable aging summary and accounts payable aging summary.
And if you job cost your projects, this is the time to review how profitable each project was.
Ultimately, you should try to determine if the business is profitable, if you have any expense leaks, if cash is entering into the business primarily from the services that you provide, if the company is holding onto enough cash to power through downtimes, etc.
This step shouldn’t be skipped because your analysis can help you to make important decisions moving forward.
Step six: Action
Do you have employees?
Monthly reporting requirements?
Any bills that aren’t on autopay?
If so, this is the step that you’ll take care of those tasks.
While it’s not a bookkeeping step per-se, it’s so closely related to monthly bookkeeping and often a service performed for bookkeeping clients, that I wanted to be sure to include it in this post.
The tasks in this step will have firm deadlines, so I find it best to keep a spreadsheet of the due dates for each action step that needs to be completed during the month.
An additional task that may be applicable for your business is to contact any customers with an outstanding balance on their account. It’s typically best to do this on a regular basis to avoid open balances from turning into bad debts and to maintain a good cash flow.
The Bottom Line
If you’re in charge of keeping your bookkeeping up-to-date, using a workflow that you can follow like clockwork month after month will greatly help you!
While your particular workflow may include additional steps, this can be a good workflow to get you started.
So, give it a try! And if you enjoyed this article, feel free to share it with someone it could help!
Disclaimer: This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Prepped Books assumes no liability for actions taken in reliance upon the information contained herein.