What is month-end bookkeeping?

The thing about accounting software is that it can seem you’re up to date but really, your books can be months behind. 

So, a current-looking bank feed can make it seem as though the work is done.

But until all the month’s transactions have been recorded correctly, accounts reconciled and the records reviewed, your reports probably aren’t going to give you a real picture of where your business stands financially.

Month-end bookkeeping is the work that turns all that downloaded activity into completed books and useful financial reports. Here’s what that process usually looks like for a small service business.

What is month-end bookkeeping?

Month-end bookkeeping is the process of bringing a business’s books up to date through the end of a particular month. 

If your books are current through July 31, that means that the financial activity up to that date has been recorded and categorized, the relevant accounts have been reconciled, and the records have been reviewed for missing information or errors. 

We can then run reports that reflect the business’s activity through July 31.

This is different from seeing recent transactions in your accounting software.

A bank feed may have downloaded yesterday’s transactions, but that does not mean those transactions have been properly recorded or that the accounts have been reconciled.

Your bank feed can be current while your bookkeeping is still several months behind.

Month-end bookkeeping can look different for different businesses. The work depends on how the business operates, which accounts and payment methods it uses and what happened during the month.

For many Canadian small service businesses, month-end bookkeeping can include things like recording the month’s activity, reconciling the applicable accounts, resolving questions and reviewing the books before preparing the monthly reports.

What’s often included in month-end bookkeeping

The exact work depends on the business, but month-end bookkeeping usually follows the same basic order.

The information is collected, the transactions are recorded, the accounts are reconciled and the books are reviewed before the monthly reports are prepared.

Collect the month’s financial information

Your bookkeeper first needs the records that show what happened during the month.

These may include your business’s bank and credit card statements, receipts, invoices, payment-processor reports and loan statements.

Your bookkeeper might ask you follow-up questions that only you as the owner can answer.

For example, your records may include a transaction description such as “E-transfer.” So while the record might show how money moved, your bookkeeper will need to know who received the transfer and what it was for. 

Record and categorize the transactions

Each transaction must be recorded in the books and assigned to the right account.

So things like client payments must be recorded as sales, with GST/HST separated where applicable, or applied to invoices and business purchases must be categorized based on what the business bought. 

Also, transactions downloaded through a bank feed still need to be reviewed. Your accounting software may suggest a category or match, but that suggestion isn’t proof that the transaction has been recorded correctly.

Reconcile the accounts

Reconciliation means comparing the books with an outside record, such as a bank or credit card statement.

Your bookkeeper will compare the transactions and balances in the books with the statement and account for any outstanding transactions or other differences. 

Any difference must be explained. It could come from a missing transaction, a duplicate, an incorrect amount or a payment that had not cleared by the statement date.

Bank accounts and credit cards are common monthly reconciliations. Depending on your business, payment processors, loans and other accounts might also need to be reconciled.

Review the books and make corrections

An account can reconcile and still contain mistakes. For example, a transaction might have been recorded for the correct amount but assigned to the wrong category.

Your bookkeeper will review your accounts for anything that looks missing, duplicated, inconsistent or incorrectly recorded.

Ways they do this can include checking unusual balances, transactions placed in the wrong month and amounts that do not agree with the supporting records.

Record any necessary month-end adjustments

Some activity can’t be recorded correctly from a bank transaction alone.

For example, a loan payment might need to be divided between the amount that reduced the loan and the interest expense.

Other adjustments could include accounting for payment-processing activity, prepaid expenses, sales tax or assets. Also, the entries needed depend on the business and its accounting method. 

Prepare the monthly reports

Once the month’s activity has been recorded, reconciled and reviewed, your bookkeeper can prepare the monthly financial reports.

Reports typically include a profit and loss statement showing income and expenses for the month and a balance sheet showing the business’s assets, liabilities and equity at the month-end date.

Your bookkeeper can provide a clear “current through” date so you know how far the bookkeeping has been completed.

Why is month-end bookkeeping important?

Current books let you see your business’s income and expenses together. A busy sales month may look great, but the profit and loss statement will show whether the business earned a profit after the month’s income and expenses are recorded. 

Completing your books monthly also helps you catch problems while the activity is still fresh in your mind. 

It’s definitely easier to remember why you spent $67 at Gwartzman's for your illustration studio when it happened a couple of weeks ago rather than several months ago.

Month-end bookkeeping also supports GST/HST return preparation and makes the entire year-end process so much more manageable.

Instead of sorting out an entire year of messy receipts and statements at once, your tax accountant will love you when you hand them a nice and tidy and organized set of records that have been maintained, reconciled and reviewed throughout the year.

How long does month-end bookkeeping take?

Month-end bookkeeping happens after the month ends and the necessary records become available. How long it takes depends on how many transactions took place and how complex they are. 

Other things that can affect how long it can take are when statements are issued and whether your bookkeeper has all the information they need to start. Missing receipts, unknown transactions, unavailable payment-processor reports and unanswered questions can delay completion. 

Is month-end bookkeeping the same as closing the books?

The terms are sometimes used interchangeably, but they don’t always describe the same process.

For a small service business, month-end bookkeeping usually means completing the bookkeeping through the end of the month so current financial reports can be prepared. People may casually refer to this as “closing the month.”

Completing a month also doesn’t usually mean that the income and expense accounts are reset to zero. Those temporary accounts generally continue accumulating activity throughout the fiscal year. After year-end, the accounting system carries the annual result into equity, whether automatically or through formal closing entries. 

Accounting software may allow changes to an earlier period to be restricted, but locking a period is different from completing the bookkeeping for that month.

What month-end bookkeeping looks like when you work with me

Each month, you’ll send new records that aren’t already available through your accounting software. If there’s anything that needs clarifying, I’ll ask you about it. I strive to keep those questions together in one organized list so you are not receiving separate messages every time something needs clarification.

I then do things like categorize the transactions, reconcile the accounts included in your package and review the books for missing, duplicated or incorrectly recorded activity. 

Once the month is complete, you receive a profit and loss statement, balance sheet and month-end completion summary. Your reports will have a clear current-through date, so you know exactly how far the bookkeeping has been completed and whether anything remains outstanding.

I also prepare the applicable GST/HST return working papers and maintain the records throughout the year for the year-end package you hand over to your accountant. Monthly bookkeeping means a predictable monthly process so you can avoid the stress that comes with trying to play catch-up at tax time.

Turn “I think my books are current” into “I know they are”

Keep your books current with a fixed-price monthly bookkeeping package—month to month, cancel any time before your next billing date.