To keep your business on track and to keep correct financial records, you must prepare a balance sheet by month. This monthly financial statement needs to summarise your company’s equity, debt, and assets. You can understand your financial situation better at any moment with its aid. Along the way, we’ll point out essential components and recommended practices as we lead you through developing a balance sheet summary.
Understanding The Balance Sheet
A balance sheet at any point shows a company’s assets, liabilities, and shareholder equity. The fundamental accounting recipe this follows is Assets = Liabilities + Equity. Be sure to update the statistics regularly to reflect the most current financial facts when generating a balance sheet by month.
Benefits Of A Monthly Balance Sheet
Among the many advantages of keeping a monthly balance sheet are:
- Financial Monitoring: Regular updates help find cash problems early on.
- Decision-Making: Having up-to-date financial data helps you make intelligent business choices.
- Compliance: Supports following rules and laws in the business world.
Gathering Financial Data
Find all the critical financial information you need to make a balance sheet by month. Among these are:
- Bank Statements: It is essential to keep track of all activities.
- Invoices and Receipts: Gather all records of sales and purchases.
- Loan Documents: Include any loans that are still overdue and their terms.
- Asset Records: List all your assets, such as land, tools, and stock.
Organising Financial Data
Once you have all your financial information, put it into groups. These must match the balance sheet’s parts showing assets, debts, and ownership.
Assets:
Your business’s assets are all the things it owns that are worth something. Possessing current assets and non-current assets are two common ways to group them.
- Current assets include cash, inventory, and bills payable.
- Property, tools, and long-term investments are examples of non-current assets.
Liabilities:
Companies have liabilities when they owe money to other people. There are also ongoing liabilities and non-current liabilities.
- Accounts owing, short-term loans, and taxes due are examples of current liabilities.
- Long-term debt and deferred tax liabilities are examples of non-current liabilities.
Equity:
The business owners owe equity after paying off all debts. What’s in it:
- Value of common stock: Number of shares given.
- Holding Earnings: Profits put back into the business.
Preparing The Monthly Balance Sheet
You can learn how to prepare a monthly balance sheet after you get your financial information in order. Do these things:
- List Assets: Start with current assets and then move on to non-current assets. Add them up at the bottom.
- List Liabilities: Begin with recent debts and then move on to long-term debts. Add them up at the bottom.
- Calculate Equity: Take the sum of the equity accounts and put it in the equity area.
Check that the assets’ total value equals the total value of the debts and the property. This amount shows that your banking information is correct.
Reviewing And Adjusting Entries
Check all the entries to make sure they are correct after making the balance sheet by month. Check the financial information to see if there are any mistakes or omissions. Make the appropriate changes to fix any mistakes. This step is crucial to ensure that the balance sheet shows the actual financial state of your business.
Using Accounting Software
With accounting tools, making a monthly balance sheet is easier. These tools collect, organise, and calculate data automatically, which lowers the chance of making mistakes. QuickBooks and Xero are two popular accounting software choices.
Example Of A Monthly Balance Sheet
An easy way to see what a balance sheet by month might look like is below:
ABC Company
Balance Sheet
As of [Month, Year]
Assets
Current Assets
- Cash: $10,000
- Accounts Receivable: $5,000
- Inventory: $7,000
- Total Current Assets: $22,000
Non-Current Assets
- Property: $50,000
- Equipment: $15,000
- Total Non-Current Assets: $65,000
Total Assets: $87,000
Liabilities
Current Liabilities
- Accounts Payable: $3,000
- Short-Term Loans: $2,000
- Total Current Liabilities: $5,000
Non-Current Liabilities
- Long-Term Debt: $20,000
- Total Non-Current Liabilities: $20,000
Total Liabilities: $25,000
Equity
- Common Stock: $40,000
- Retained Earnings: $22,000
- Total Equity: $62,000
Total Liabilities and Equity: $87,000
Tips For Maintaining A Monthly Balance Sheet
- Consistency: Ensure that the way you enter data is always the same to keep it accurate.
- Regular Updates: Ensure the balance sheet has the most up-to-date financial information every month.
- Reconcile Accounts: Regularly compare your bank accounts and other financial documents to find any differences.
- Use Technology: Accounting tools make a balance sheet easier and more automated.
Common Mistakes To Avoid
- Incorrect Data Entry: To avoid mistakes, check your data twice.
- Ignoring Reconciliation: Reconcile your accounts regularly to find and fix any mistakes.
- Overlooking Non-Current Assets and Liabilities: Include all long-term debts and investments.
Importance Of Consistency
It is essential to be consistent in how you report your finances. Consistency means using the same rules and methods every month when making a monthly balance sheet. It’s easier to compare financial info over time when it’s consistent. This makes it easier to spot patterns and make intelligent choices.
Leveraging Financial Ratios
You can also use a monthly balance sheet to determine critical financial statistics. These numbers inform you about how well your business is doing and its finances are healthy. Important numbers are:
- Current Ratio: Current Assets / Current Liabilities. It shows how flexible the money is and how well it can cover short-term commitments.
- Debt-to-Equity Ratio: Total Liabilities / Total Equity. It checks how much debt and danger the business has.
- Return on Equity (ROE): Net Income / Shareholders’ Equity. It sorts profits by how much stock they have.
Integrating Balance Sheet Data With Other Financial Statements
Add the monthly balance sheet to other financial records, such as the income and cash flow statements, to get a complete picture of your business’s financial health. This combination gives you the state of your business and helps you plan for the future.
Example Of Adjusting Entries
To make sure that your monthly balance sheet shows correct and up-to-date financial information, you need to make adjusting notes. For example, you would need to adjust entry to account for costs you have racked up but have not yet entered. Similarly, adjusting entries will ensure that any costs paid in advance and that need to be spread out over time are correctly shown on the balance sheet.
Automating Balance Sheet Preparation
Automation tools can make making a monthly balance sheet much easier and take less time. These tools can quickly get information from different sources, do math, and make financial accounts. Automation not only makes things more accurate, but it also makes it possible to report finances more quickly.
Also Read: How to Pay Vendors Directly with Credit Cards?
Conclusion
A balance sheet by month is an essential thing for every business to do. It gives you a clear picture of how your money is doing. It also helps people make better decisions and handle their money better. By following the steps in this guide, you can make a monthly balance sheet that is correct and up-to-date, which will help your business grow.
FAQs
Why does my business need a balance sheet?
A balance sheet shows your company’s assets, debts, and stock, giving you a quick look at its financial health. It is necessary for making intelligent decisions and planning your finances.
How often should I make a balance sheet?
Making a monthly balance sheet helps ensure the financial information is correct and current. It helps people better handle their money and spot possible problems early on.
What are the most essential parts of a balance sheet?
Assets (current and non-current), liabilities (current and non-current), and owners’ wealth are the most essential parts. These show how much money the company had at a certain point in time.
Can accounting tools help me make a balance sheet?
Yes, accounting software collects data and does calculations automatically, which cuts down on mistakes and saves time. They make it easy to keep a correct monthly balance sheet.